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Corporate CUs get loan guarantee program

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ALEXANDRIA, Va. (10/17/08)--The National Credit Union Administration (NCUA) Thursday announced a corporate credit union liquidity guarantee program that will operate from Oct. 16, 2008, through June 30, 2009. The program is similar to the “Temporary Liquidity Guarantee Program” announced by the Federal Deposit Insurance Corporation Oct. 14, 2008, and is intended to provide corporate credit unions with competitive standing in the debt market. The National Credit Union Share Insurance Fund (NCUSIF) is providing federally insured corporate credit unions with a 100% guarantee on new unsecured debt obligations. The guarantee is subject to terms detailed in the program. To qualify, new unsecured debt obligations must be issued by eligible corporate credit unions on or before June 30, 2009, and mature on or before June 30, 2012. Included promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt, the agency announcement said. The NCUA provided the following details: The amount of debt obligations covered by the guarantee per eligible corporate credit union may not exceed the greater of:
* 100% of the eligible corporate credit union’s maximum unsecured debt obligations outstanding during the period Sept. 30, 2007 through Sept. 30, 2008; * An amount determined by written approval of the agency’s director of the Office of Corporate Credit Unions, with the prior concurrence of its director of the Office of Examination and Insurance, not to exceed $100 million; or * An amount determined by the NCUA Board.
All corporate credit unions are automatically covered for debt obligations issued through Nov. 17, 2008. Corporate credit unions may elect to opt out of the program by providing notice to the NCUA Office of Corporate Credit Unions. The NCUSIF will charge participating corporate credit unions a fee of 75 basis points per year on the outstanding balance of guaranteed debt obligations. "While this new Board action is directed at addressing corporate liquidity issues, I think it is important that natural person credit unions be fully aware of all of their options in this very tight and difficult liquidity situation, including the Central Liquidity Facility (CLF),” said NCUA Chairman Michael Fryzel when announcing the guaranty program. “The standards for CLF borrowing are stringent, and our evaluation of requests will be thorough, but credit unions should know that their short-term liquidity needs can be addressed through CLF borrowings. I encourage all appropriate use of the CLF as another means to maintain liquidity and confidence in the credit union system during these uncertain times." Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn said both CUNA and the Association of Corporate Credit Unions had urged agency action. “We commend them for taking this step,” she said.

Inside Washington (10/16/2008)

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* WASHINGTON (10/17/08)--Federal Reserve Board Chairman Ben Bernanke said in a speech before the Economic Club of New York Wednesday that the Federal Reserve Board believes that the difficulties experienced by firms in financial distress should be addressed through private sector arrangements. “Government assistance should be provided with the greatest reluctance and only when the stability of the financial system, and thus the health of the broader economy, is at risk.” Bernanke also mentioned the Troubled Asset Relief Program (TARP), which was announced earlier this week. “We look to strong institutions to participate in this capital program,” he said ... * WASHINGTON (10/17/08)--Sen. Charles Schumer (D-N.Y.), Joint Economic chairman, said Treasury Department officials appear receptive to some guidelines he wants placed on banks regarding how they are using funds provided by the government to free up credit (CongressDaily Oct. 15). Schumer is concerned the money will not make its way to “Main Street,” and thus encouraged the Treasury to adopt four guidelines. The guidelines would urge banks to use the money to aid small business, refinance mortgages, limit executive compensation and prevent the use of “exotic financial instruments” ...

Incidental powers okd shared insurance sign unveiled

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WASHINGTON (10/17/08)—The National Credit Union Administration (NCUA) Thursday approved an updated list of pre-approved incidental powers for credit unions and asked for comments on a plan to amend share insurance sign requirements for federally insured credit unions participating in shared branding networks. The NCUA changed its incidental powers rule (Part 721) by adding
Click to view larger image Before the official board meeting, the NCUA hosted a brief reception in honor of International Credit Union Day. From left, NCUA Associate General Counsel John Ianno; Dave Marquis, director of NCUA's Office of Examination and Insurance; and Kathy Thompson, CUNA senior vice president and associate general counsel for regulatory compliance and legislative law. (Photo provided by CUNA)
illustrations of permissible activities under the categories of correspondent services, operational programs, and finder activities. The new final rule, unchanged since it was proposed, is intended to consolidate published legal opinion letters issued since 2001. Examples of newly included incidental powers for federal credit unions include: providing correspondent services to foreign as well as federal or state-chartered credit unions; finder activities to introduce members to an outside vendor; and payroll services. In addition to the illustrations contained in the regulation, NCUA staff clarified that, upon request, credit unions may seek a determination by NCUA whether a certain activity qualifies as an incidental power. The NCUA board also approved a thirty-day comment period for a proposed rule to amend the share insurance sign requirements for federally insured credit unions participating in shared branding networks. The NCUA staff explained that a comment period was being issued, rather than an interim final rule, to allow for comments that may educate staff on some inner workings of shared branching with which they may be unfamiliar. The proposal is intended to simplify the NCUA’s existing rules governing a required second sign that must be adjacent to the official NCUA insurance sign in shared-branching situations. For instance, currently the second sign must list each federally insured credit union served by a teller, along with a statement naming those credit unions that are federally insured. The proposed rule would replace the required list of credit unions with a general statement that not all of the credit unions served by the teller are federally insured and members should contact their credit union for further information. (See related story: NCUSIF report delivered; “underserved” plan held over) Use the resource link below for more information on the incidental powers rules and the insurance sign proposal.

NCUSIF report delivered underserved plan held over

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WASHINGTON (10/17/08)—The two biggest news items to come out of the
Click to view larger image NCUA Board Chairman Michael Fryzel discusses the National Credit Union Share Insurance Fund with NCUA Chief Financial Officer Mary Ann Woodson (not shown). (Photo provided by CUNA)
National Credit Union Administration (NCUA) open meeting Thursday were the presentation to the board of the third quarter share insurance fund report and the board’s removal of its “underserved areas” proposal from the agenda. At the Thursday meeting, NCUA Chief Financial Officer May Ann Woodson reported that the National Credit Union Share Insurance Fund’s (NCUSIF’s) third-quarter equity ratio is 1.28%. She projected the ratio to remain at that level each of the remaining three months of the year. If accurate, that would preclude a possibility of an NCUSIF dividend to federally insured credit unions, but would also mean that no premium would be required. Woodson also reiterated for the agency that the recent, temporary statutory increase in share insurance coverage to $250,000 will not affect any decision as to whether a premium will be required. The insurance report noted that while the increase in the number of
Click to view larger image Click for larger view
credit unions earning the riskier CAMEL 4 and 5 ratings was not dramatic for 2008, the level of total shares represented by those credit unions jumped sharply. As of Sept. 30, the NCUA reported 246 CAMEL Code 4/5 credit unions, compared to 211 for 2007. However, the percentage of shares to total insured shares in these lower-ranked credit unions jump to 2.08%--doubling the 1.04% year-end 2007 figure. THE NCUSIF report also noted that the total insurance loss expense for 2008 is projected to be approximately $152 million, with the agency expecting an additional $13.5 million in losses between September and year end. The NCUA CFO traditionally makes a public accounting of NCUSIF before the NCUA board on a quarterly basis. Chairman Michael Fryzel asked Woodson to prepare to report monthly until the end of the year. Additionally, the chairman asked his CFO to prepare an additional slide to her presentation, one which would provide clearer information regarding insurance loss expense. Currently, the NCUSIF report described losses as zero for years when there were losses, but those losses simply brought down the reserve balance since the fund was over reserved for those years. For accurate comparison, Fryzel asked for historical NCUSIF realized loss amounts, in addition to loss expense. Regarding the proposal intended to clarify “underserved areas,” an NCUA spokesman said the proposal was removed from the agenda because it is still under consideration; it has not yet been rescheduled for action. Fryzel said at the beginning of the meeting that the agency was continuing its work on the plan to determine if there are ways to “make it better for credit unions.” The proposal was issued for comment last summer by the NCUA. It is intended to clarify the procedure for establishing that an "undeserved area" qualifies as a local community; address the application of economic distress criteria; and clarify requirements for showing an area has "significant unmet needs," including the use of data from NCUA and other agencies to analyze whether an area is "undeserved by other depository institutions." The Credit Union National Association (CUNA) has strongly opposed the agency's proposed action, finding the plan inconsistent with the Federal Credit Union Act and, overall, very poor public policy that would limit, rather than enhance, service to underserved areas. (See related story: Incidental powers ok’d, shared insurance sign unveiled.) Use the resource link below to access the NCUA’s NCUSIF Power Point presentation.