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CUNA projects premium at 6-10 bp this year

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WASHINGTON (7/2/10)—The Credit Union National Association (CUNA) released a white paper Thursday called “Estimating the 2010 NCUSIF Share Insurance Premium,” and it predicts that the National Credit Union Share Insurance Fund (NCUSIF)premium expected to be announced this fall will be in the range of six to 10 basis points of insured shares. That is well within the lower end of the five-25 basis point range projected by the National Credit Union Administration (NCUA) last year, points out CUNA Chief Economist Bill Hampel, the author of the white paper. The fall premium will follow the NCUA’s recently announced assessment of 13.4 basis points of insured shares for Corporate Stabilization, which was in line with expectations. The size of that assessment Hampel notes, suggest neither an increase nor a decrease in the latest estimate of ultimate cost to credit unions of the Corporate Stabilization--a figure whose total will not be known for at least a few more years. Hampel’s fall premium projection assumes that an NCUSIF equity ratio of 1.25% of insured shares would be reasonable at that time, “given the current and expected economic climate, credit unions’ financial condition, and the outlook for additional insurance losses over the coming year.” With the NCUSIF equity ratio at 1.22% as of the most recent reading in May, Hampel says that if current trends continue, by the time the premium is announced the fund’s equity ratio will have declined to 1.19%. “Even with considerable additional insurance losses in the next few months,” Hampel says, “it is highly unlikely that the fund will fall below 1.15% by the time the premium is announced.” That would set the range at Hampel’s predicted six to 10 basis points. Looking ahead to next year, if actual losses from failed credit unions are close to expectations, there will not be a need for much of a premium in 2011, leaving only another Corporate Stabilization assessment of slightly less than 15 basis points. For more, use the resource link below.

NCUA files notice for possible U.S. Central claims

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ALEXANDRIA, Va. (7/2/10)--The National Credit Union Administration (NCUA) announced Thursday it has filed a "notice of claim" with Travelers Casualty & Surety Co. to "preserve NCUA’s right to the full amount of coverage provided under U.S. Central’s Directors and Officers Liability policy." The NCUA announcement noted that there was a June 30 deadline to file the notice of the claim with U.S. Central's liability insurer in order to preserve the agency’s right to seek recoveries under the policy. The procedural move does not mean the agency will necessarily pursue action against individuals. The agency acknowledged the filing is a preliminary step. "NCUA will take the time necessary to complete its investigation and decide at a later date whether or not to initiate civil litigation against any individual directors or officers," the agency release said. Individual notices, called "demand letters," were sent by the NCUA to 18 former U.S. Central directors and officers. The former board included now-incoming Credit Union National Association (CUNA) President/CEO Bill Cheney (then CEO of the California/Nevada Credit Union Leagues), CUNA Chief Operating Officer-Madison John Franklin, and Missouri Credit Union Association President Roshara Holub. "I am confident the record will show that, throughout Bill Cheney's service on the board of U.S. Central, as well as throughout the tenure of John Franklin and Rosie Holub, they took their duties very seriously and participated in meetings of the board out of a dedication to the best interests of the corporate credit union’s members," noted CUNA President Dan Mica. Cheney and Holub served on the board in their capacity as representatives of the American Association of Credit Union Leagues (AACUL) and Franklin as a representative of CUNA. The NCUA Inspector General also is required by law to conduct an independent Material Loss Review of the circumstances surrounding the losses at U.S. Central. The review is being done to determine the causes of U.S. Central’s losses absorbed by NCUA’s Corporate Stabilization Fund; and assess NCUA’s supervision of U.S. Central. A full report will be issued by the Inspector General when the review is complete. U.S. Central was placed under conservatorship on March 23, 2009.

Inside Washington (07/01/2010)

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* WASHINGTON (7/2/10)--The conference committee of the regulatory reform bill Wednesday approved a 20 basis point hike for the Federal Deposit Insurance Corp.’s (FDIC) minimum ratio of reserves to insured deposits for banks (American Banker July 1). It also limited the higher premiums to banks with more than $10 billion in assets, triggering concerns from lawmakers and bankers. There are 69 banks with assets between $10 billion and $50 billion that will now have to pay higher premiums as a result of the bill. Some banks said they didn’t cause the financial crisis, but now are being required to pay for it. Gerald Howard Lipkin, chairman and president of Valley National Bank, Wayne, N.J., said his institution didn’t make subprime mortgages and didn’t securitize products that were bad for consumers or the nation. Others said the premiums made sense because without it, the FDIC would have had to raise the reserve ratio on its own. The new provision builds on the overall framework of changes to deposit insurance, which are intended to and will punish banks based on size, Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., told American Banker (July 1) ... * WASHINGTON (7/2/10)--The solutions needed to foster a healthy credit environment are complex and will take time to develop, according to Federal Reserve Board Gov. Elizabeth Duke in a speech Monday. Duke discussed the condition of the banking system, the regulatory environment, borrowers’ financial conditions and the economy’s strength. “There really is no single step that can be taken to quickly unclog all the lending markets,” she said. “Just as the causes for the decline in lending are multifaceted and complex and took time to evolve, the solutions will likely be equally difficult and will take time to fully work.” Returning to a normal lending environment, she said, will require constant collaboration and communication among policymakers, bankers, regulators, investors, consumers and businesses ...

NCUA announces CU liquidation merger

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ALEXANDRIA, Va. (7/2/10)--The National Credit Union Administration (NCUA) on Thursday allowed Virginia Beach, Va.-based Chartway FCU to assume some of the assets and liabilities of Saint George, Utah’s, Southwest Community FCU, which was liquidated on Wednesday. Southwest, which was founded in 1937, held just over $139 million in assets from 19,041 members at the time of its liquidation. In a Thursday release, the NCUA said that services to former Southwest members will not be interrupted and that $250,000 of each of those member accounts will remain covered by the National Credit Union Share Insurance Fund (NCUSIF). Chartway FCU holds $1.6 billion in assets from 191,000 members spread throughout the southeast, New Jersey, Ohio, Rhode Island and Utah through individual and shared locations. This is the 10th federally insured credit union liquidation in 2010. The NCUA also announced the merger of Marks, Miss.'s First Delta FCU and Shreveport (La.) FCU on Thursday. First Delta had been held in conservatorship by the NCUA since October and held $5.6 million in assets from 3,000 members at the time of its closure. Shreveport FCU currently holds $81.9 million in assets from 18,000 members in Mississippi and Louisiana. For the full NCUA releases, use the resource links.

Frank again emphasizes interchange exemption

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WASHINGTON (7/2/10)--Speaking before the House following the passage of financial regulatory reform legislation on Wednesday, Rep. Barney Frank (D-Mass.) repeated earlier assurances that credit unions and other small institutions would be exempted from the terms of recently added interchange fee legislation. Language in the interchange amendment would ensure that credit unions with under $10 billion in assets were held exempt from the Fed interchange changes. The interchange fee amendment, which was offered by Sen. Richard Durbin (D-Ill.) and ultimately agreed to by the recently completed regulatory reform conference committee, would allow the Federal Reserve to intervene in the setting of those fees. In his remarks, Frank said that credit unions and other small issuers would also continue to be permitted to issue their debit cards without any market penalties. Frank earlier this week expressed similar sentiments in a letter to his colleagues. Following that release, the Credit Union National Association (CUNA) said that Frank’s memo and more recent comments serve as excellent notice of the Congress's strong intent to exempt credit unions and community banks from the reaches of the provision that requires the Fed to set interchange fees. Mica said the memo gives the Fed strong guidance to follow in the event that the provision is enacted and the Fed is called upon to implement it. The regulatory reform package passed the House 237 to 182 on Wednesday, and it is not known when the Senate will take up the legislation. The Senate on Thursday was essentially closed for business in observance of Sen. Robert Byrd (D-W.Va.), who died earlier this week. CUNA continues to urge legislators to oppose the bill unless the interchange changes are removed from the final version of the bill.

Voluntary merger PandA guidance released by NCUA

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ALEXANDRIA, Va. (7/2/10)--The National Credit Union Administration (NCUA) on Thursday provided credit unions with background information on its purchase and assumption (P&A) and merger process and detailed the criteria that the agency uses to evaluate P&As and mergers. The NCUA letter to credit unions also covers the NCUA’s identification of merger and P&A partners as well as its “selection of an acquirer in the limited circumstances when NCUA is involved in making the choice.” The Credit Union National Association’s merger task force, which was led by Ohio Credit Union League President Paul Mercer, pushed for this guidance. According to the letter, the NCUA allows credit unions that are in a state of financial distress to undertake voluntary liquidation, involuntary liquidation, an involuntary liquidation followed by a P&A, or voluntary, unassisted supervisory, or assisted mergers. According to the NCUA, its role in voluntary mergers and unassisted supervisory mergers is mainly supervisory. However, the agency said it does take on a “much greater” role in assisted mergers and P&As. That role includes identifying and selecting the failing credit union’s “continuing credit union partner.” However, the NCUA adds, that role depends on several factors, including the potential loss to the National Credit Union Share Insurance Fund (NCUSIF), and the size, the financial stability, and the complexity of the acquired credit union. When deciding to approve, defer, or deny merger or P&A applications, the NCUA said it fully examines if the continuing credit union “can safely and soundly absorb the financial and operational impact that will result from the acquired credit union.” The NCUA also attempts to determine “whether the acquired credit union’s field of membership is compatible with the continuing credit union’s field of membership” and “whether the required membership notice sent by the acquired credit union properly informs the membership about the action.” For the full NCUA letter, use the resource link.