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NCUA approves stabilization efforts for corporates

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ALEXANDRIA, Va.(1/29/09)--The National Credit Union Administration (NCUA) Wednesday took steps to “enhance and support” the corporate credit union system. The system, NCUA noted, is facing liquidity and capital strains due to extraordinary market disruptions and the current economic climate. Corporate credit unions provide investment and liquidity services to consumer-owned natural person credit unions. The agency said its three-pronged initiative will provide natural person credit unions important safeguards by drawing upon the strong, aggregate capital already within the credit union system. Under the actions approved at a special closed meeting, the NCUA will:
* Guarantee uninsured shares at all corporate credit unions through February 2009, and establish a voluntary guarantee program for uninsured shares of all corporate credit unions through Dec. 31, 2010; * Issue a $1 billion capital note to U.S. Central Corporate FCU (U.S. Central); * Issue an Advance Notice of Public Rulemaking (ANPR) on restructuring the corporate credit union system; and * Declare a premium assessment to restore the National Credit Union Share Insurance Fund (NCUSIF) equity ratio to 1.30 percent. The premium will be collected in 2009.
The $1 billion injection is intended to provide reserves to offset anticipated realized losses on some mortgage- and asset-based securities held by U.S. Central, known as the “corporates’ corporate." U.S. Central announced it expects to report a net loss of approximately $1.1 billion for the year ended Dec. 31, 2008, when it makes public its financial results during the first week of February. U.S. Central attributed the net loss to charges for other-than-temporary impairments (OTTI) of $1.2 billion. (See related News Now story: "U.S. Central to release '08 financials next week.") Regarding the ANPR, the NCUA set a 60-day comment period, which will begin when the document is published in the Federal Register, likely within the next week or so. The NCUA said it is seeking input on “the entire range of areas” of potential reform and restructuring for the corporate system, and the ANPR specifies the following: The role of corporates in the credit union system, corporate capital, permissible investments, credit risk management, asset liability management, and corporate governance. The NCUA previously approved an action that will, in effect, change the way current outstanding loans from the Central Liquidity Facility (CLF) are booked by corporate credit unions, as well as by U.S. Central. At its monthly board meeting last week, the NCUA Board voted 2 to 1 to delegate to CLF President Owen Cole authority to sign an amendment to the Repayment, Security and Credit Reporting Agreement currently in place between U.S. Central and the CLF. Cole could also amend an Assignment Agreement between U.S. Central and the CLF. The Credit Union National Association (CUNA) recently established a Corporate CU Task Force, which is meeting in Washington, D.C. today. The task force will focus on developing CUNA's response to the ANPR, said CUNA Deputy General Counsel Mary Dunn Wednesday. CUNA's analysis of the ANPR and the NCUA’s other actions regarding corporate credit unions will be available on CUNA's Regulatory Advocacy website soon.

Inside Washington (01/28/2009)

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* WASHINGTON (1/29/09)--Rep. Spencer Bachus (R-Ala.) Tuesday announced that the House Financial Services Committee has selected subcommittee seats and ranking member positions. For a complete list of names, use the link. .. * WASHINGTON (1/29/09)--The Federal Housing Finance Agency has published an interim rule in the Federal Register addressing the critical capital level and four capital classification categories for the Federal Home Loan Banks. Banks will be considered “undercapitalized” if their assets are 3% to 4% of capital, “significantly undercapitalized” if the figure is between 2% and 3%, and “critically undercapitalized” if assets are under 2%. The rule also implements prompt corrective action provisions that the Housing and Economic Recovery Act of 2008 (HERA) applied to the banks. If banks wrote off their portfolios of private mortgage-backed securities, only Des Moines, New York, Dallas and Cincinnati banks would be adequately capitalized, according to Moody’s (American Banker Jan. 28). The FHFA also published a regulation Tuesday that would allow Fannie Mae and Freddie Mac to grow their mortgage assets up to $850 billion by Dec. 31. Starting Dec. 31, 2010, they must hold 10% fewer mortgage assets in their portfolios than at the end of the preceding year until those assets reach $250 billion ... * WASHINGTON (1/29/09)--The U.S. Supreme Court has agreed to hear a case in April involving New York Attorney General Andrew Cuomo, who charges that JPMorgan Chase and Co., Wells Fargo and Citigroup gave white borrowers lower-priced mortgages than they gave to minority borrowers. The case involves a state’s right to request data from banks to ensure compliance with state anti-discrimination laws. Observers question the court’s decision to hear the case because the court ruled in April 2007 that states were not allowed to investigate federal institutions (American Banker Jan. 29). The court may have taken the case to confirm the Office of the Comptroller of the Currency’s preemption powers, observers say. The case also would let Justice Clarence Thomas weigh in on the preemptive powers issue since he has taken himself off of similar cases involving Wachovia, where his son works. Wachovia was recently purchased by Wells Fargo ... * WASHINGTON (1/29/09)--The Federal Deposit Insurance Corp. (FDIC) is proposing a national rate establishing how much banks can pay for brokered deposits. Currently institutions cannot pay more than the rates in their normal market area (American Banker Jan. 28). However, the agency recognized that normal market area is ambiguous because Treasury rates are low. If a national rate is established, the agency would still require that adequately capitalized banks obtain a waiver from the FDIC for new deposits. Uncapitalized banks and thrifts would not be able to accept deposits ... * WASHINGTON (1/29/09)--The Federal Reserve Board is attempting to stem foreclosures by requiring banks to modify select delinquent mortgages. Included in the mortgages are the assets the Fed acquired in the American International Group and Bear Stearns rescues ( Jan. 28). Democratic lawmakers, including Rep. Barney Frank (Mass.) and Sen. Christopher Dodd (Conn.), supported the move. Under the program, loans must be at least 60 days delinquent, have a debt-to-income ratio less than 38%, a term no longer than 40 years and a fixed interest rate (American Banker Jan. 28) ...

CU board removal authority limited says NCUA

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WASHINGTON (1/29/09)—The National Credit Union Administration (NCUA) reminded federal credit unions (FCU) that a board does not have blanket authority to remove a director. The NCUA legal opinion letter was responding to a query by a credit union board member who was removed when his or her seat was declared vacant by a special meeting of the board of directors. The agency said FCU Bylaws allow a board to declare a seat vacant only if the director fails to attend regular meetings or otherwise fails to perform any of the duties as a director. Even under those circumstances, a special meeting of the members would be needed to remove the director. The inquiring board member said, in declaring the seat vacant, the board relied on alleged infractions, including breach of confidentiality, divisive behavior, and breach of fiduciary duty. The NCUA noted, “Absent an affirmative membership vote at a special meeting, a director cannot be removed from membership on the board of directors.” The NCUA also pointed out that if a board believes a member is acting inappropriately, as did the board of the credit union in this instance, it may bring the issue to its supervisory committee, which can then suspend the director until a special meeting of members is called.

CU rep to head NACHA board

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HERNDON, Va. (1/29/09)—The Electronic Payments Association —NACHA--has elected a credit union representative as the chairperson of it board of directors. Marcie J. Haitema, executive vice president of correspondent services at U.S. Central FCU, in accepting the position said, “I’m honored to serve as chair of an organization that offers such universal value to depository institutions of all types and sizes, from the largest global banks to our community banks and credit unions.” She credited NACHA with working to maintain and improve the safety, soundness and efficiency that the ACH Network provides to its participants. She added that the group will continue to seek opportunities for growth of electronic payments in the global economy. Haitema joined U.S. Central in August 2005, where she oversees the correspondent services division, which includes payment and technology services, member support and related operations. She also serves as the presiding manager of Corporate Network eCom, LLC® (eCom), a credit union service organization (CUSO) and majority-owned subsidiary of U.S. Central responsible for electronic bill presentment and a payment suite of services. Another credit union official among the newly elected NACHA board members is David Willis, vice president, debit card and funds services, Navy FCU, Vienna, Va.

Judge denies stay in Bellco UBIT case

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WASHINGTON (1/29/09)—There was recent good news for Bellco CU in its lawsuit challenging the Internal Revenue Service’s (IRS) application of unrelated business income tax (UBIT). A federal court denied the government’s request to dismiss the case or order a stay of action. Attorneys for the IRS had argued that the case could not be decided until the IRS finished all of its audits of Bellco's tax returns. “It was rightfully a losing argument because the Internal Revenue Code specifically allows taxpayers to bring refund suits after their refund requests have been pending for six months,” noted Eric Richard, general counsel for the Credit Union National Association (CUNA). Bellco, of Greenwood, Colo.. filed its lawsuit last May against the tax agency's UBIT policies toward credit unions. The complaint seeks a refund of $199,000, based on UBIT taxes paid for 2000, 2001 and 2003. Now Bellco must wait for a trial date to be set. The trial date for the case, known as Bellco CU of Greenwood Village, Colo. vs. the United States, had originally been set for Aug. 31. On Dec. 22, 2008, however, U.S. District Court Judge Christine M. Arguello ordered that the date was "vacated." She did not set a new trial date and no reason was given for the delay. Of the latest action in the case, CUNA’s Richard said Bellco has moved one step closer to its goal of compelling the IRS to adopt a more reasonable position on UBIT. He said Bellco has a strong case, “essentially seeking to right a wrong that IRS has committed by forcing cooperatively owned, not-for-profit credit unions to pay tax on some of the financial services they offer.” The credit union’s refund claim is based on income generated primarily through sales of credit life and credit disability insurance over those three tax years. Revenue generated from sales of accidental death and disability insurance, and the credit union's involvement with CFS Member Financial Services, a credit union service organization, were included under the 2003 refund claim. The lawsuit contends that the revenue is substantially or otherwise related to the exempt purposes and functions of the credit union as a tax-exempt, state-chartered credit union. Bellco has asserted that no portion of the taxes paid were legally due. In a related case, a Wisconsin credit union filed a complaint in January 2008 against IRS seeking a refund of $54,000 in taxes paid in UBIT on income from several insurance products. Appleton-based Community First CU also contends that the revenue from sale of the products is "substantially related" to the purposes and functions of the tax-exempt, state chartered credit union. Federal Judge William Griesbach has set May 11 as the trial date for that case.