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Bushs signature lifts CLF lending cap

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WASHINGTON (10/1/08)--President George W. Bush last night signed into law a government funding resolution that also contains a borrowing cap increase for the National Credit Union Administration's (NCUA's) Central Liquidity Facility (CLF) for Fiscal Year 2009. The increased borrowing ceiling was included in a continuing resolution (CR) to keep the government funded into 2009. The legislation was approved 78-12 by the Senate on Saturday and was passed 370-58 by the House on Wednesday. The CLF provision temporarily lifts an arbitrary $1.5 billion lending cap placed on the NCUA's liquidity facility. The increased cap would allow the CLF to lend up to approximately $41 billion to the Credit Union System. Credit Union National Association (CUNA) Vice President of Legislative Affairs Ryan Donovan said the higher lending cap has been sought by the NCUA in order to have an additional regulatory tool at their disposal, if needed, and CUNA has been “working very hard over the past week to make this happen."

FASB SEC underscore fair market accounting flexibility

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WASHINGTON (10/1/08)—The Federal Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC) yesterday provided clarity for U.S. entities--including credit unions--forced to record lower fair market values for some assets on their balance sheets. According to Scott Waite, chair of the Credit Union National Association’s (CUNA) Accounting Task Force, the current Fair Value Measurement (FAS 157) already provides for a hierarchy to determine a financial instrument’s price, but Tuesday’s FASB and SEC statement provides accounting guidance urged by many in the financial services industry, including CUNA. The highest, or first, level in assigning a value to an asset is the “observable market price in an orderly transaction between willing market participants,” said Waite, who also is senior vice president and chief financial officer at Patelco CU in San Francisco. Absent this condition, the next two levels can be used to determine the fair value price--one of those is cash flows. “If a price for a security is depressed because of a lack of interested buyers, but is still performing and paying interest, its cash flows generated can be used to adjust the price upward for accounting purposes,” he explained. Waite explained these aspects of applying fair value are contained in the standard issued last year, but today’s clarification by the SEC and FASB reinforces their existence and acceptable use. “In Tuesday’s inactive or illiquid markets, it’s difficult to rely on the first level of fair value measurement,” he said. For credit unions, this means some relief for many who hold mortgage-backed securities, which in today’s market have depressed prices, according to Waite. Assuming a drop in price has occurred, the difference an entity pays for a security and today’s market value is classified as an “unrealized investment loss”. The resulting financial transaction decreases equity on the balance sheets. “This not only seems alarming to some, but gives the false appearance that real investment losses might have to be ultimately realized through earnings,” said Waite. “The affect of this guidance will allow credit unions to revisit the fair value and potentially improve or increase their equity by reversing some of this negative effect,” said Waite. "However, if a credit union has already been using the illiquid or inactive market defense with their accountants, then some may see little change." "But for those who might just now be thinking of that strategy, I think they may just find some relief and an opportunity for some improvement," he added. Waite pointed out that to the degree that equity positions improve for financial institutions, they may gain more latitude--from regulators and rating agencies--and confidence in supplying more credit to borrowers. "That's where I see some potential for increase liquidity," he said.

Inside Washington (09/30/2008)

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* WASHINGTON (10/1/08)--For the first time in history, the Federal Deposit Insurance Corp. (FDIC) used the systemic risk exception to sell Wachovia’s assets to Citigroup (American Banker Sept. 30). The exception allowed the agency to protect all of Wachovia’s depositors while covering Citi’s cost if Wachovia’s losses on assets were more than $42 billion. The transaction is not expected to cost the FDIC anything--and the agency will receive $12 billion in preferred Citi stock. Citi will absorb $42 billion in losses from Wachovia ... * WASHINGTON (10/1/08)--Three firms--Citigroup Inc., JPMorgan Chase and Co., and Bank of America--are completing deals with three other banking operations in an effort to save them from failure. The firms will become larger after the deals are finished, which sparks concern among some observers. Wachovia’s sale to Citigroup would give Citigroup $2.9 trillion in assets; Washington Mutual’s sale to JPMorgan would give it $2.1 trillion in assets, and BofA’s acquisition of Merrill Lynch would give it $1.9 trillion in assets. The purchases are concentrating the banking system in the hands of fewer people, which creates risk, said Bill Longbrake, former Washington Mutual vice chairman and director at First Financial Northwest (American Banker Sept. 30). Risks could be avoided if the companies are diversified, said Robert Clarke, senior partner at Bracewell and Giuliani. The interest in the companies is also more vested because the government will be less likely to let them fail, added Douglas Lindy, a banking partner in regulatory practice at Allen and Overy ... * WASHINGTON (10/1/08)--A delegation of 18 individuals representing 13 Illinois credit unions spent two days in Washington, D.C., last week hiking Capitol Hill, according to the Illinois Credit Union League. The group’s legislative priorities included support for regulatory relief legislation, opposition to interchange fees and support for retention of credit unions’ tax exempt status. Rep. Jesse Jackson (D-Ill.), center, spoke to and met the group at Credit
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Union House. The group presented him with a plaque for sponsoring regulatory relief legislation. “This bill allows credit unions to better service members from all walks of life with modern, low-cost financial services and also promotes the economic growth and well-being of our communities,” Jackson said. “As financial cooperatives, the mission of credit unions is to serve their members, not to prey on people who are struggling in the current economic environment. [The legislation] keeps the self-help cooperative spirit of credit unions alive in my district and throughout the nation.” Hike the Hill participants also met with Brad McConnell, legislative assistant for financial services in Sen. Dick Durbin’s (D-Ill.) office. McConnell said Durbin was in favor of a provision raising the Central Liquidity Facility’s borrowing cap, which was recently approved in both the House and the Senate. The provision is part of a government funding resolution that awaits the president’s signature. The group also met with National Credit Union Administration (NCUA) Chairman Michael E. Fryzel; his new chief of staff, Sarah Vega; and NCUA board member Gigi Hyland. (Photo provided by the Illinois Credit Union League) ...

NCUA ad campaign focuses on share insurance

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ALEXANDRIA, Va. (10/1/08)--The National Credit Union Administration (NCUA) said yesterday it will embark on a national advertising campaign to ensure members know their money at federally-insured credit unions is backed by the full faith and credit of the U.S. Government. A media campaign featuring “Uncle Sam” will kick-off Thursday with advertisements in the USA Today and other major U.S. newspapers. The campaign’s message is “to assure credit union members and the general public that most credit union member accounts are federally insured,” said the agency.
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In addition, NCUA said it begins distributing this week to each federally-insured credit union three large lobby posters that feature “Uncle Sam” and accompanying text, “This Credit Union Is Federally Insured.” NCUA also said Chairman Michael Fryzel plans to assure credit union CEOs via video that federal insurance remains safe and secure. He will highlight the NCUA’s electronic Insurance Tool Kit, which is designed to help members understand their federal insurance protection. “Understandably, consumer confidence in our financial structures has been shaken by recent turmoil in the markets,” said Fryzel. “Federally insured credit unions remain a safe and sound alternative, and I will do everything in my power as chairman of the National Credit Union Administration to make certain that accurate and useful information about the National Credit Union Share Insurance Fund is available.” Fryzel called upon credit union volunteers and professionals to “do their part to help members understand how their credit union funds are federally insured.”

Post-merger net worth plan good with changes says CUNA

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WASHINGTON (10/1/08)—The Credit Union National Association (CUNA) supports a federal regulatory proposal to implement statutory authority to allow the net worth ratio of an acquiring credit union, following a merger, to reflect the acquired retained earnings of the merging credit unions. The National Credit Union Administration (NCUA) rule would put into action a provision of the 2006 Financial Services Regulatory Relief Act that gives credit unions more flexibility in complying with a 2001 accounting rule on mergers. If approved, the NCUA rule would apply to both natural person and corporate credit unions. Prior to the 2001 Financial Accounting Standards Board (FASB) rule, credit unions and others could use the “the pooling method” of accounting to report net worth in a merger situation. This method allowed merging credit unions to combine net worths—which are retained earnings. The method facilitated mergers because it permitted the full amount of retained earnings of both institutions to be included in the net worth of the acquiring credit union. Under the acquisition method, as now required by FASB, the value of assets acquired in a merger must be reflected as an addition to equity, not as an addition to retained earnings, as they are under the pooling method. This method can drive down the net worth ratio of an acquiring credit union unnecessarily. To address this, in 2006 Congress voted to allow credit unions to follow the FASB acquisition method but nonetheless include the net worth of the merging credit union in the net worth of the acquiring credit union for purposes of net worth ratio calculations. In a comment letter supporting the NCUA’s implementation plan, CUNA also suggested three modifications to the current proposals before final adoption. They are:
* Changes are needed in the definition of net worth to make it clearer that the entirety of the merging credit union’s retained earnings may be included in the net worth of the continuing credit union; * Changes are needed in the chart provided to illustrates how the proposed rule would be implemented taking Generally Accepted Accounting Principals (GAAP) into consideration compared to the application of GAAP without the proposal; and * Guidance is needed regarding how the NCUA anticipates a merging credit union’s retained earnings will be reported for accounting purposes as part of the net worth of the acquiring credit union.
The CUNA letter was developed under the auspices of its Accounting Task Force, chaired by Scott Waite, SVP-CFO of Patelco CU, San Francisco and an advisor to FASB. To read CUNA’s complete comment, use the resource link below.

CUNA urges continued insurance parity and more

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WASHINGTON (10/1/08)—As members of the U.S. Congress and the Bush administration continue to work to craft an economic rescue plan palatable enough to be passed by the House and Senate, the White House is considering the possibility of adding a temporary increase in deposit insurance, possibly up to $250,000 or $300,000, into the emergency legislation. Meanwhile, Credit Union National Association (CUNA) lobbyists learned late Tuesday that the Senate is expected to possibly vote today on a version of the financial rescue package with provisions to increase deposit insurance coverage for banks and credit unions. The apparent developments came shortly after CUNA urged President George W. Bush and U.S. Treasury Secretary Henry Paulson to make sure to include credit unions in any plans for increased deposit insurance coverage. Additionally, CUNA asked the White House to consider complimenting the parity in savings insurance for credit unions with a risk-based capital system that will provide credit unions with the flexibility they need to handle the unexpected increasing level of savings flowing into credit unions. In the letters, CUNA President/CEO Dan Mica pointed out that savings have been flowing into credit unions in the wake of recent closings and sales of financial institutions. To help credit unions continue to help consumers and absorb the savings inflow, Mica asked the president to consider complimenting the deposit insurance coverage “with a risk-based capital system (which) will provide credit unions and our regulator with additional tools to continue to serve their members safely and soundly.” Mica reminded in the letter that CUNA has been working for the last six years on behalf the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), Title I of which would define a risk-based capital system for credit unions. “We believe this legislation is more important now than ever, in light of the fact that credit markets are frozen, and consumers and small businesses are reporting great difficulties getting loans,” Mica wrote, and added that banks already operate under a similar risk-based capital system.

On video Hood on CUs in turbulent times

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On video: NCUA’s Hood on CUs in turbulent times WASHINGTON (10/1/08)—Appearing in a polished although impromptu video, National Credit Union Administration (CUNA) Vice Chairman Rodney Hood appeared on camera recently to discuss credit union strength amidst turbulent times. Hood addressed about 75 credit union representatives affiliated with

. the NW Chapter of Credit Unions of the North Carolina CU League and recognized credit unions for their smart lending decisions in the past, and encouraged them to ”keep doing great things” for their member-owners as the economy is threatened by a financial crisis. After his speech, Hood participated in a league video in which he encouraged credit unions to “really differentiate themselves” from other financial services providers in the midst of the market turbulence. “To the degree your balance sheets and your risk tolerance levels allow, let’s continue to to make capital available and affordable to those individuals who are hard-working men and women who want their financial institutions to be there for them,” Hood said. The NCUA vice chairman also noted the strength of his agency’s National Credit Union Share Insurance Fund, which backs credit union members’ deposits by the full faith and credit of the U.S> government. Hood also touted credit unions’ strong, 11.04% net worth position.