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CUNA Seeks Key Changes In NCUA Derivatives Proposal

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WASHINGTON (7/25/13)--The Credit Union National Association supports the National Credit Union Administration's efforts to solicit comments on a proposal to authorize derivatives to manage interest rate risk (IRR), but "does not support a number of the key provisions in the proposal," CUNA's Deputy General Counsel Mary Dunn said in a recent comment letter.

Comments on the proposal are due by July 29. CUNA's letter was developed under the auspices of the CUNA Examination and Supervision Subcommittee, with broad input from the credit union system.

CUNA's board earlier this month specifically reviewed this issue and all members of the board agreed one aspect under consideration in particular is of deep concern: Whether application and supervision fees should be imposed in order for credit unions to gain derivatives authority.

CUNA adamantly opposed this approach. "If derivatives reduce IRR, then NCUA should be encouraging credit unions to make appropriate use of permissible derivative options instead of retiring barriers to their use, such as fees to apply or for supervision," Dunn said.

"An à la carte fee structure sets a precedent that, if applied to other products and services, could stifle innovation for credit unions by imposing additional burdens and costs that are simply not justified," the CUNA letter emphasizes. "We feel that it is incumbent upon NCUA to develop the expertise necessary to enable it to properly regulate the evolving business model of a credit union without imposing extra changes," Dunn stated.

Other issues of concern addressed by Dunn in the comment letter include:
  • CUNA strongly opposes the imposition of application and/or supervision fees paid to the agency in order for credit unions to apply for or maintain derivatives programs or for any other financial activity that is directly authorized by statute or incidental to such authority;
  • CUNA does not support an asset eligibility threshold for derivatives participation;
  • CUNA is concerned that the investment limitations are too restrictive and urges the agency to provide for waivers and/or permit additional derivatives authority that would permit more flexibility for qualified credit unions;
  • Credit unions should be able to rely on external service providers to a greater extent than the proposal would permit to meet expertise and experience requirements;
  • An internal controls audit will be extremely costly for applicants and redundant since other audit requirements will provide NCUA with the information it needs to be assured a credit union will conduct its derivatives program in a safe and sound manner;
  • While all eligible credit unions should be permitted to engage in derivatives to hedge against interest rate risk, state chartered credit unions should not be subject to this rule. Rather, they should be permitted to engage in derivatives activities as authorized by state law implemented by state regulators; and
  • Credit unions that have participated in the pilot program on derivatives should be allowed to continue to do so, without having to reapply for derivatives authority.
Ultimately the comment letter states that the requirements in the rule will prove so costly to meet that most credit unions will choose not to seek derivatives authority because their benefits will not out weight the costs.

"This is a very important proposal, for many reasons. CUNA strongly supports the agency's efforts to move forward with a derivatives rule" but "at the same time we urge the agency to make the key revisions we are advocating in order to ensure the program will be as accessible as possible to mitigate IRR as broadly as possible," Dunn said.

NEW: NCUA Reduces 2013 Spending Plan

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ALEXANDRIA, Va. (UPDATED: 7/25/13, 11:14 a.m.  ET)--The National Credit Union Administration today approved changes to its 2013 operating budget, reducing that budget by $2.6 million. 

The $2.6 million savings will help offset costs of the 2014 budget, the NCUA said. 
The budget decrease brings the total 2013 budget to $248,811,780. This is the fourth mid-year budget decrease the agency has approved. 

The agency is also holding employee base salaries at their current levels, in voluntary compliance with the federal pay freeze. The agency had planned $9.1 million in 2013 salary and benefits.  

The Credit Union National Association has encouraged the agency to hold itself to the same standards of containing costs that credit unions are held to by their examiners--including on conditional pay increases for employees. 

"While credit unions are performing well financially, they are still working hard to contain costs, and many are being instructed by examiners to do even more to watch their expenses, including salary increases. Credit unions believe NCUA should be held at least to similar standards," CUNA President/CEO Bill Cheney said. 

In adopting its 2013 budget last fall, the agency noted the U.S. Congress had not yet approved a federal employee pay increase, and indicated that NCUA would not expend $9.1 million it had set aside for a conditional pay increase. Congress has still not approved a federal budget, and CUNA has urged NCUA to continue holding off this expenditure until that approval occurs. 

CUNA has also suggested the NCUA:
  • Consider providing even more information about its budget, such as detailing cost increases per employee for the fiscal year; and
  • Contain costs related its proposal on derivatives, which includes additional costs to credit unions of implementing the program of between $6 million and $11 million.

Senate Relief Bill Would Help CUs

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WASHINGTON (7/25/13)--Sens. Jon Tester (D-Mont.) and Jerry Moran (R-Kan.), both members of the Senate Banking Committee, are preparing to introduce a bill that would provide some regulatory relief for both community banks and credit unions.
Although the title of the Senate bill will be the same as similar legislation in the House, the Community Lending Enhancement and Regulatory Relief Act (CLEAR Act),  the bills are not identical.  The House bill was introduced this Spring by Rep. Blaine Luekemeyer (R-Mo.).
Nevertheless, like the Luetkemeyer bill, the Senate CLEAR Act would provide regulatory relief to credit unions and community banks, though focuses on banks.
The Senate bill includes four key provisions, two of which would benefit credit unions.

Those provisions would:
  • Eliminate an escrow requirement for high-priced, first lien mortgage loans; and
  • Provide a safe harbor from the Qualified Mortgage regulation to loans made by financial institutions under $10 billion and held in portfolio for more than three years.
The bill's other two provisions would provide:
  • An exemption for community banks from Section 404 of the Sarbanes Oxley Act with respect to the annual management assessment of internal controls requirement. Credit unions are not subject to Section 404; and
  • Direct the Federal Reserve Board to make certain changes to the Small Bank Holding Company Policy Statement on Assessment of Financial and Managerial Factors, which would not affect credit unions.
A bill introduced in June by House Financial Services Committee Vice Chairman Gary Miller (R-Calif.) (H.R. 2572) also would provide regulatory relief for credit unions and community banks. Miller's bill focuses on credit unions, and topics discussed within its section range from enhancements to National Credit Union Administration authority, to improved capital standards for credit unions, to a cost-benefit analysis of rules, past and present, and more.

FHA Commissioner Backs Senate Enhancements

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WASHINGTON (7/25/13)--The Federal Housing Administration Solvency Act of 2013 "addresses many longstanding legislative requests of the [FHA] in an evenhanded and forward-looking manner," FHA Commissioner Carol Galante said during a Wednesday Senate Banking Committee hearing.

Galante said the bill, which was introduced in draft form on July 15 by Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho), would give the U.S. Department of Housing and Urban Development "the tools to ensure a fiscally sound and vibrant FHA continues to support responsible homeownership and affordable housing for generations to come."

Such tools include strengthened underwriting standards, enhanced lender accountability measures, and reforms to the FHA's reverse mortgage program. (For more on the bill, see July 16 News Now story: House, Senate Keep Housing-GSE Reform As Hot Topic.)

While Galante supports the Senate FHA bill, she also identified topics that should be further discussed as the bill moves forward, including ensuring mortgage servicers are held accountable for their performance, and allowing FHA to shift servicing to a specialized sub-servicer if original servicers cannot fulfill their obligations under the contract of insurance. "This additional authority would minimize losses to the Fund by facilitating more effective loss mitigation, yielding better results for both borrowers and FHA," Galante said.

The committee should also work with the FHA to craft language that best facilitates recapitalization using the full range of options available, Galante added.

An increasingly complex mortgage market, aging FHA systems and infrastructure, a need for additional skills and expertise, and difficulty responding quickly to major risk issues as a result of contractual and statutory limitations are other issues that must be dealt with, Galante said.

For more on the hearing, use the resource link.

DDoS Group Says More FI Attacks Are Planned

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WASHINGTON D.C. (7/25/13)--A  group responsible for several distributed-denial-of-service (DDoS) attacks against financial institutions over the past year announced its plans for further attacks against financial institutions, in an online posting on July 23, according to 
Mike Smith, from Akamai Technologies, an online security provider, warns that with each new phase of the group's attack, it creates a new format that most targets are not expecting.  
Whether the attack focuses on a new target, a larger botnet,  or new technologies, the Izz ad-Din al-Qassam Cyber Fighters employ unforeseen tactics as a response to the heightened DDoS-mitigation strategies financial institutions have implemented.
Since the group's first DDoS campaign launched Sept. 18, each phase has lasted longer than the one before. There is no estimated time frame for how long the fourth phase of the attacks will last but it is projected to last longer than the eight weeks that phase three claimed, the article predicts.
"Financial institutions should continue to be aware of the ongoing DDoS threats, and follow regulations on Internet and data security, as well as Federal Financial Institutions Examination Council  guidance on Internet authentication," said Dennis Tsang, regulatory counsel for the Credit Union National Association. (See resource link for the guidance.)
CUNA also encourages credit unions to be aware of  the National Credit Union  Administration's Risk Alert (13-Risk-01), which identifies  appropriate policies and procedures in for guarding against DDoS attacks for credit unions.  (see the resource link.)

To mitigate effects from DDoS attacks, the NCUA recommends that credit unions:
  • Perform risk assessments to identify risks associated with DDoS attacks;
  • Ensure incident response programs include a DDoS attack scenario during testing and address activities before, during, and after such an attack; and
  • Perform ongoing third-party due diligence, in particular on Internet related providers, to identify risks and implement appropriate traffic management policies and controls.
For a more in-depth look at how credit unions can protect themselves, CUNA's Credit Union Magazine has featured an article, "Learn Strategies to Mitigate Cyberattacks,"  in its April issue (members only). 
Also, the CUNA Technology Council has posted a recording of its May webinar on "Mitigating and Responding to a Distributed Denial of Service (DDoS) Attack," which features speakers including CUNA BITS Task Force member Bill Podborny, chief security officer of Alliant CU.

For more information on DDoS, please visit the CUNA members-only webpage to access supplemental resources from BITS.               

Survey Gives CUNA High Marks As Trade Association

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WASHINGTON (7/25/13)--The Credit Union National Association was among the nine national trade associations--out of 50 ranked--that received highest grades in a new survey for being effective in representing their membership.

That new study by APCO Worldwide took a look at the best and worst performing industries across 15 characteristics common to trade associations.

APCO said its study surveyed 456 policy leaders in Washington, D.C., and analyzed their perceptions of what makes an association an effective public policy advocate in the eyes of its key audiences.

The 50 associations ranked by the policy makers were chosen for the survey "due to their prominence in key industries that influence considerable portions of the U.S. economy," APCO said.

PhRMA, the U.S. Chamber of Commerce and the U.S. Travel Association were at the pinnacle of APCO's top 10, short list.

PhRMA got top marks for lobbying, multilateral impact, local impact and membership mobilization. The Chamber got its high marks for coalition building and events. And U.S. Travel was ranked high for bipartisanship, maintaining their industry's reputation and media relations.

APCO is an independent, global communication, stakeholder engagement and business strategy firm.

PATH Act Approved By Committee 30-27

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WASHINGTON (7/25/13)--House Financial Services Committee members on Wednesday approved the "Protecting American Taxpayers and Homeowner (PATH) Act of 2013" (H.R. 2767) on a 30-27 vote that mainly split along party lines. The bill may now be considered by the full U.S. House.

Technical amendments were added to the original bill during the markup process, which began on Tuesday. Importantly for credit unions, the approved bill contains regulatory relief provisions strongly supported by the Credit Union National Association, including a provision to delay the mandatory implementation of all Dodd-Frank Act mortgage rules for an additional year.

The PATH Act also would: 
  • Phase out government-sponsored enterprises Fannie Mae and Freddie Mac within five years;
  • End the federal government guarantee and reduce government involvement in the housing finance system; and
  • Give consumers more choices in determining which mortgage product best suits their needs.