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FFIEC releases interest rate risk advisory

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WASHINGTON (1/8/10)--The Federal Financial Institutions Examination Council (FFIEC) in an interest rate risk (IRR) advisory released on Thursday reiterated “the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the IRR exposures of depository institutions.” The FFIEC is comprised of the National Credit Union Administration and the federal bank and thrift regulators. The advisory “also clarifies elements of existing guidance and describes some IRR management techniques used by effective risk managers,” the FFIEC said. While the FFIEC recognizes that financial institutions will always encounter some risk, the group said that “institutions are expected to have sound risk-management practices to measure, monitor, and control IRR exposures,” adding that financial institutions are expected to manage their exposure to risk “using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations.” “Effective” risk management systems do not involve “only the identification and measurement” of risk, but the “appropriate actions to control this risk,” The FFIEC added. “If an institution determines that its core earnings and capital are insufficient to support its level of IRR, it should take steps to mitigate its exposure, increase its capital, or both,” the release said. The FFIEC release was not unexpected. As Mike Schenk, senior economist at the Credit Union National Association pointed out Thursday after the agency released the guidance, financial institutions have exposures to interest rate risk and interest rates will surely move higher in the future. “FFIEC is making it clear that this will cause rate risk exposure to be a point of emphasis in the exam process,” Schenk said, and added, “Low home prices, low mortgage interest rates, and government purchase incentives have translated into a fairly high volume of originations of fixed-rate, long-term mortgages at the nation's financial institutions - all equal more interest rate risk.” At credit unions, fixed-rate mortgages with terms greater than 15 years increased from 29% of total first mortgages outstanding to 37% of total first mortgages outstanding in the past three years. “However,” Schenk said, “it is important to remember that these 15-plus year fixed-rate mortgages represent just 9% of credit union total assets: While interest rate risk exposure has increased, it is limited when balance sheets are viewed broadly. In addition, credit unions have a long track record that makes it clear that they are very good at measuring, monitoring and controlling this risk.” For the full FFIEC advisory, use the resource link.

Next financial lit commission meeting set for Jan. 20

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WASHINGTON (1/8/10)--The U.S. Treasury Department announced on Thursday that the next open meeting of its Financial Literacy and Education Commission (FLEC) will be held on Jan. 20. FLEC is a 20-agency commission lead by the U.S. Treasury Secretary. It was created by Congress in 2003 to create a national strategy for financial education and the National Credit Union Administration (NCUA) is one of the many federal agencies that take part. An agenda for the meeting, which will be held in the Treasury Building, has not yet been made public. While there will be public seating at the meeting, only commission members, special guests, and commission staff members will be allowed to address the floor.

Regulators MBL view NCUA webinar now archived

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ALEXANDRIA, Va. (1/8/10)—Credit unions and others interested in the regulators perspective on member business lending (MBL) can now access an archived version of the National Credit Union Administration’s (NCUA’s) webinar on the subject. Available online through the agency website, the archive includes the actual webinar, the webinar PowerPoint presentation, and a webinar transcript, as well as and frequently answered questions (FAQs). The detailed slides, transcript, and FAQs provide guidance, best practices and insight into examination of member business lending. "This webinar offers credit unions insights into federal and state regulators’ perspectives on member business lending," noted NCUA board member Gigi Hyland in announcing the online availability. She added, “I hope credit unions will avail themselves of the information and resources in order to facilitate their conversations with examiners on this topic.” The Credit Union National Association (CUNA) supports proposed legislation to increase the statutory MBL cap to 25% of assets, up from the current 12.25%. CUNA continues to advocate such a change to key Obama administration officials and on Capitol Hill. Use the recess link to access the NCUA webinar.

Inside Washington (01/07/2010)

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* WASHINGTON (1/8/10)--The Federal Deposit Insurance Corp. (FDIC) could vote Tuesday on a proposal that would base the premium fees lenders pay the FDIC for deposit insurance on the risk profile of executives’ pay packages (The Wall Street Journal Jan. 7). If the plan is adopted, banks with pay structures perceived as less risky could be given a break on fees. However, firms with riskier structures could pay more. The proposal is the latest effort by government to curb executive pay structures ... * WASHINGTON (1/8/10)--With Senate Banking Committee Chair Christopher Dodd’s (D-Conn.) announcement that he will not run again for his seat on the committee, financial observers expect that his likely successor, Sen. Tim Johnson (D-S.D.) will tackle regulatory reform--including that of Fannie Mae and Freddie Mac. If government-sponsored enterprise reform is going to happen--it will happen next year, according to Jaret Seiberg, analyst at Concept Capital (American Banker Jan. 7). He said the Senate Banking Committee will be “in the middle of the debate.” Consumers groups are concerned that Johnson may not be as committed as Dodd was to making sure the underserved can access private-sector products and services. However, Johnson’s appointment could benefit community banks. He has pushed for deposit insurance limit increases and stopped Wal-Mart from buying an industrial loan company in Utah. He also is likely to ensure that the deposit insurance cap remains at $250,000. The cap is due to expire in 2014, returning to $100,000. Credit union accountholders insured by the National Credit Union Share Insurance Fund also are covered on each account up to $250,000 ... * WASHINGTON (1/8/10)--Regulatory reform may be more likely, but it also may be more moderate, financial observers said. Senate Banking Committee Chair Christopher Dodd (D-Conn.) will not seek re-election for his seat, giving him more time to focus on reform. Dodd was criticized in 2008 for running for president while the financial crisis was at its peak. The senator introduced a tough reform bill in November, but backed away from it after committee members urged him to take a more bipartisan approach. Dodd has grouped together committee members to try and reach a consensus. However, as a result, the bill may be scaled back. The shift gives more leverage to Sen. Richard Shelby (R-Ala.), committee ranking member, said Mark Calabria, former Shelby aide. While some observers expect lawmakers to compromise on consumer protection, Amos Hochstein, former Dodd adviser, told American Banker (Jan. 6) that Dodd will likely stay true to his values. He has strong views on consumer issues, and he has not pursued them for political motivation, Hochstein said ... * WASHINGTON (1/8/10)--Federal Reserve Board officials are split on how to move forward with mortgage-backed securities, minutes from a December meeting indicate (The Wall Street Journal Jan. 7). The Fed is expected to purchase $1.25 trillion of securities by March. The purchases keep mortgage interest rates down, which boost the housing and financial markets. But when the Fed quits buying, rates could go up. Officials say the Fed should expand its program beyond the first quarter to keep the recovery’s momentum going. However, at least one Fed official said the program should be scaled down because the economy is improving ...

SBA Administrator Mills joins GAC lineup

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WASHINGTON (1/08/10)—U.S Small Business Administrator Karen Mills has agreed to address the Credit Union National Association’s (CUNA’s) Governmental Affairs Conference (GAC) during the Tues Feb. 23 general session. Mills, who became the head of the Small Business Administration (SBA) in April last year, has during her tenure voiced an eagerness to increase her agency’s cooperation with credit unions and small banks as a means of increasing small business activity. CUNA has a longstanding effort to address with the SBA issues of complex applications and high fees that can act as a roadblock to credit union participation to 7 (a) and 504 guaranteed loan programs. Mills joins a growing roster of heavy-hitter speakers signed onto address CUNA’s GAC. Other speakers include: House Majority Whip Rep. James Clyburn (D-S.C.), House Financial Services Committee Chairman Barney Frank (D-Mass.), that committee's ranking Republican member Rep. Spencer Bachus (R-Ala.), senior members of the committee, Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.), and National Credit Union Administration Chairman Debbie Matz, among many others. As noted in News Now’s Jan. 7 edition, there has been a deadline extension to Jan. 27 for reserving hotel accommodations through CUNA's Housing Bureau. Credit union representatives still needing to reserve accommodation for the GAC should contact the CUNA Housing Bureau website using the resource link below, or call 1-800-974-3084 Monday-Friday from 9 a.m. to 5 p.m. (ET). Use resource links below for more GAC information.