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Idaho's Risch adds voice to RBC concerns

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WASHINGTON (7/21/14)--Concerned that credit unions in his state will be facing increased capital requirements under the National Credit Union Administration's proposed risk-based capital (RBC) rule, Sen. James Risch (R-Idaho) became the latest lawmaker to submit a letter to the agency.

Risch's main concern is that the rule would be "unduly burdensome" to credit unions offering agricultural, small business and residential mortgage loans.

"Nationally, over 4,000 credit unions offer mortgage products that equate to a little over 6.5% of the entire mortgage market and enjoy loss rates well below the national average," he wrote. "The proposed rule could force credit unions to reduce the availability or affordability of loan products, restricting credit availability to their members, especially those that live in rural and low-income areas."

He went on to say that credit unions in Idaho would face increase capital requirements of approximately $44 million to remain well-capitalized. Several credit unions have suggested to Risch that the rule would prompt changes in the way they operate in order to maintain their capital buffers.

The NCUA concluded the last of three Listening Sessions Thursday, and RBC was the primary topic during every session. The agency said it will release wrap-up information on the sessions this week.

NCUA Chair Debbie Matz said during the sessions that "everything is on the table" as far as changes to the proposal, and has already indicated the 18-month implementation period spelled out in the proposal will change.

NCUA responds to McHenry request for RBC plan's rationale

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WASHINGTON (7/21/14)--Meeting a July 18 deadline set by Rep. Patrick McHenry (R-N.C.), the National Credit Union Administration Friday sent the chair of the House Financial Services subcommittee on oversight and investigations the clarifications he requested on the agency's risk-based capital (RBC) proposal.

In his request for more detail and an explanation of the agency's reasoning when drafting the RBC plan, McHenry wrote that as "a matter of fairness and transparency," the public deserves the opportunity to understand the logic behind this "far-reaching" proposal.

The NCUA's proposal would require credit unions to hold capital at 8% of risk-based assets in order to be considered adequately capitalized and 10.5% to be considered well-capitalized. This is in addition to the 6% and 7% leverage ratio requirements to be adequately and well-capitalized. The NCUA would also reserve the right to require credit unions on a case-by-case basis to hold additional capital. The proposal would apply to federally insured "natural person" credit unions with more than $50 million in assets.

The agency response, signed by Chair Debbie Matz, includes a Summary Table of Changes in Risk Weights that flows over six pages. It names almost 40 asset categories and states the current risk weights inferred under the NCUA's net worth rules, those of the Federal Deposit Insurance Corp.'s rule for banks,  and the risk weights under the NCUA's proposal.  At the end of each asset line is the agency's rationale for risk weighting under the proposal.

The NCUA chair's letter--six pages even without the risk-weight charts--said the rationale behind the RBC plan overall is to require that credit unions with a higher appetite risk hold enough capital to match that risk. That requirement, Matz wrote, is intended to protect the National Credit Union Share Insurance Fund and the whole credit union system from losses.

Other areas covered in Matz's letter include the agency's view of the cost to credit unions in terms of maintaining a capital buffer, a cost-benefit analysis of the proposal, and an explanation of the extent to which NCUA examiners would be empowered to assess and make capital recommendations to credit unions that might deviate from the new RBC standards.

The NCUA, through a series of three Listening Sessions and other public statements, has made it clear its RBC proposal will be revised before a final rule is approved. One point of change--highlighted as a concern by McHenry in his letter and by many others--is that an implementation period will be longer than the currently proposed 18 months.

The Credit Union National Association, also a proponent of that change, has thanked the NCUA for its willingness to address problems within the current proposal. However, CUNA has also expressed concerns that the changes the agency is contemplating be significant enough to bring the kind of improvements credit unions need in a final regulation.

New FinCEN SAR Stats tackles bitcoin risk

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WASHINGTON (7/21/14)--The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has released the inaugural SAR Stats technical bulletin, which examines data from Suspicious Activity Reports (SARs) filed by financial institutions. The bulletin is a successor publication to The SAR Activity Review: By the Numbers, which was issued once or twice a year starting in 2003.

The July issue features data from more than 1.3 million  SARs filed from March to December 2013. This data is used for law enforcement investigations and regulatory compliance at the state and federal levels, as part of a larger set of data pertaining to the Bank Secrecy Act (BSA).

"In the first six months of 2014 alone, over 350 unique agencies representing a broad cross section of federal, state, and local law enforcement, regulators, self-regulated organizations and state attorney offices operating nationwide accessed Bank Secrecy Act data via FinCEN's portal," the report reads. "Thousands of agents, analysts and investigative personnel from each of these entities have conducted in excess of one million queries against the database during that period."

The SAR Narrative Spotlight this month examines bitcoin, a type of virtual currency. Because bitcoin isn't overseen by a central authority, its anonymous nature makes possible illegal activities harder to detect.

The bulletin notes that while bitcoin is a virtual currency, financial institutions of all types can play a role in the life cycle of the purchase, use and sale of bitcoin for standard currencies.

"This may include depository institutions that house the accounts of virtual currency users, administrators and exchangers; additionally, depending on the transaction, correspondent banks may also be involved," the report reads. "Each institution has a unique vantage point from which to observe these transactions and identify suspicious activity."

This puts financial institutions in position to observe everything from bitcoin dealers who may be acting as unregistered money service businesses to funds stolen from compromised accounts that are being converted into bitcoin.

"Altogether, SARs filed by the various filing entities may provide valuable information related to accounts, ownership, and other identifying information, and bitcoin addresses associated with suspicious activity," the report reads.

The Credit Union National Administration will host a BSA conference Oct. 26-29 in Las Vegas. The annual conference will bring together BSA compliance officers, state and federal examiners, industry experts and regulators to discuss BSA compliance issues. 

Throughout the four days of session, FinCEN, the National Credit Union Administration and the Office of Foreign Assets Control will provide the latest information relevant to credit unions.

Use the resource links below for more information.

Cybersecurity stakes are high, says Lew

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NEW YORK (7/21/14)--Since 2011, more than 250 distributed denial of service attacks have been perpetrated against American banks and credit unions, according to Treasury Secretary Jacob Lew, who spoke at the Delivering Alpha Conference in New York last week. The frequency of such attacks, as well as the personal and economic stakes in keeping information secure, lead many financial institutions to spend as much as $250 million per year to strengthen cybersecurity measures.

"The consequences of cyber incidents are serious. When credit card data is stolen, it disturbs lives and damages consumer confidence. When trade secrets are robbed, it undercuts America's businesses and undermines U.S. competitiveness," Lew said. "Successful attacks on our financial system would compromise market confidence, jeopardize the integrity of data and pose a threat to financial stability."

Lew pointed to attacks on businesses such as Target, Neiman Marcus and Michael's, as well as a recent hack into the Associated Press Twitter account. Hackers falsely tweeted about an attack on the White House, causing the Dow Jones industrial average to fall by more than 100 points within three minutes.

"One back door is all a malicious actor needs to transmit large scale damage. Look at the Target incident. Criminals entered Target's systems by first infiltrating the network of one vendor, a refrigeration services company in Pittsburgh," he said. "Once inside, these intruders reached in-store computer networks, stole credit card information from millions of Americans, and sold that information on the black market."

The U.S. Treasury Department has created an information sharing and analysis unit, the Financial Sector Cyber Intelligence Group, designed to deliver actionable information financial institutions can use to protect themselves. The unit, made up of cyberexperts and security analysis, searches through law enforcement and intelligence reports to find relevant activity and issue information bulletins.

"If you are the leader of a business, you should know how strong your company's defenses are, you should know if there are response plans in place in case a significant security breach occurs, and you should be getting regular reports on cybersecurity threats and what your company is doing to respond to those threats," he said.

Credit Union Magazine featured an article on cybersecurity this month, written by Mike Flouton, vice president of product marketing for SilverSky, a CUNA Strategic Services alliance provider.

The article, titled "Five Cybersecurity Considerations for CUs," lays out several strategies for strengthening cybersecurity while getting the best value for money spent, including:
  • Looking for products and tools that cover multiple bases, such as a secure e-mail hosting provider that ensures compliance of any communications coming into or out of the organization;

  •  Finding a security provider who monitors threats and analyzes security alerts at all times; and

  • Collaborating with other business units to ensure best practices are being exercised and members are not being negatively affected by security procedures.
Use the resource link below to see the full article.

Video from June NCUA board meeting posted

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ALEXANDRIA, Va. (7/21/14)--The video recording of the National Credit Union Administration's June open board meeting is now available on its website. Videos of past board meetings also are available.

The meeting's agenda included five items:
  • A final rule reducing administrative burdens on credit unions that voluntarily liquidate;

  • A proposed rule expanding the powers of federal credit unions by allowing qualified institutions to securitize loans they have originated;

  • A proposed rule creating safe-harbor protection for certain securitized assets and protecting investors in cases of conservatorship or liquidation;

  • A proposed rule to assist underwater borrowers by allowing federally insured credit unions to refinance or modify real estate loans without obtaining an additional appraisal; and

  • A request by $355 million-asset Mainstreet CU, Lenexa, Kan., to convert to a federal charter.
Videos are generally posted several weeks after the meeting, due to required efforts to make them accessible for the hearing and visually impaired.

Use the resource link below to for videos of NCUA board meetings.