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Treasury gets 10B in NCUA corporate loan repayment

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Alexandria, Va. (10/14/10)—Late yesterday, the National Credit Union Administration (NCUA) announced it has repaid $10 billion, plus interest, to the U.S. Department of Treasury. They repayment was made using proceeds from selling performing assets of two formerly conserved corporate credit unions. The NCUA said the repayment came, in part, from $9.5 billion raised by selling select assets from U.S. Central FC, of Lenexa, Kan., and Western Corporate (WesCorp.) FCU, of San Dimas, Calif. The sales included securities backed by performing residential and commercial mortgages, credit card receivables, student loans and auto loans. The proceeds from those sales allowed the NCUA to repay a $10 billion loan from the Treasury to the agency’s Central Liquidity Facility (CLF). In 2009, the CLF transferred the $10 billion to the National Credit Union Share Insurance Fund (NCUSIF) so the insurance fund could stabilize U.S. Central and WesCorp with a $5 billion loan to each. Future borrowings from the Treasury for corporate stabilization will be assigned to the Corporate Stabilization Fund. “Paying off the $10 billion in loans clears the balance sheets of both the CLF and the Share Insurance Fund,” said NCUA Chairman Debbie Matz. “This is a significant first step in NCUA’s orderly corporate resolution process.” The next step in the resolution, according to the NCUA, is to begin securitizing cash flows from “legacy assets,” which are mostly impaired mortgage-backed securities from five corporates that currently are either in conservatorship or have been converted to asset management estates. “While the legacy assets will be transferred to securitization trusts, new securities matched to their cash flows will be sold in financial markets with an unconditional guarantee backed by the full faith and credit of the United States,” the NCUA release said. Starting this week, these NCUA Guaranteed Notes will be offered under the ticker symbol NGN. The initial offering is one of a series of similar transactions that NCUA intends to conduct in order to affect the corporate resolution plan. “Since the NCUA Guaranteed Notes are backed by the federal government, similar to U.S. Treasury securities, these investments carry a zero risk weight and are permissible for credit unions,” said Chairman Matz.

Three Dog Night concert to kick off 2011 CUNA GAC

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WASHINGTON (10/14/10)--Bringing its extensive catalogue of hits like “Joy to the World,” “Eli’s Coming” and “One,” the legendary super group Three Dog Night will headline the kickoff concert Feb.27 at the Credit Union National Association’s (CUNA) Governmental Affairs Conference (GAC) in Washington, D.C.
Click to view larger image Popular seventies group Three Dog Night will headline the kickoff concert Feb. 27 at the Credit Union National Association's 2011 Governmental Affairs Conference (GAC) in Washington, D.C. (Photo provided by CUNA)
The Sunday evening kickoff concert, sponsored by the CUNA Councils, has become a GAC tradition. The evening begins with a reception in the conference Grand Exhibit Hall in the Washington Convention Center at 7 p.m., followed by the Three Dog Night concert at 8:30 p.m. The concert is open to all GAC attendees and registered guests. From 1969 through 1974, no other group achieved more top 10 hits than Three Dog Night. Since 1986, it has performed more than 2,000 shows, including two Super Bowls. Today, as it marks 40 years on the road, the band continues to top the list of artists with the best “Billboard Top 100 Chart” average. CUNA’s 2011 GAC will be Feb. 27 through March 3 at the Washington Convention Center. Registration and housing lines are open. The 2011 GAC will also feature keynote remarks on leadership from Chesley B. “Sully” Sullenberger III, the heroic pilot who landed US Airways flight 1549 on the Hudson River and saved the lives of 155 people. It also will feature a political debate between Republican strategist Mary Matalin and Arianna Huffington, co-founder of the Huffington Post. Additional GAC speakers, including those from Capitol Hill, the administration and the federal regulatory agencies, will be announced in coming weeks. For more information on the 2011 GAC, call CUNA at 800-356-9655, ext. 5700, e-mail or use the link. For program information, call 800-356-9655, ext. 6759. All GAC 2011 information will be updated on the GAC website.

Inside Washington (10/13/2010)

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* WASHINGTON (10/14/10)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and U.S. Treasury Secretary Timothy Geithner have joined the White House in opposing a national moratorium on home foreclosures (Politico and American Banker Oct.13). Allegations of flawed paperwork have caused Bank of America Corp. to suspend foreclosures nationwide, while several other lenders temporarily halted foreclosures in 23 states. Dodd said a nationwide foreclosure moratorium could damage the economy and hinder the housing recovery. Geithner said a moratorium might hurt homeowners in neighborhoods that already have high numbers of empty houses by putting more downward pressure on housing prices... * WASHINGTON (10/14/10)--The Federal Deposit Insurance Corp. pledged to use severe restraint when tapping its new resolution powers to deal with the failure of giant firms. The Dodd-Frank regulatory reform law enables the agency to treat similar firms differently when handling the resolution of a large firm that could pose a systemic risk if allowed to go into bankruptcy (American Banker Oct. 13). The law allows the FDIC to pay more to creditors who provide essential services for the failing firm. The FDIC has proposed a limited rule that would bar some creditors from favorable treatment, including shareholders, subordinated-debt holders and long-term holders of senior debt. There is a 30-day comment period on the limited rule... * WASHINGTON (10/14/10)--House Financial Services Committee Chairman Barney Frank (D-Mass.) this week said that his committee would hold a hearing on the Financial Crimes Enforcement Network’s (FinCEN) recent wire-transfer proposal. As reported in American Banker, Frank said that the FinCEN proposal would “further increase bank costs” and liabilities. "The need to better identify and track flows of terrorist funds is clear. I am not persuaded that such a broad-scale policy change is the best way to achieve that goal," Frank added. The FinCEN proposal, which would require some depository institutions and money services businesses to provide FinCEN with records of certain cross-border electronic transmittals of funds, will likely not impact credit union practices…

St. Paul Croatian FCU fraud may cost NCUSIF 170M

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ALEXANDRIA, Va. (10/14/10)--The National Credit Union Administration (NCUA) Office of Inspector General (OIG) revealed today that St. Paul Croatian FCU was catapulted into a liquidation by fraudulent loans, some allegedly masked by the credit union’s CEO. The IG’s material loss review of the Eastlake, Ohio. credit union noted that the NCUA projected an estimated loss of $170 million to the National Credit Union Share Insurance Fund directly attributable to the liquidation. The IG review noted that as of Dec. 31, 2009, the credit union had approximately $238.8 million in total assets and that St. Paul had a “substantial majority of its assets in loans that were supposedly secured by members’ shares.” However, an examination at that time found the majority of the loans were not actually share-secured and a that number of them were “allegedly fraudulent.” “The NCUA also found that St. Paul’s chief executive officer manipulated loan records and masked the suspected loan fraud by constantly refinancing certain loans or making advance payment on those loans,” the report said. The review also said that the IG determined a number of failures regarding the credit union management’s obligations to implement proper internal controls. The review said, specifically, management did not:
*Ensure adequate internal controls were in place; * Ensure adequate policies were in place and adhered to; and * Resolve prior examiner findings in a timely fashion.
In fact, the review indicated, the state of management was so abysmal at the time of the liquidation that once the credit union was placed in conservatorship and the CEO was removed, the remaining nine-person staff wasn't familiar enough with operations to run the credit union. It was quickly liquidated soon after. The IG review also took NCUA examiners to task noting, in part, that the examiners “did not adequately evaluate the risks to St. Paul operations.” According to the IG, the examiners did not thoroughly evaluate the credit union’s internal controls when assessing transaction risk, ensure credit union management took corrective actions when failures were documented, nor did they expand examination procedures when “red flags” indicated higher risks St. Paul Croatian was chartered in 1943 and had almost 5,400 members at the time of its liquidation.

NCUA alt. capital plan gets joint CUNA-NAFCU support

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WASHINGTON (10/14/10)--Joining together on an issue of “utmost significance” to credit unions, the Credit Union National Association (CUNA) and National Association of Federal Credit Unions (NAFCU) jointly backed the National Credit Union Administration’s (NCUA’s) proposal on alternative sources of capital for credit unions. In a joint letter, CUNA and NAFCU thanked NCUA Chairman Debbie Matz for her leadership on the important issue and asked for further meetings with agency staff on pursuing supplemental capital legislation. Last December, the NCUA contacted House Financial Services Committee Chairman Barney Frank (D-Mass.) to propose the following:
* The law should be changed to allow qualifying credit unions, as determined by the NCUA board, to issue alternative forms of capital to supplement their retained earnings. To ensure the proper authority, alternative forms of capital would be subject to necessary regulations addressing safety and soundness criteria, investor protections, and any impact on the cooperative credit union governance model; and * Using the model of low-income designated credit unions, which are authorized to offer uninsured secondary capital accounts to non-members, the Federal Credit Union Act should be modified to permit qualifying credit unions to offer uninsured alternative capital instruments subject to regulatory restrictions and to expand its definition of net worth to include those instruments. These changes would allow well-managed credit unions to better manage net worth levels under varying economic conditions.
The CUNA-NAFCU letter notes that the executive committees of CUNA and NAFCU recently met to discuss a number of issues of relevance to the credit union industry. “We were very pleased to note that your proposal, while adding a risk-based capital regime, was in keeping with the set of principles, joint statement, and draft legislative language that we developed (at NCUA’s request),” said the letter signed by CUNA President/CEO Bill Cheney and NAFCU President Fred Becker. It added, “Recognizing that alternative capital is an issue of ever-increasing importance, we endorse your proposal and ask for your leadership and assistance in moving capital reform expeditiously forward through the legislative process in the first session of the 112th Congress.”

Monthly SAR report zeros in on debt relief fraud

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Vienna, Va. (10/14/10)--Among a scattershot of articles featured in its 18th monthly review of suspicious activity, the Financial Crimes Enforcement Network (FinCEN) offered analysis of Suspicious Activity Reports (SARs) by depository institutions that addressed “debt relief” and “debt settlement.” FinCEN credited depository institutions with becoming more aware of such fraudulent practices and noted that, while only two SAR reports on debt settlement activities were filed in 2006, 42 were filed in just the first half of 2010. In all, from January 2006 through June 2010, financial institutions filed 115 SARs totaling $135 million related to fraudulent debt. Use the resource link below to read more on the types of fraud uncovered and what tipped it off. Also of interest to some credit unions, Section IV of the monthly report features an article geared toward compliance officers, and called “Helping Your Board of Directors to Understand the Value of BSA Information.”

CUNA offers summit for CU response to corporate plan

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WASHINGTON (10/14/10)--The Credit Union National Association (CUNA) is coordinating and hosting a summit meeting in the next few weeks, one which will give credit union stakeholders the opportunity to come together as a system to develop a plan for the future of corporate credit unions. In announcing the summit, CUNA President/CEO Bill Cheney noted, “CUNA has been asked by a large number of credit unions and others to help the industry chart a path to the future on these issues.” He pledged that CUNA, working with the credit union system, will do everything within its power to help address questions that have arisen since the National Credit Union Administration (NCUA) approved new corporate credit union and legacy asset rules on Sept. 23. Common questions posed to CUNA include those concerning the future role of corporate credit unions in providing key payments, settlement, liquidity, and investment advisory services to natural person credit unions. The CUNA leader commended other system efforts to work on “various approaches” to these issues. “Even so,” he emphasized, “I think that it will be highly beneficial and productive for the credit union system if such efforts are coordinated, to the extent possible, and are consistent with an overall vision to ensure that all credit unions have access to the operational support services they need.” “There are no more important issues now than how we, together, address corporate credit union services. This is why CUNA will be hosting the summit and continuing our work to pursue solutions not only for the transition period under the new rule but for the future,” Cheney said. News Now will provide summit details as they become available.