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Inside Washington (07/31/2009)

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* WASHINGTON (8/3/09)--Savings accounts that offer prizes could boost savings in low-income households, according to a Federal Deposit Insurance Corp. (FDIC) panel. FDIC Chairman Sheila Bair said prizes linked to savings accounts would match her goal of devising innovations to spark savings. However, she said the innovations should not lure current savers away from their traditional, interest-earning deposits (Dow Jones July 31). Prize-linked savings accounts would allow depositors to become eligible for winning prizes instead of earning interest when they deposit their money. At the panel’s meeting Thursday, Harvard professor Peter Tufano said a “no-lose” lottery ticket could be used to spur savings. An individual could buy the ticket and turn it in at any time to reclaim its full value. The lottery product could be framed as a savings product, he said ... * WASHINGTON (8/3/09)--Federal Housing Finance Agency (FHFA) Director James Lockhart does not recommend permitting the Federal Home Loan Banks (FHLB) to securitize mortgages. The banks can continue to use MPF Xtra and other programs for mortgage purchases instead, he said in a report to Congress. Securitization could be permitted after the future of Fannie Mae, Freddie Mac and the FHLB System is determined by FHFA, Treasury and the Department of Housing and Urban Development (American Banker July 31). The process should be completed in February, Lockhart said. Representatives from the 12 Home Loan banks said Lockhart’s decision, would restrain the program and limit what they can do with mortgage programs. Mortgages were once viewed as key to the FHLB system, but without being able to securitize, some banks--such as the Chicago FHLB--have stopped making purchases ... * WASHINGTON (8/3/09)--A House panel is planning to look into pay practices at banks receiving government bailout money. The House Oversight and Government Reform Committee will have a hearing in August with New York Attorney General Andrew Cuomo, attorney Kenneth Feinberg and Rep. Edolphus Towns (D-N.Y.), who chairs the panel. The hearing comes as Cuomo investigates the pay practices at banks that received money from the Troubled Asset Relief Program. Cuomo has found that compensation for bank employees has not correlated with their financial performance (American Banker July 31). Employees were paid well, even when the banks were bailed out, Cuomo said ...

CU comment sought on NCUSIF premium 1 deposit

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WASHINGTON (8/03/09)--The Credit Union National Association (CUNA) is seeking comments from credit unions regarding the National Credit Union Administration's (NCUA) proposed rule to clarify how credit unions that begin or cease participation in the National Credit Union Share Insurance Fund (NCUSIF) during a calendar year are impacted by deposits or assessments for replenishment of the fund. The proposed rule would fill gaps in current NCUSIF regulations for credit unions that convert to or terminate federal insurance of their deposits, as well as credit unions that merge with non-federally insured credit unions but wish to continue federal deposit insurance. The proposal would add specific language stating that the NCUSIF has the authority to use the 1% deposit if necessary to meet its expenses. The plan also distinguishes between premium assessments and assessments needed to replenish the 1% NCUSIF deposit. The proposed rule would not apply to Temporary Corporate Credit Union Stabilization Fund payments. "In the comment call, CUNA asks member credit unions to voice any concerns with the proposed treatment regarding the NCUSIF for credit unions entering and exiting the federal insurance system." Comments are due to CUNA by August 17. CUNA's examination and supervision subcommittee will review these comments, and will communicate these comments to the NCUA. For more information, use the link.

NCUA transfers 1.8B CLF funds to Treasury

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ALEXANDRIA, Va. (8/03/09)--The National Credit Union Administration has announced the transfer of the accounts holding $1.8 billion of the Central Liquidity Facility's (CLF’s) funds, which are currently held by U.S. Central Federal Credit Union, to the U.S. Treasury. The NCUA also announced that it is exploring "alternatives regarding the transfer of primary ownership of CLF stock from [U.S. Central] to other credit unions or groups of credit unions through the anticipated reforms to the corporate network." U.S. Central currently owns approximately 96 % of the CLF's stock and, eventually, natural-person credit unions may need to directly invest in CLF stock in order to have continued CLF access, which would effectively buy out U.S. Central's CLF stake. According to the NCUA, this change, which will invest the CLF funds in U.S. Treasury securities on behalf of the CLF, will not impact the CLF's ability to provide liquidity to credit unions. In a statement, the NCUA said that this move was “not based on a concern of diminished confidence in NCUA’s conservatorship efforts to restore U.S. Central to a financially strong operational status.” NCUA explained that this transfer resulted from the CLF's consultations with its auditor. Sources also indicated that the Treasury was in favor of this change. But for this transfer of the CLF's funds, the CLF and its auditors had determined that "GAAP accounting rules may require the funds invested in U.S. Central to be presented on CLF's financial statement as a contra equity account rather than an asset. This contra equity treatment would effectively result in CLF total member equity of zero….because CLF's borrowing authority is determined based on a multiple of its equity, this treatment would effectively reduce CLF's borrowing amount to zero." In other words, U.S. Central acting as both an investor in the CLF and as the agent holding the CLF's funds (including the cash resulting from its own investments in CLF stock) may have led to double counting assets. The Senate in September is scheduled to vote on allowing the CLF to extend until 2010 its full borrowing authority of around $40 billion. The Credit Union National Association (CUNA) is evaluating NCUA's analysis of the current situation involving the CLF. Senior CUNA staff were briefed by NCUA representatives on Friday morning about this transaction, and CUNA will be pursuing further dialogue on this issue with the agency. CUNA's Government Affairs Committee and its subcommittees are also expected to assess the implications of these changes to the CLF in the very near future. For the full NCUA release, use the link.

CUNA Exemption needed in House-passed exec comp bill

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WASHINGTON (8/3/09)--In a joint letter sent Friday to House Speaker Nancy Pelosi (D-Calif.), the Credit Union National Association (CUNA) and the National Association of Federal Credit Unions (NAFCU) said that while they “applaud” efforts to ensure that compensation structures do not encourage excessive risk-taking that can create systemic risk, credit unions should not be included in H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009. Portions of H.R. 3629, which passed the House with a 237-185 vote, would grant regulatory powers over compensation structures or incentive-based payment arrangements that are determined to encourage inappropriate risks by financial institutions that could threaten the safety and soundness of a given institution or, more broadly, harm the economy as a whole. The legislation also exempts financial institutions that do not have incentive-based payment arrangements from some compensation disclosures, and does not require the disclosure of salaries of individuals who work for a financial institution. Rep. Jeb Hensarling (R-Texas) in a Tuesday House Financial Services markup session added an amendment that would exempt financial institutions with under $1 billion in total assets from the terms of the bill. In the letter, CUNA and NAFCU stated that while this amendment “was a step in the right direction,” the trade associations “continue to believe” that “the structure,” rather than the size of credit unions, “is the reason why they should be exempted.” The NCUA also has rules aimed discouraging excessive risk taking in place. According to the letter, “including credit unions as covered institutions under Section 4 of the legislation” and forcing the National Credit Union Administration to regulate alongside “other regulators who supervise for-profit, stock-issuing entities does not seem to make for good policy.” “We believe it is critical that not-for-profit institutions be treated differently than for-profit entities in this legislation,” the letter added, saying that it is the “different motives” of for-profit entities that “can open the door for abuse.”

Matz confirmation swearing-in on the horizon

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WASHINGTON (8/3/09)—Deborah Matz's nomination to the National Credit Union Administration (NCUA) board was approved by unanimous consent last week by the Senate Banking Committee. The next step in the confirmation process requires the full Senate to vote its approval. Then the confirmed Matz is expected to be sworn in and designated by the Obama administration to fill the chairman's position. The House adjourned Friday for an August District Work Session, but the Senate remains in session this week.

NEW Matz nomination ready for confirmation

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WASHINGTON (7/31/09 UPDATED 9:10 a.m. ET)—Deborah Matz’s nomination to the National Credit Union Administration (NCUA) board was approved by unanimous consent last night by the Senate Banking Committee. The next step in the confirmation process requires the full Senate to vote its approval. Then the confirmed Matz is expected to be sworn in and designated by the Obama administration to fill the chairman’s position. The House adjourns for an August District Work Session this evening, but the Senate remains in session next week.