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Inside Washington (09/20/2010)

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* WASHINGTON (9/21/10)--Under the Dodd-Frank act, the Federal Deposit Insurance Corp. (FDIC) can set standards for how large financial institutions will wind down in the event of a failure. The FDIC is expected to release a rule soon that would implement the system. During a roundtable Aug. 31, bankers voiced their concerns about the rule, urging the FDIC to provide certainty about receiverships during a failure. They also said they didn’t want to be forced into drafting living wills that are too strict (American Banker Sept. 20). Meeting participants also discussed how much of a failed company the FDIC would need to place in a bridge firm, which the FDIC would continue operating to prevent the company’s failure from affecting other institutions. If another crisis hits, some observers said the agency may need to put more into a bridge firm than less. However, tighter regulations from the new law could make an institution’s failure more isolated and take some pressure off FDIC about systemic risks to other institutions ... * WASHINGTON (9/21/10)--The Securities and Exchange Commission (SEC) Friday proposed a rule that would lead to better disclosures in banks’ quarterly financial results and aim to prevent banks from entering into finance agreements to hide their financial position. Banks also would have to reveal their maximum and average assets, and period-end assets each quarter (American Banker Sept. 20). The proposal also could apply to nonfinancial firms. Some banks have been criticized for reducing their assets before the quarter end. An SEC review indicated that Citigroup, for instance, misclassified more than $9 billion in repo loans ...

HMDA report Growing reliance on FHA-backed loans

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WASHINGTON (9/21/10)--Data collected under the Home Mortgage Disclosure Act (HMDA)reflects a growing reliance on loans backed by the Fedearl Housing Administration (FHA) during the recent mortgage market difficulties. The FHA's share of first-lien loans increased to 37% in 2009, up from 26% in 2008 and 7% in 2007, the Federal Financial Institutions Examination Council (FFIEC) reported on Monday. The FFIEC released data covering mortgage-related “applications, originations, purchases of loans, denials, and other actions” at over 8,000 U.S. financial institutions. The data compile information on 15 million mortgage applications and 4.3 million loan purchases, as well as 210,000 pre-approval requests, and include “disclosure statements for each financial institution, aggregate data for each metropolitan statistical area (MSA), nationwide summary statistics regarding lending patterns, and Loan/Application Registers (LARs) for each financial institution, the FFIEC said. The HMDA data also include information on various types of loans, the property types of homes held under those loans, the location, and the sex, ethnicity, and income level of the homeowners. The report noted that the incidence of higher-priced lending for loan originations with applications taken before Oct. 1, 2009, was 5.7%. That same number decreased to 3.8% for loans originated after Oct. 1. The FFIEC has also compiled a similar report on private mortgage insurance (PMI) applications. Panelists at a recent Federal Reserve Board hearing on possible changes to its rules implementing HMDA discussed the possibility of bringing nondepository lenders under HMDA rules. Some members of the panel, which included Madison-Wis.-based UW CU Chief Credit Officer Mike Long, also stated that the asset size threshold for reporting loans under HMDA should be based on number of loans, instead of asset size, which is the current threshold. The potential inclusion of reverse mortgage loans under the HMDA reporting requirements was also discussed during the hearing. The panelists also said that financial institutions should be given 24 months to comply with any changes that are adopted.

CUNA working group describes next steps for corporate CUs

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WASHINGTON (9/21/10)--Whether today’s corporate credit union network can evolve to be the best provider of financial services to credit unions hinges on its ability to make "deep and far-reaching changes" needed to do so, according to a final report issued by the Credit Union National Association’s (CUNA’s) Corporate Credit Union Next Steps Working Group. And if it does not make the needed changes, credit unions will have a variety of options other than the corporates to meet their needs, which are detailed in the CUNA working group's report. Other factors that will affect the corporates’ ability to remake themselves include coming revisions to corporate credit union regulations from the National Credit Union Administration (NCUA), and the specifics of NCUA’s upcoming plan for dealing with corporates’ legacy assets. he NCUA board is expected to act on both issues Sept. 24. “If the necessary changes do not occur,” the Working Group concluded, “credit unions will have a variety of options other than corporates to meet their needs, although many credit unions will find these alternatives more costly and less service driven than they have experienced with corporates in the past.” The Next Steps Working Group was formed to further explore the recommendations issued in February 2010 by CUNA’s Corporate Credit Union Task Force. Both groups were chaired by Terry West, CEO of VyStar Credit Union, Jacksonville, Fla. The task force report called for a sharply revised corporate business model, with smaller balance sheets and greater focus on payments-related rather than investment services. The Next Steps Working Group had the mission of ensuring credit unions continue to have access to the services they have been relying on corporates to provide. “Without question, today’s corporate model will need to change,” West said. “Our working group’s report outlines the factors driving that change and the options available—through the corporates or otherwise—to ensure credit unions continue to have access to the critical investment, credit, payments and settlement services they need.” The Next Steps Working Group reviewed multiple sources of information and talked with numerous representatives from corporates and other providers of financial services. Its final report was presented to CUNA’s Governmental Affairs Committee in late August and received by the CUNA board at it Sept. 15 meeting in Madison, Wis. The group determined that corporates’ current business model will need to evolve due to the difficulty of attracting new capital from credit unions coupled with significant new capital requirements based on asset size. In this environment, corporates with small balance sheets, and therefore small capital requirements, are most likely to succeed. Specifically:
* Smaller corporates will need to arrange for the services previously offered in conjunction with US Central Federal Credit Union (now in conservatorship) by contracting with third parties, combining with other smaller corporates to provide these services or merging into larger corporates with the necessary infrastructure; and *The issue for larger corporates is to determine which has the best infrastructure to efficiently provide services.
“The responsibility for bringing about the necessary changes lies with three groups: the members of corporates, the boards of corporates and the management of corporates,” the Working Group stated. Based on its analysis, the CUNA working group concluded the current corporate system has the core elements to meet the needs of most credit unions, and that a system owned and controlled by credit unions is most likely best for the movement in the long run. “However, it is not certain that those resources will be trimmed down and rearranged adequately or quickly enough to meet the needs of credit unions,” the report added. “In the resolution of these issues, it is the interests of credit unions that are paramount, rather than the interests of the current corporate credit union structure.” Other elements of the Working Group’s report:
* Describe the services credit unions have sought from corporates in the past; * List some of the alternate providers of these services credit unions can turn to in the future; * Discuss the selection and due diligence process credit unions will need to use in selecting financial services providers; * Outline the current condition of corporate credit unions; and * Comment on the types of changes corporates will need to make.

Hearings highlight this week in Congress

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WASHINGTON (9/21/10)--As the U.S. House continues to near its recently announced Oct. 1 election-year recess target date, the Small Business Lending Fund Act remains one of many items on its docket. That bill was passed 61 to 38 by the U.S. Senate last week. While legislation that would lift the current credit union member business lending (MBL) cap to 27.5% of total assets was not added to the bill, the Credit Union National Association remains hopeful that MBL cap legislation could still come to the House floor as stand-alone legislation or as an amendment to a future bill. The House is expected to pass the small business legislation. Another priority for some members of the House this week will be a Friday Financial Services Committee hearing on "Executive Compensation Oversight after the Dodd-Frank Wall Street Reform and Consumer Protection Act." The Senate also will hold several hearings this week, including today's banking committee hearing on job and economic growth. Gov. Ed Rendell (D-Pa.), as well as U.S. Treasury officials Roy Kienitz and Alan Krueger, are among those scheduled to testify. A number of luminaries will also attend Wednesday's National Flood Insurance Plan (NFIP) hearing. Sens. Richard Durbin (D-Ill.) and Roger Wicker (R-Miss.) will testify alongside the Government Accountability Office's Orice Williams Brown. The NFIP is authorized through the end of this month, and legislation that would reauthorize the program until Sept. 30, 2015, add a Flood Insurance Advocate, and raise the maximum coverage limit passed the House in July. Other hearings that of interest to credit unions include a Thursday Senate Banking Committee hearing on the "Federal Housing Administration: Current Condition and Future Challenges" and a Wednesday Senate subcommittee hearing on S.3742, the "Data Security and Breach Notification Act of 2010." Data security has long been a hot topic on the Hill, and several data security bills worked their way through the House and Senate in 2005, 2006 and 2007, although lawmakers never completed debate on the issue. The data security debate was renewed last year, and while a pair of bills aimed at addressing data breach disclosure and personal data security passed out of Senate committee markups, the bills never saw full votes in neither the House nor the Senate.