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Inside Washington (01/17/2011)

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* WASHINGTON (1/18/11)--The Credit Union National Association (CUNA) has issued an analysis of a final National Credit Union Administration (NCUA) rule that amends the federal regulator’s low-income rule, located in Section 701.34 of its regulations. The CUNA final rule analysis notes that the new rule clarifies the definition of “low-income members” to say that, when determining a credit union’s low-income designation, the comparison of credit union data (whether individual or family data) must use statistical data for the same category. More specifically, individual member data should be compared to individual median income data and not compared to median family income data. Another clarification in the new rule makes the regulatory text consistent with the geo-coding software the NCUA uses to determine whether to designate a credit union as low-income. The final rule is identical to an interim final rule adopted by the agency Aug. 5, and its provisions are effective as of that date … * WASHINGTON (1/18/11)--Whether government should take a role in jump-starting small-business lending—or if regulators have gotten in the way--was the focus of a Federal Deposit Insurance Corp. forum last Thursday. Regulatory officials maintained small-business credit could flow more freely with increased supervision and still-declining real estate values. They urged lenders to do more holistic underwriting, without relying on borrowers’ collateral values to make loan approvals. Federal Reserve Chairman Ben Bernanke stressed that the underwriting cannot rely on collateral for repayment until the real estate market improves, which may not happen for some time. In addition to Bernanke, the panel, which aired on CNBC, also included FDIC Chairman Sheila Bair, Sen. Mark Warner, D-Va., and Thomas Bell Jr., the chairman of the U.S. Chamber of Commerce. Panelists disagreed if a stricter regulatory environment, including the Dodd-Frank Act, was restricting small-business lending. Warner said regulators are sending mixed messages by asking lenders to be more cautious with their balance sheets while asking them to do more lending. Bair said the credit crisis was the result of excessive risk and a more cautious approach is a benefit to banks. The Credit Union National Association (CUNA) advocates an increase in the credit union member business lending cap as an important way to address the small business lending crunch. A cap increase to 27.5% of assets, up from the current 12.25%-of-assets limit, could infuse $10 billion of new credit into the nation's small businesses and add more than 100,000 jobs to a struggling jobs market. Both economic improvements would occur at no cost to the taxpayer … * WASHINGTON (1/18/11)--Saying the “pendulum had swung too far” in favor of regulatory micro-management Rep. Spencer Bachus (R-Ala.) Thursday said bank examiners should allow community bankers to lend more freely and spur small business job growth. Bachus made his remarks at an Federal Deposit Insurance Corp. conference on small business lending in his first official speech as chairman of the House Financial Services Committee. “During my conversation with employers, I am constantly told that one of the biggest obstacles they face right now is obtaining financing from banks,” Bachus said. “The search for sufficient capital is a struggle, even for companies with good credit histories and long-established relationships with local banks.” Credit unions also face challenges with examinations. The Credit Union National Association (CUNA) has just released extensive guidance on examination and supervision issues, as well as a Credit Union Bill of Rights. CUNA staunchly endorses strong, reasonable safety and soundness supervision, but also maintains that credit union officials must have the latitude they need to exercise business judgments and operate in the best interests of their members. (See related story:”CUNA unveils extensive guidance on CU exam issues”) … * WASHINGTON (1/18/11)--The Basel Committee today issued minimum requirements to ensure that all classes of capital instruments fully absorb losses at the point of non-viability before taxpayers are exposed to loss. The requirements were endorsed by the committee’s oversight body, the Group of Governors and Heads of Supervision, at its Jan. 10 meeting. During the financial crisis, a number of distressed banks were rescued by the public sector injecting funds in the form of common equity and other forms of Tier 1 capital. While this had the effect of supporting depositors, it also meant that Tier 2 capital instruments (mainly subordinated debt), and in some cases Tier 1 instruments, did not absorb losses incurred by certain large internationally active banks that would have failed had the public sector not provided support. Under the new rules an instrument must meet or exceed minimum requirements to be included as Tier 1 or Tier 2 capital. Instruments issued on or after Jan. 1, 2013, would be required to meet those requirements. Instruments issued before that date, but conforming to the criteria under Basel III, would be phased out starting Jan. 1, 2013 …

Matz urges changes to credit union capital statutes

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WASHINGTON (1/18/11)--To the detriment of consumers, current credit union prompt corrective action (PCA) rules discourage some credit unions from marketing their “desirable products and services” out of concern that attracting increased share deposits could deflate net worth positions, National Credit Union Administration (NCUA) Chairman Debbie Matz warned key lawmakers Friday. Matz recommended Congress address by permitting a combination of supplemental and risk-related capital for credit unions. In letters to the top members of the Senate Banking Committee and the House Financial Services Committee, Matz urged statutory changes that would correct the disincentive that she said is impacting even strong, well-capitalized credit unions. Credit Union National Association (CUNA) President/CEO Bill Cheney said the NCUA’s message on risk-based and supplemental capital to leaders of the Senate and House committees is a “much-welcomed development, which we hope leads to action very soon in the Congress on these important issues.” “Supplemental capital is CUNA’s top legislative priority in the year ahead. Chairman Matz’s letter will be helpful as we work to educate members of Congress about importance of establishing risk-based and supplemental capital avenues for credit unions,” Cheney said. He added, “A number of details remain to be worked out, and we want to work closely both with NCUA and congressional leaders in addressing all of them. We commend the agency and the chairman for taking this initiative for the future of the credit union movement.” In her letter, Matz specifically proposed two reforms that would enable the NCUA to reverse the disincentive for credit unions to accept deposits from their members, They are to:
* Allow qualifying credit unions to exclude assets that carry zero risk, such as short-term U.S. Treasury securities, from the definition of “total assets.” NCUA would set a minimum net worth requirement, and would also determine that share growth is the cause of declining net-worth, not poor management or unsafe practices, before a credit union would be allowed to exercise this exclusion; and * Authorize qualifying credit unions to issue supplemental capital. The form of supplemental capital would be subject to strict regulatory prescriptions that address safety and soundness criteria, protect investors, and preserve the cooperative credit union governance model.
“Congress already permits low-income designated credit unions to offer uninsured supplemental capital accounts to non-members,” noted Matz in a release about the NCUA letters. “Modifying the Federal Credit Union Act to permit qualifying credit unions to offer uninsured alternative capital instruments subject to regulatory restrictions, and expanding the Act’s definition of ‘net worth’ to include those instruments, would allow well-managed credit unions to better manage net worth levels under varying economic conditions. “It is clear that controlling accelerated, unmanageable growth of credit union assets was a principal purpose of PCA, and NCUA’s implementing regulations respect that goal. It is for that reason that in the course of implementing PCA over the last nine years, NCUA did not propose statutory remedies in response to occasional periods of reluctance by credit unions to grow assets. That reluctance in the present period of national economic distress has become acute, however, warranting a statutory remedy.” Use the resource link to access the NCUA letter.

Free NCUA town-hall webinar slated for Feb. 17

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ALEXANDRIA, Va. (1/18/11)--On February 17, National Credit Union Administration Chairman Debbie Matz will host her next “Virtual Town Hall” to address the agency’s initiatives to reform the corporate credit union system, minimize costs to consumer credit unions, and promote financial literacy for credit union volunteers. In an announcement delivered while addressing the Virginia Credit
Click to view larger image NCUA Chairman Debbie Matz is shown here (center standing) in October as she answers questions at the final 2010 town hall meeting on the agency’s Corporate Credit Union Resolution Plan. She will conduct here next virtual town hall meeting on corporate credit union and other issues on Feb. 17. (NCUA Photo)
Union League’s Northern Virginia Chapter, Matz said, “NCUA is moving forward on several initiatives this year to strengthen the safety and soundness of credit unions, which will keep assessments and premiums as low as possible.” She said the agency believes the free webinar will be “an efficient way to clearly communicate our initiatives and open a new dialog with stakeholders.” Live webinar viewers will be able to write in questions on any topic. An archived version will be available on the NCUA website for those who can’t participate. A webinar registration link will be posted at by early February.

CUNA names 24 CU exam rights

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WASHINGTON (1/18/11)--As part of its comprehensive guidance to member credit unions regarding supervisory and examination trouble spots, the Credit Union National Association (CUNA), in conjunction with state league and credit union leaders, developed a Credit Union Bill of Examination Rights. The document, though not legal advice, informs credit unions that in the examination process, they have the right to:
* Manage risk without being directed by examiners to eliminate it. * Respectful conduct from their examiner. * Be examined by well-trained, competent examiners who understand the unique characteristics of credit unions. * Meet and discuss examiner findings, conclusions, directives and administrative actions with the examiner. * Question, and seek corrections to, examiner findings, conclusions, and directives. * Provide alternative and/or additional data, conclusions, and solutions to address problems identified by the examiner. * Know the specific authority or legal basis for an examiner’s directive. * Receive clearly written examination reports, notices, etc., on a timely basis. * Receive exam reports, findings, directives, and administrative actions that are based on all relevant facts. * Be evaluated on their own strengths and weaknesses and not solely on the basis of regulator concerns about trends. * Be evaluated for progress toward objectives that are realistic and achievable, proportionate to the risk presented. * Examination findings and directives that are risk prioritized. * Appeal examiner findings, conclusions, or directives without retaliation from their regulator. * Have instructions on how to appeal, detailed on every exam report form provided to credit unions. * Record meetings with examiners and other agency personnel. * Have a representative, such as an attorney, present during meetings with the examiner and other regulatory personnel. * Have any published orders—such as consent orders—address only facts and not conjecture or speculation by the examiner. * Have confidential, non-discoverable communications with their legal counsel regarding examination issues. * Develop and use “high-level” policies, which should be separate and distinct from detailed procedures. * Have a lead examiner that is state or federal, consistent with the credit union’s charter type. * Know the timing of when NCUA will publish a Letter of Understanding and Agreement. * Defer to their CPA if there is a disagreement between the officials and their regulator regarding issues related to U.S. generally accepted accounting principles. * Have communication (i.e., discussion of draft findings) with their examiner prior to final issuance of the examination report. * Have directives from examiners (including verbal and written comments) be consistent with regulatory requirements, policies, and Letters to Credit Unions. For example, there were inconsistencies noted between how examiners treated the assessment’s effect on credit union earnings and an NCUA letter to credit unions on the subject.
The list of rights was developed in conjunction with CUNA’s extensive study of credit union frustrations with the examination process that resulted in a 64-page document providing guidance for CUNA member credit unions on examination and supervisory issues. (See related story: CUNA unveils extensive guidance on CU exam issues.)

Sen. Blunt to address GAC attendees

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WASHINGTON (1/18/11)--Sen. Roy Blunt (R-Mo.), a public supporter of the federal credit union tax status and other credit union-friendly issues, will address the Credit Union National Association’s (CUNA) 2011 Governmental Affairs Conference (GAC), which is being held here from Feb. 27 through March 3. Blunt, a seven-term member of the House before successfully running for his Senate seat in 2010, served as Majority Whip and Republican Whip three times while in the House. He was a co-sponsor of the historic CU Membership Access Act in 1997, and has backed credit union positions in many other areas, such as bankruptcy, retirement savings and regulatory reform. On bankruptcy reform, Blunt became personally involved in inserting CUNA-supported language protecting credit union members' right to reaffirm their debts. On retirement savings, he helped ensure that CUNA-supported provisions to expand Individual Retirement Accounts, pensions, and Education Savings Accounts were included in a final 2001 tax bill. Blunt will address GAC attendees on Wednesday morning, March 2--following the new House Financial Services Committee chairman, Rep. Spencer Bachus (R-Ala.). The powerhouse lineup for this year’s GAC also features Sen. Mike Crapo (R-Idaho), and Reps. Barney Frank (D-Mass.), and Debbie Wasserman Schultz (D-Fla.), and Steve Stivers (R-Ohio). Consumer Financial Protection Bureau architect Elizabeth Warren and co-authors of The New York Times No. 1 best-seller "Game Change" Mark Halperin and John Heilemann are also scheduled to address GAC attendees. The GAC will also feature keynote speeches from actor and Children's Miracle Network Hospitals co-founder John Schneider and "Miracle on the Hudson" pilot Captain Chesley B. "Sully" Sullenberger III. To register for this year's GAC, use the resource link.

SAFE Act Webinar coming straight from the source

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WASHINGTON (1/18/11)--The Nationwide Mortgage Licensing System & Registry (NMLS) is sponsoring web-based workshops called “Introduction to the NMLS Federal Registry” throughout the month of January. The sessions will be offered Jan. 19, 21, 26 and 28. They address rules under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) that require mortgage loan originators (MLOs), including those at credit unions, to register on the new NMLS system, which is scheduled to begin on or around Jan. 31. Once the registry launches, MLOs have 180 days to complete the initial round of registrations. According to the NMLS, the workshop will provide an overview of the new registration process and will cover steps that credit unions can take to prepare for registration, which include building a batch upload file and choosing a workflow that may work for the organization. Workflows may vary depending on whether a credit union has individual MLOs register themselves or has the institution handle the entire registration process for all MLOs. The workshop is expected to be geared toward institution staff who will be handling any part of the registration process, not intended for individual MLOs. The NMLS also provides a series of resources on its website that can help credit unions and their mortgage loan originators. The resources include an NMLS “Getting Started Guide” for financial institutions which guides institutions through the registration process, and a similar guide for MLOs will be coming soon. There is also a guide that describes the process for submitting fingerprints to the NMLS. The NMLS also finalized the fee schedule that will apply to institutions and their MLOs. See the resource links below for more information.

CUNA unveils extensive guidance on CU exam issues

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WASHINGTON (1/18/11)--After an exhaustive look at credit unions’ increasing frustrations, the Credit Union National Association (CUNA) has developed a bill of “examination rights,” which is detailed and cross-referenced to the National Credit Union Administration’s (NCUA) own examiner guide. Within a 64-page guidance document titled “Supervisory Issues and Examinations: Guidance For Credit Unions During The Current Economic Times And Beyond,” CUNA lists 24 “examination rights,” which include such things as the right of credit unions to “manage risk without being directed by examiners to eliminate it,” and “appeal examiner findings, conclusions, or directives without retaliation from their regulator,” among others. (See related story: CUNA names 24 CU exam rights.) "A prime objective of this Guidance is to assure credit unions they have options in responding to most supervisory issues and when they feel an examiner has overstepped his or her authority,” said CUNA President/CEO Bill Cheney, in releasing the booklet to credit unions Friday. “Credit union officials are entitled to question an examiner’s findings and directives, suggest alternatives in most situations, and appeal decisions they feel are unwarranted, arbitrary, inconsistent with laws and regulations, or may jeopardize their ability to serve their members.” The publication also includes sections dealing with general duties of examiners, credit union examination concerns, which are based on survey responses directly from credit unions, handling disagreements with examiners and recommendations--for both credit unions and NCUA alike--for improving the examination process. “This Guidance is the culmination of many months of work by credit union and league leaders,” said Paul Mercer, president/CEO of the Ohio Credit Union League, and chairman of the CUNA Supervisory Issues Working Group, which led the work on the volume. Mercer added, “It is designed to be an accessible, easy-to-use reference concerning a number of supervisory issues that have surfaced recently among credit unions. Its aim is to provide resources about the supervisory process so that credit unions will have a better understanding of their responsibilities and rights as well as a greater awareness of the proper role of the examiner.” The free booklet is available to all CUNA-member credit unions. Use the resource link below.