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NEW: NCUA unveils risk-based capital plan

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ALEXANDRIA, Va. (1/23/14, UPDATED: 11:44 a.m. ET)--A new risk-based capital framework for credit unions has just been released at today's National Credit Union Administration board meeting.
The proposed standard recognizes where credit unions are today, and looks forward, NCUA Chairman Debbie Matz said. The rule protects the vast majority of credit unions, she added, saying that 94% of credit unions are well-capitalized.

Under the 198-page NCUA proposal, the current 7% leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor. However, the agency has said credit unions with assets of $50 million and above would be subject to revised risk-based capital requirements to better correlate required capital levels to risks the agency deems relevant.
The proposal would require calculation of of Basel-style risk-based capital ratio, but the risk weights would be different from those applied to community banks.  It would require higher minimum levels of risk-based capital for credit unions with concentrations of assets in real estate loans, member business loans, or high levels of delinquent loans. However, some other weights--current consumer loans--would have lower weights than under the community bank requirement.    
The Credit Union National Association's Exam and Super Subcommittee has been meeting on this since May and will be meeting with NCUA Director of Examination and Insurance Larry Fazio soon.
The agency has said the risk-based net worth proposal would protect credit unions and consumers from losses, and replace the "outdated and insufficient" one-size-fits-all capital requirement. The NCUA plan could result in higher capital levels for credit unions with high concentrations of risky assets.  Approximately 200 credit unions would have their capital classifications reduced if the proposal were adopted without modifications.
Credit unions will have 90 days to comment on the proposal after it is published in the Federal Register. Matz said the final rule will have a phase-in period of one year.

National, D.C. media turn spotlight on CUNA breach survey

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WASHINGTON (1/23/14)--National media attention is being generated by the Credit Union National Association release of estimated credit union costs created by the Target data breach, and it's getting CUNA recognized for being in the forefront of organizations providing info on costs.
Survey coverage in the Wall Street Journal's MoneyBeat blog noted CUNA was one of the first groups to "identify the hit to financial institutions from the breach." The survey also received coverage in Washington political paper The Hill, with CUNA President/CEO Bill Cheney being quoted in that story.

AP also did a piece on the survey, picked up by, which zeroed in on Cheney's comments  that retailers such are Target Corp. are "rarely held responsible for reimbursing financial institutions for the costs that the data breach has incurred on them and, in the case of the credit unions, their members."

That article noted the CUNA estimate that Target breach has cost credit unions about $5.10 per card affected by the security lapse--and said that is just the beginning because the preliminary estimate doesn't include fraud losses that are expected to rise in coming weeks.

The breach resulted in the theft of 40 million debit and credit cards, and encrypted PIN data, and the names, mail and email addresses, and phone numbers of up to 70 million individuals.
The CUNA survey drew results from 936 credit unions.
According to CUNA's survey results, credit unions have incurred costs in the range of $25 million to $30 million as a result of the breach. The Target breach has cost credit unions about $5.10 per card affected by the security lapse, on average. These costs most likely do not include any fraud losses, which are likely to occur later.
These estimated costs could be exceeded if greater fraud losses are incurred or those that have reported already add additional costs to their reported totals.

Cheney has noted that these expenses will not be reimbursed to credit unions and their members by Target or other retailers. "Rather, credit unions must solely cover these costs of card program administration, including in these circumstances of reacting to a merchant data breach. And, because of credit unions' cooperative structure, the costs of such breaches are ultimately borne entirely by credit union members," he said.

NEW: NCUA approves final derivatives investment rule

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ALEXANDRIA, Va. (1/23/14, UPDATED: 11:20 A.M. ET)--A proposal that will allow well-run federal credit unions to use simple derivatives to hedge against interest rate risks has just been approved at today's National Credit Union Administration board meeting.

The NCUA plan would allow only well-managed credit unions with $250 million or more in assets to invest in derivatives.

The final rule includes key changes sought by the Credit Union National Association, such as removing the fees for supervision of the use of these products. CUNA in general has supported derivatives investments for credit unions.

There will not be an application fee for credit unions wishing to be approved for derivatives authority, and the rule will not apply to federally insured state credit unions.

The final rule addresses permissible derivatives and characteristics, limits on derivatives, operational requirements, counterpart and margining requirements, and the procedures a federal credit union must follow to apply for derivatives authority.

The supervisory costs will be covered by the National Credit Union Share Insurance Fund, the agency said. The NCUA has also budgeted $750,000 for 2014 and 2015 to cover related consulting costs.

Nearly 400 credit unions would be eligible to apply for derivatives investment authority, and the agency estimated that 30 to 60 credit unions would likely apply for the authority within the first two years of the program.

Watch News Now for more on today's open board meeting.

NCUA reminds technical assistance grant application round opens Feb. 3

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WASHINGTON (1/23/14)--Credit unions will be able to apply for a share of $481,000 in technical assistance grants starting on Feb. 3, the National Credit Union Administration noted Wednesday.

Low-income designated credit unions can apply for up to $16,500 in funds to help cover certain costs. Credit unions can receive $10,000 for setting up an online banking system or their first ATM, $7,500 for establishing a mobile banking or online loan and membership application system, $5,000 for setting up an electronic bill pay system, $2,500 to help with Community Development Financial Institution (CDFI) certification, and $2,000 for establishing their first website, among other items.

Applications will be accepted until Feb. 14. NCUA Chairman Debbie Matz encouraged all eligible credit unions to apply.

The NCUA is also offering up to $4,000 to each eligible credit union to hire student interns for the summer of 2014. These internships must be completed by Aug. 31, 2014. Eligible credit unions will be selected by asset size, smallest credit unions first. Credit unions that received student internship funding in 2013 are not eligible for student internship grants in 2014.

Funding for NCUA's grant initiatives is provided by the Community Development Revolving Loan Fund, a fund created by Congress to support credit unions that serve low-income communities. NCUA's Office of Small Credit Union Initiatives administers the program.

For more, use the resource link.

Exam modernization efforts outlined in NCUA webinar

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ALEXANDRIA, Va. (1/23/14)--"Examination Report Modernization" was the topic of a free National Credit Union Administration webinar offered Wednesday, and it outlined changes the agency made in 2013 to streamline and improve the consistency of the examination report process.

The webinar was intended to give participants a better understanding of new procedures related to Documents of Resolution (DOR) and examination reports.   The changes were effective Jan. 1 and were meant to set clearer expectations for credit unions and examiners. They were first introduced in October 2013 in the agency's Letter to Credit Unions (13-CU-09).
Presenters at the NCUA's 2 p.m. (ET) webinar included Dominic Carullo, an economic development specialist with the Office of Small Credit Union Initiatives; Amanda Parkhill, a loss and risk analyst with the Office of Examination and Insurance; and Clarence Jones, an NCUA national training specialist.
In addition to improved consistency, the experts noted that the goals of NCUA's exam modernization include:

They said key changes adopted in 2013 included:

  • Less redundancy;
  • Clear prioritization; and,
  • Input from credit union management.
  • DORs now have a required 120-day follow up from the examiner;
  • DORs are to be solely used for material unsafe and unsound practices;
  • Problems should be discussed with management throughout the examination and a corrective plan for problems should be developed by management. NCUA will develop a plan if management fails to do so; and,
  • Clarifying that DORs may be appealed and how.

Participants were also told that there is now a clear distinction between examiner findings and the DOR, and the webinar detailed the process, consequences and follow-up requirements for both. It was also noted that DORs and examiner findings should be discussed with management before being presented to a credit union board.

Unlike the DORs, examiner findings cannot be appealed, and the Credit Union National Association is pressing this issue with NCUA. An unresolved finding can impact management scores and CAMEL ratings.
The NCUA also said it is working on a new exam process for small credit unions, which it defines as $50 million or less in assets; although the agency also has indicated the new procedures may not apply to credit unions with assets above $30 million.  CUNA is seeking clarification from the NCUA, since it is not clear why all credit unions under $50 million would not be subject to the new procedures.

The agency also underscored in the webinar that examiners should set aside time to discuss issues with credit union staff and that credit unions can contact supervisory examiners with issues.

The NCUA's webinar will be posted on its website in about three weeks.

CUNA notes risk-based rule concerns ahead of today's NCUA meeting

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ALEXANDRIA, Va. (1/23/14)--The Credit Union National Association remains concerned about a proposed rule on risk-based capital that is on the agenda for today's National Credit Union Administration open board meeting. "This is not the time for gratuitous regulations," CUNA Deputy General Counsel Mary Dunn said ahead of today's meeting.

The current 7% leverage capital standard was set by statute in 1998, and it would take an act of the U.S. Congress to change the statute. However, NCUA Chairman Debbie Matz said in July that the recent financial crisis and industry changes has sparked an agency interest in implementing the law with a newer, more flexible, forward-looking approach.

NCUA board member Rick Metsger earlier this month said the pending risk-based capital proposal would impact fewer than 200 credit unions, but CUNA warns this low number does not alleviate concerns with the approach.

CUNA supports net worth-standard changes that reflect risk better than the present approach, but ones that will not simply add net worth requirements to the current system.

CUNA has also been urging the agency to adopt a more productive approach to rulemaking that focuses on problem areas rather than issuing rules with blanket applicability, regardless of the credit unions level of risk. CUNA's Examination and Supervision Subcommittee has met with NCUA officials on the capital ratio issue.

Dunn said CUNA is hopeful that the NCUA will make major changes to its final derivatives proposal, which is also on today's agenda. The NCUA proposal, released in May, would allow well-run federal credit unions to use simple derivatives to hedge against interest rate risks. The plan would allow only well-managed credit unions with $250 million or more in assets, and which have appropriate expertise, to apply for an agency derivatives investment program. Swaps and caps will be the only approved investments, and fees will be charged to cover costs related to application processing and supervision of the program.

"The costs to credit unions for complying with the provisions in the proposed derivatives rule are excessive and will place derivatives authority out of reach for many, if not most, credit unions seeking derivatives authority," Dunn emphasized in a July comment letter.

CUNA also did not support a number of the key provisions of the proposal.

Also on today's open meeting agenda:
  • NCUA's Strategic Plan for 2014 through 2017, and Annual Plan for 2014 and 2015; and
  • The Federal Credit Union Loan Interest Rate Ceiling.
Watch CUNA's News Now and Twitter feed, @NewsNowLiveWire, for full coverage of this morning's meeting.

Issa joins CUNA GAC speaker slate

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WASHINGTON (1/23/14)--More congressional leaders and credit union supporters are joining the speaker list for the Credit Union National Association Governmental Affairs Conference (GAC) in Washington, D.C.--including Rep. Darrell Issa (R-Calif.) who heads the House Oversight and Government Reform Committee.
Issa, now in his seventh term, is widely known as an advocate of more efficient government and a proponent of less regulatory burden in general--including for credit unions.
Also recently signing on to speak at the nation's biggest gathering of credit union leaders from Feb. 23 to 27 are:
  • Sen. Mark Udall (D-Colo.), a strong supporter of increased credit union business lending authority;
  • Rep. Ed Royce (R-Calif.), a longtime credit union supporter, and sponsor of credit union business lending legislation and measures to relieve the credit union regulatory burden; and
  • Rep. Denny Heck (D-Wash.), a former credit union official and current member of the House Financial Services Committee.
The CUNA GAC is being held at the Walter E. Washington Convention Center; it annually draws up to 4,000 credit union leaders and supporters. Use the resource link for more details and to register.

2013 4Q call reports due Friday, NCUA reminds CEOs

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ALEXANDRIA, Va. (1/23/14)--Fourth quarter 2013 Call Report and Profile information must be submitted by Friday, the National Credit Union Administration reminded on Wednesday.

Credit unions failing to meet future filing deadlines will be subject to potential civil money penalties, the agency said. Penalties will be assessed starting with the second quarter of 2014.

The potential late filing penalties were announced in a Letter to Credit Unions (14-CU-03) released Jan. 15.

Those that file late in the 2014 first quarter will receive warning letters with an estimate of what the assessed penalty would have been.

Other Call Report filing deadlines for 2014 are:
  • April 25 for 2014 first quarter filings;
  • July 25 for 2014 second quarter filings; and
  • Oct. 24 for 2014 third quarter filings.
For the full NCUA letter, use the resource link.

Periodic statement questions tackled in CUNA CompBlog

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WASHINGTON (1/23/14)--In a new CompBlog post, Credit Union National Association Senior Compliance Counsel Mike McLain outlines what documents credit unions must provide to borrowers that make conventional payments as well as those that make automatic payments for a closed-end mortgage loan.

New mortgage servicing regulations require credit unions to provide periodic statements for fixed-rate and adjustable-rate mortgage loans. An exception permits credit unions to provide coupon books containing certain required information for fixed-rate mortgage loans. However, credit unions would still be required to send periodic statements for the remaining adjustable-rate mortgage loans. This is true even if a borrower has automatic payments for a closed-end mortgage loan, McLain said.

The Consumer Financial Protection Bureau's final mortgage servicing rule requires mortgage servicers to meet new periodic statement requirements, provide additional notices of rate changes on adjustable-rate mortgage loans to borrowers and help ensure that consumers know their options to prevent foreclosures. The servicing rule contains a number of exemptions for credit unions and other financial institutions that meet the bureau's "small servicer" definition.

"Only small servicers are exempt from the periodic statement requirements," McLain said. A credit union would be considered a small servicer if the credit union, together with any affiliates, service 5,000 or fewer mortgage loans, and the credit union (or an affiliate) are the creditor or assignee for all of them, he clarified.

Only closed-end "mortgage loans" should be counted to determine if a credit union is a small servicer. "Do not include loans the credit union voluntarily services for a creditor or an assignee that is not an affiliate and for which the credit union does not receive any compensation or fees. Also do not count any reverse mortgages, or timeshare plans," McLain wrote.

The small servicer exemption is determined each calendar year based on the loans a credit union and its affiliates service as of Jan. 1 for the remainder of the year. A credit union may lose the small servicer exemption if it:
  • Services more than 5,000 loans; or
  • Takes on the servicing of a loan it does not own or did not originate.
Credit unions that lose their exemption will have six months from the date it stopped being a small servicer or until the next Jan. 1, whichever is later, to comply with the periodic statement requirements, McLain said.

For the full CUNA CompBlog post, use the resource link.