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April 24, 2014

NEW: NCUA approves modified stress test rules

ALEXANDRIA, Va. (4/24/13, UPDATED 11: 28 a.m. ET)--The National Credit Union Administration made changes today before adopting its rule on stress tests for larger credit unions, some of which the Credit Union National Association recommended--if the agency even went forward with the rule CUNA argues is just not needed.
CUNA has commented to the agency that new regulations are not needed to ensure that credit unions conduct robust stress tests and comprehensive capital planning because it is in their own best interests, and the best interest of their members, to do so.
The NCUA proposed the rule last October. It will require federally insured credit unions with assets exceeding $10 billion to develop and maintain capital plans, and undergo annual stress tests.

CUNA-endorsed changes made to the rule include dropping a provision that would have required public disclosure stress test results. Also under the approved rule, credit unions can apply to have their own stress test results used, instead of NCUA's, for NCUA's review.

Also, the agency increased its cost projection to a more realistic $5 million, up from $4.2 million, for implementation of the rule in just the first year.  That price tag will be shouldered by all federally insured credit unions.

The stress test requirements, as adopted, will require covered credit unions to conduct specific capital analyses to evaluate how changes in variables, parameters and inputs used by credit unions in their capital plans could affect their capital. Credit unions would also need to test how interest rate shocks of at least plus or minus 300 basis points would impact their net economic value.

CUNA also had recommended that, if adopted, the rule should:
  • Require the NCUA to coordinate with the Federal Reserve Board to have the Fed conduct the reviews of the credit unions' tests;
  • Not to subject affected credit unions to sanctions for failure to meet capital planning or stress test benchmarks; and,
  • Not establish a formal process for rejecting a credit union's capital plan.
The rule passed by a vote of 2-1, with NCUA board member Michael Fryzel casting the dissenting vote.  Board member Rick Metsger signaled signaled a willingness to consider additional changes to the rule. ReadMore

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NCUA approves modified stress test rules

ALEXANDRIA, Va. (4/25/14)--The National Credit Union Administration Thursday adopted a final rule on capital planning and stress testing for the largest credit unions. The final includes changes recommended by the Credit Union National Association, but CUNA said it still believes the rule is unnecessary.
CUNA President/CEO Bill Cheney said after the agency's action, "We appreciate that the agency has adopted some changes that we suggested--such as not disclosing stress test results publicly--and has agreed to allow credit unions to apply, after three years, to have results of their own tests used for these purposes.
"However, CUNA did not support this proposal. While we acknowledge the utility of stress tests, we see no need for a rule. Further, the agency has not sufficiently substantiated a need for the use of third parties to conduct stress testing of covered credit unions, even for a finite period, rather than reviewing the assumptions and results of credit unions' own stress tests."
Cheney also highlighted that the cost of the program--which must be borne by all federally insured credit unions--is now up to $5 million for the first year, which CUNA believes is a high and unnecessary cost.
The rule, effective 30 days after publication in the Federal Register , applies to federally insured credit unions with assets of $10 billion or more. It passed by a vote of 2-1, with NCUA board member Michael Fryzel casting the dissenting vote. Board member Rick Metsger signaled a willingness to consider additional changes to the rule.
The agency plans to issue guidance on the final rule and CUNA is urging the agency to allow input from CUNA and the state leagues, as well as from affected credit unions, on the document before it is made final.
Under the rule, covered credit unions must submit capital plans annually to NCUA, and the plans must meet specific requirements reflecting risks and complexity of each covered credit union. In addition, affected credit unions must conduct capital plan assessments over each quarter of a three-year planning horizon. The final rule requires a minimum stress-test capital ratio of 5%.
The NCUA removed a specific requirement under the proposal to test the impact of interest rate shocks on the net economic value of the credit union. Instead, the final rule requires that covered credit unions perform reverse stress testing as part of their capital planning.
Further, the NCUA changed the final rule to strengthen the provisions regarding its consultation with the applicable state supervisory authorities, a change CUNA noted it supported.

For more on the final stress test rule, use the resource link to access the NCUA document. ReadMore

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Senate Banking sets April 29 vote for McWatters

WASHINGTON (4/25/14)--The Senate Banking Committee is set to vote April 29 on the nomination of J. Mark McWatters for a post on the National Credit Union Administration board, as well on three Federal Reserve Board nominations and one for the U.S. Department of Housing and Urban Development.

NCUA nominee J. Mark McWatters is shown here testifying before the Senate Banking Committee in March. He said that, if confirmed, he would "work diligently to ensure the continued integrity and safety and  soundness of our nation's credit union system." (CUNA Photo)
Just a little more than a month ago, McWatters appeared before the banking panel to testify on behalf of his qualifications for the NCUA job. At that time he pledged to "work diligently to ensure the continued integrity and safety and  soundness of our nation's credit union system in an ever-evolving marketplace."
Addressing one of the credit union industry's current hot-button issues, McWatters told Senate Banking Committee members that examining the overall issue of risk-based capital for credit unions in general and the NCUA's current proposal specifically would be high on his list of priorities if confirmed.
If the committee votes to approve McWatters' nomination, it will then send his name to the Senate floor for final confirmation.  McWatters would replace board member Michael Fryzel, whose term ended officially  Aug. 2.
The committee will also vote next Tuesday on the qualifications for Stanley Fischer, as a member and vice chairman of the Federal Reserve Board; Jerome Powell, as Federal Reserve Board governor; Lael Brainard, as a Fed governor; and Gustavo Aguilar, to be an assistant secretary for the U.S. Department of Housing and Urban Development.

April 29 is also the date the Senate Banking Committee has scheduled a vote on the Johsnon-Crapo housing finance reform draft. ReadMore

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No extension for RBC comments, Matz tells CUNA, NAFCU

WASHINGTON (4/25/14)--National Credit Union Administration Chairman Debbie Matz has again said no to a joint request by the Credit Union National Association and National Association of Federal Credit Unions to extend the comment period for the agency's risk-based capital proposal.
The credit union trade associations have twice requested a 90-day extension based on concerns that the current May 28 deadline does not give credit unions enough time to analyze the proposal's impact on their individual operations and to prepare their responses.
"Given the health of the credit union system, we do not see the need to rush this rule and believe more time for comments will also benefit the agency through the production of well-reasoned letters," CUNA President/CEO Bill Cheney and NAFCU President/CEO Dan Berger argued.
Matz in her response delivered Thursday noted her assurances that the agency is "prepared to make those changes to the proposal we conclude are fundamentally sound and justifiable from a public policy perspective." She also said that the RBC comment period is "one of the longest in NCUA history."
"I agree that that history is being made here," CUNA's Cheney said, "The proposed rule is one of the most significant ever for credit unions. For that reason I still believe credit unions deserve more time to consider all of the ways the proposal will affect them--and 90 days, or even 120, is just not enough." ReadMore

Associational common bond rules may be tweaked for clarity

ALEXANDRIA, Va. (4/25/14)--Changes may be coming to the National Credit Union Administration's  chartering and field of membership (FOM) rules regarding associational common bond requirements. The agency proposed amendments Thursday to its chartering manual which, in part, would expressly establish a threshold requirement that an association must not be formed primarily for the purpose of providing credit union membership.
That threshold reflects the agency's longstanding interpretation of the Federal Credit Union Act. During the open board meeting discussion of the requirements, NCUA Chairman Debbie Matz said the proposal is the result of enforcement actions taken where credit unions advertised open FOMs that did not reflect any limitations.
If approved, the rule would expand the criteria for considering whether an association meets NCUA's requirements to be added to a federal credit union's field of membership. If an association satisfies the common bond requirements based on a totality of the circumstances, the group qualifies for inclusion in the federal credit union's field of membership.
Importantly, the rule would support regulatory relief by  granting automatic inclusion to certain categories of groups, consistent with actions the agency has approved in the past. Such groups include alumni associations, religious organizations including churches, homeowner associations, scouting groups, electric cooperatives, and labor unions, as long as such groups meet the rule's requirements.

Comments are due within 60 days of the proposal's publication in the Federal Register .
For more on the proposal, use the resource link. ReadMore

NCUSIF report shows drop in low-ranked CUs

ALEXANDRIA, Va. (4/25/14)--The National Credit Union Share Insurance Fund ended the first quarter of this year with an equity ratio of 1.30% and reserves at approximately $227.5 million, according to the National Credit Union Administration's quarterly update delivered during a Thursday open board meeting.
The NCUA did not assess a Share Insurance Fund premium in 2013, and if the current equity ratio holds steady, a premium would be unlikely this year.  However, the NCUA said the board will make that determination for 2014 at its open meeting on July 31.
Click to view larger image Source: NCUA
Of the $227.5 million in reserves, $19.3 million is allocated for specific credit unions. Six federally insured credit unions failed during the first quarter of 2014. The total amount of losses associated with those failures was $18.6 million. A total of 17 credit unions were liquidated in 2013.

The NCUA also reported that there are currently 306 low-rated CAMEL 4 and 5 credit unions. They hold approximately $11.9 billion of insured shares, which is about 1.4% of total insured shares.  That 1.37% is a significant improvement since the peak in December 2009 when CAMEL 4 and 5 credit unions represented of 5.72% of insured shares.
The agency staff also noted that there are 1,471 CAMEL 3 credit unions, which represent 11.02% of insured shares, or $95.5 billion. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 12.39% of total insured shares, according to the agency report. ReadMore

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St. Louis, CU partner to deliver affordable auto loans

CU System
ST. LOUIS (4/25/14)--The foremost task for those trying to climb the social and economic ladders is to land a good, steady job.

Dorothy Bell, chief marketing officer, St. Louis Community CU, left; Michael Holmes, executive director, St. Louis Agency on Training and Employment/SLATE); Mayor Francis Slay; Gerald Brooks, chairman, and Patrick Adams, president/CEO, St. Louis Community CU. (City of St.. Louis photo)
For the economically disadvantaged, that goal can prove arduous, especially if access to a reliable mode of transportation is limited, or non-existent.

To tear down this hurdle, St. Louis Community CU, together with the city of St. Louis, has developed a program that delivers affordable auto loans to qualified clients of certain workforce agencies in the St. Louis area ( Missouri Difference April 16).

Called the "Sure Rides Auto Loan program," the initiative will open up doors for those stuck in long-term unemployment or who possess diminished personal credit; the same folks who often have a difficult time securing loans for automobiles.

"We understand that some individuals may be credit challenged, which leaves them shut out from receiving car loans when they need them most," said Steve Dilley, senior vice president and chief lending officer for the $229 million-asset credit union. "St. Louis Community CU is choosing to put the consumer first by becoming part of the solution and helping as many people as possible."

The credit union has partnered with the city's job training agency--called the St. Louis Agency on Training and Employment--Family Workforce Centers of America, Employment Connection and the Urban League to run this program, which they believe will create "pathways out of poverty through stable employment."

The Sure Ride loan program is funded by a grant from the U.S. Treasury. As a community development financial institution, the credit union can secure grant funding to develop outreach programs that serve the community.

"People who don't have good credit, or who may not have a job, will have a tougher time building a better life for themselves," said St. Louis Mayor Francis Slay. "St. Louis Community CU is helping our residents gain access to reliable transportation, which is a good step toward upward mobility, better job opportunities and financial stability."

For eligibility requirements or more information about the auto loan program, use the link.

Earlier this week, the National Credit Union Foundation and the Filene Research Institute announced a nonprime auto loan program at 14 credit unions. (See Wednesday's News Now : NCUF, Filene non-prime auto loan program gives hope on wheels.) ReadMore

IRS identity theft fraud scheme thwarted by CU tip

CU System
PITTSBURGH (4/25/14)--For more than seven years, an identity theft and fraud ring captured up to $10 million in income tax refunds by using false tax returns. It might have gone on longer had an employee at a Pennsylvania credit union not noticed duplicate phone numbers on two different accounts in 2012.
An employee of $252 million-asset Widget Financial FCU, Erie, Pa., found the discrepancies in December 2012, which in turn, led to notifying the FBI and unraveling a global network of fraud.

"It's gratifying to know our procedures have uncovered something," Chief Marketing Officer Trent Mason told The Tribune-Review (April 23).
On Wednesday, the FBI announced it had indicted five people who allegedly used the personal identification of 2,400 people to file for $21 million in false federal tax refunds, receiving about $10 million from the IRS in accounts fraudulently opened in victim's names.
U.S. Attorney General David Hickton said the fraud was "on a scale that's unprecedented here" ( Pittsburgh Post-Gazette April 24). The five were charged with conspiracy to commit wire fraud and aggravated identity theft.
According to the indictment filed in U.S. District Court for the Western District of Pennsylvania, fraudulent Form 1040s were drafted in the names of individuals whose identity had been stolen. Bank accounts also were fraudulently opened and were the depositories for the fraudulent federal tax refunds. The indictment noted that credit cards were falsely obtained with the stolen information as well.
The 13-count indictment named Saburi Adeyemi, 56, Memphis, Tenn.; Doherty Kushimo, 52, Providence, R.I.; Adebola Mejule, 54, Hempstead, N.Y. , and Queens, N.Y., residents Abiodun Bakre, 49, and Adetunji Gbadegshi, 57. ReadMore

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Local schools would benefit from CU's rewards card

CU System
LOS ALAMOS, N.M. (4/25/14)--A New Mexico-based credit union wants to team up with its local school district to offer members an easy way to donate to public schools.

Los Alamos Schools CU, with $16 million in assets and about 700 members, recently pitched an idea to the Los Alamos Public Schools board for a credit card that would offer members the choice of donating 25 cents to the district's foundation every time a purchase was made with the card ( Los Alamos Monitor April 22).

The foundation supports grants, programs and scholarships associated with Los Alamos Public Schools. Members of the credit union consist of past and present employees of the school district.

"We want to feature the school district as the primary benefactor of this card," said CEO Matt Schmidt. "So therefore, I'm seeking your approval of the logo."

With unanimous support from the school board, should the program come to fruition, the card's face will feature the locally famous yellow-and-green "Hilltopper" logo, the mascot for the high school.

The card donation program, Schmidt said, would further demonstrate the credit union's ties to the community, and to the local economy.

"We wanted something that was going to be hyper-local, and something that was going to give back . . . to the school community," Schmidt said. The CEO is looking to organize a similar program that also would benefit small businesses in town.

Cardholders would have the choice to opt in or out of the program once it's up and running, according to Schmidt.

Los Alamos Schools CU is looking into matching the donations made by its members through the program on an annual basis, though the member-owned financial institution's board has yet to vote on the idea.

If all goes according to plan, the credit union will kick off the campaign one month prior to this coming school year. ReadMore

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