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Washington Archive

Washington

No credible case for capital requirement increase, says CUNA

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ALEXANDRIA, Va. (1/24/14)--"Given how well credit unions in general survived the recent great recession, we do not think there is a credible case for increasing credit union capital requirements," Credit Union National Association President/CEO Bill Cheney said following Thursday's National Credit Union Administration open board meeting.

The 198-page risk-based capital framework for credit unions, which was released at the meeting, would impose new requirements on credit unions with assets of $50 million and above. The current 7% leverage capital standard, which is required by the Federal Credit Union Act, would remain the floor.



The proposal would require calculation 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, such as current consumer loans, would have lower weights than under the community bank requirement.

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has said the risk-based net worth proposal would protect credit unions and consumers from losses, and replace the "outdated and insufficient" one-size-fits-all capital requirement.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. According to NCUA, 199 credit unions would have their capital classifications reduced if the proposal were adopted without modifications.

The proposed standard recognizes where credit unions are today, and looks forward, NCUA Chairman Debbie Matz said. "Under the proposed formula, 94% of credit unions would still be considered well-capitalized. The proposed rule is designed to ensure that credit unions taking excessively high risks will either reduce their risks or hold more capital to offset those risks," she added.

"CUNA supports capital modernization--including risk-based net worth--but as part of a broader plan that considers appropriate leverage ratios and also access to supplemental capital," Cheney said.

CUNA's Examination and Supervision Subcommittee has been meeting on this issue since May and will meet with NCUA Director of Examination and Insurance Larry Fazio soon. In addition to the 199 affected credit unions identified by NCUA, CUNA will also examine how all other credit unions would be impacted if the proposal is adopted.

"The bottom line for us is: If our members agree that this proposal is needed, our primary objective in developing our position will be to ensure a final rule is narrowly tailored to minimize any negative effects on credit unions. We are particularly troubled by the section of the proposal that would allow NCUA to raise the risk-based capital requirement of an individual credit union above the normal threshold levels based on subjective factors," Cheney said.

Credit unions will have 90 days to comment on the proposal after it is published in the Federal Register. After the comment period closes, it would likely take several months for a rule to be finalized. Once a final rule is adopted, the changes to capital requirements would not go into effect until approximately 18 months later. Therefore, credit unions will likely operate under current capital requirements until some time in 2016.

The agency on Thursday unveiled an online tool to help credit unions determine how they would be impacted by the proposal and released a YouTube video outlining the proposal. For more on the meeting, and the NCUA resources, use the resource links.

NCUA approves final derivatives investment rule

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ALEXANDRIA, Va. (1/24/14)--A final rule that will allow well-run federal credit unions to use simple derivatives to hedge against interest rate risks was approved at Thursday's National Credit Union Administration board meeting.

The NCUA plan will 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.

Credit unions that wish to have derivatives investment authority will go through a two-stage application process. In the first stage, the credit union must provide NCUA with an IRR mitigation plan to demonstrate how derivatives would contribute to that plan and how it will acquire the appropriate resources, controls and systems to implement a sound derivatives program. In the second stage, NCUA will evaluate the credit union based on its actual readiness to engage in derivatives transactions.

Credit unions can get interim approval within 60 days, and final approval within another 60 days after it submits the notice of readiness to NCUA that states the credit union has acquired and implemented all the necessary elements to comply with the final rule. A credit union may not begin using derivatives until it receives the final approval.

The rule will not apply to federally insured state credit unions.

Approved credit unions will be permitted to invest in:
  • Interest rate swaps, caps, and floors;
  • Basis swaps; and
  • Treasury futures.
Credit unions must have CAMEL ratings of 1, 2, or 3, and a management rating of 1 or 2, to be eligible.

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.

CUNA's Donovan gives CU breach perspective in American Banker

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WASHINGTON (1/24/14)-- The issue of data security, as the result of data breaches such as at Target, ebbs and flows--but it keeps coming back because safeguards are not taken to stop the breaches from happening, a top Credit Union National Association advocate says in American Banker, a trade publication.
 
CUNA Senior Vice President of Legislative Affairs Ryan Donovan said in a Jan. 23 article in the Banker that "in the six to 10 weeks after a breach, there's a lot of attention given to this issue, but as the headlines fade so does the attention."
 
 "What doesn't change is that this issue keeps coming back, and it keeps coming back because safeguards aren't taken to keep these breaches from happening," he said.
 
The article noted: "The theft of personal data on as many as 110 million Target customers over the holidays--followed by reports of a similar attack at Neiman Marcus--has spurred calls for new congressional hearings on the issue, proposed legislation to protect consumer information and competing letters to Congress from Washington trade groups representing the financial services and retail industries."
 
In fact, CUNA--back on Jan. 3--sent a letter to House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Rep. Maxine Waters (D-Calif.) , the committee's ranking Democrat, encouraging the U.S. Congress to conduct hearings regarding the Target breach, to "fully examine the chronic issue of merchant data breaches, their impact on consumers and financial institutions."
 
CUNA President/CEO Bill Cheney wrote in that letter, "Failure to hold merchants fully accountable for data breaches when they occur ultimately harms consumers, undermines their confidence in our payments system, and adds to their growing frustrations that government is not protecting their interests."
 
The American Banker article noted that Sens. Tom Carper (D-Del.) and Roy Blunt (R-Mo.) recently reintroduced a bill to require all entities involved in card payments to do a better job in protection consumer's information and to set national consumer notifications standards in the event of a breach.
 
In the article, CUNA's Donovan called the Carper legislation a "good start," but said CUNA is pushing that any data security bill include additional provisions, including language to require that the breached entity, such as Target, to be responsible for the ensuing costs.

"When there's a breach like this, the cost of making sure the consumers are protected is covered by the financial institution that issues the card," he said. "We're the ones making the decision to reissue the card and monitor the accounts, and we also have the obligation to notify the consumer."

Among others quoted in the article were Edward Mills, a policy analyst at FBR Capital Markets, and Mark Calabria, a former Senate Banking Committee staffer and now director of financial regulation studies at the Cato Institute.

CFPB proposes first oversight of larger nonbank int'l money transfer providers

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WASHINGTON (1/24/14)--Larger nonbank international money transfer providers would be subject to the Consumer Financial Protection Bureau's existing remittance regulations under the terms of a new proposal released Thursday.

"The CFPB's remittance rule provides strong consumer protections like better disclosures and the correction of errors," CFPB Director Richard Cordray said in a release. "Today's proposed rule would help us provide oversight across the entire market so consumers get the protections they deserve," he added.

The proposal defines a larger nonbank international money transfer provider as an entity that provides more than 1 million international money transfers annually.

Nonbank providers transfer approximately $50 billion annually through about 150 million individual international money transfers, according to CFPB estimates. The proposed rule would bring new oversight to the 25 largest nonbank money transfer firms.

The proposed rule will be open for public comment for 60 days after it is published in the Federal Register.

The CFPB's remittance rule requires transfer firms to provide prepayment and receipt disclosures to the consumer sender that include the exchange rate, certain fees and taxes associated with a transfer, and the amount of money that will be received on the other end of the transfer. Remittance transfer providers are also required to investigate disputes and correct errors.

Strategic plans, loan rate cap approved at NCUA meeting

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ALEXANDRIA, Va. (1/24/14)--A packed January board meeting agenda led off with approval of three relatively routine items: The National Credit Union Administration's 2014-2017 Strategic Plan, 2014-2015 Annual Performance Plan, and federal credit union interest rate ceiling determination.

The NCUA Strategic Plan highlights the agency's four strategic goals, and supporting strategic objectives which reflect the outcome or greater impact of the broader strategic goals. The four strategic goals for 2014 through 2017 are:
  • Ensuring a safe, sound, and sustainable credit union system;
  • Promoting consumer protection and financial literacy;
  • Further developing a regulatory environment that is transparent and effective, with clearly articulated and easily understood regulations; and
  • Cultivating an environment that fosters a diverse, well trained and motivated staff.
The Credit Union National Association in a recent letter urged the agency to use its strategic plan to detail:
  • How the agency plans to provide regulatory relief to credit unions;
  • What efforts it will make to improve the examination process;
  • How NCUA will address cost containment and how the agency's budget correlates to its Strategic Plan; and
  • How will NCUA improve its overall communications plan.
CUNA also suggested the NCUA could improve its strategic plan review process to better allow sufficient time for stakeholder input.

The 2014-2015 Annual Performance Plan provides specific direction to implement the strategic objectives and highlights specific goals, indicators and targets to measure agency progress towards each objective for the coming year, the NCUA said.

The agency also approved language that will extend the current 18% interest rate ceiling for federal credit union loans through September 10, 2015. CUNA supports continuation of the 18% ceiling at least for an additional 18 months.