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Inside Washington (11/11/2009)

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* WASHINGTON (11/12/09)--House Majority Leader Steny Hoyer (D-Md.) announced that the schedule for the House of Representatives has been updated. The House is expected to be in session the week of Nov. 16, the week of Dec. 7, and the week of Dec. 14. It also could be in session on Dec. 21 and Dec. 22 if needed, Hoyer said. The schedule was updated because of action on health insurance reform legislation, which has now moved to the Senate ... * WASHINGTON (11/12/09)--Federal Reserve officials have commented on the idea of creating “living wills” for financial institutions, signaling some support. Fed Gov. Daniel Tarullo, during a speech before an international banking group Tuesday, said a living will has some limitations because it’s difficult to predict which parts of a financial firm will be under the largest amounts of stress during a crisis. A living will also should be used as a supervisory tool, where firms would draw up contingency plans, identify obstacles to an orderly resolution, and produce the information a supervisor would need to ensure a resolution, he said (American Banker Nov. 11). Eric Rosengren, president of the Federal Reserve Bank of Boston, said living wills should account for how regulators will handle a firm when a crisis hits. The wills could serve as a “mechanism to encourage greater synchronization of supervisory policies,” he added. Discussion regarding living wills has surfaced recently among lawmakers because of a bill introduced by Rep. Barney Frank (D-Mass.) that would require companies to submit wind-down plans to the government to guide regulators in taking apart an institution without damaging the financial system (News Now Nov. 10) ... * WASHINGTON (11/12/09)--Financial industry observers are discussing the impact on the financial system of a recent order barring the Federal Home Loan Bank of Seattle from redeeming or repurchasing stock or paying dividends. The Federal Housing Finance Agency (FHFA) considers the bank to be undercapitalized. Richard Riccobono, president of the Seattle bank, said he doesn’t think the decision will impact the rest of the system (American Banker Nov. 11). Alfred DelliBovi, president of the Federal Home Loan Bank of New York, agreed, saying the FHFA’s order is helping the bank return to profitability. However, Brian Harris, Moody’s Investors Service analyst, said the move will cause banks to think about when they could get their stock back. Jim Vogel, head of fixed-income research at First Financial Capital Markets Corp., said the impact will be wide, because member banks will worry that they won’t be able to withdraw their stock ...

2009 common BSA violations highlight at CUNA conference

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WASHINGTON (11/12/09)--During the recent Credit Union National Association/National Association of State Credit Union Supervisors (NASCUS) Bank Secrecy Act (BSA) conference held in San Franciso, the National Credit Union Administration (NCUA) highlighted many of the common compliance violations examiners are finding during BSA examinations. Many of these violations mirror those found in 2008. For instance, the NCUA reported that BSA training among some credit unions was not properly documented, was not comprehensive, and was not done frequently enough. The NCUA also noted that some credit unions may need to increase the frequency which with they review/update their risk assessments, as well as select anti-money laundering systems better suited to address the institution's risks. The NCUA also asked credit unions to increase the frequency and thoroughness of their independent testing. Independent testing should include transactional testing, and credit unions should use the Federal Financial Institutions Examination Council's (FFIEC) BSA/AML manual as a guide for their independent testing, the NCUA added. The NCUA said it continues to see repeated errors, such as incomplete forms and blank narratives on suspicious activity reports, and urged credit unions to utilize the BSA E-filing system. The agency also noted that the FFIEC BSA/AML Examination manual is being revised and that the revised manual should be available sometime in early 2010. The Office of Foreign Assets Control finalized its economic sanctions enforcement guidelines, which were recently published in the Federal Register with an effective date of Nov. 9. The guidelines outline the factors that will be considered in determining the appropriate enforcement response to an apparent violation of an OFAC sanctions program. This final rule supersedes all previous enforcement guidance issued by OFAC, and applies to all persons and entities subject to any of the sanctions programs administered by OFAC. The OFAC is also preparing to change its regulations to mandate electronic filing of blocked and rejected transaction reports.

Matz details exams fine balance responding to congressional concerns

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ALEXANDRIA, Va. (11/12/09)--Responding to a recent letter from Reps. Barney Frank (D-Mass.) and Walter Minnick (D-Idaho) that asked federal regulators to "show some temperance" during their examinations of financial institutions, National Credit Union Administration (NCUA) Chairman Debbie Matz said that the agency is working to balance the lending needs of a weakened economy with the need to ensure the “safety and soundness” of the institutions insured by the NCUA. Specifically, Matz said, the NCUA is drafting a supervisory letter to encourage credit union examiners to “show flexibility” if a credit union that is undergoing a period of financial stress “demonstrates adequate long-range strategic planning that would enable the institution to weather broader economic difficulties.” According to Matz, the NCUA’s view is that it “may be appropriate for a credit union to forego short-term earnings so that a high level of member service can be maintained,” in some circumstances. Matz also detailed some ways that the NCUA is encouraging further leeway for both credit unions and their members through its support of residential real estate mortgage loan modification programs and a recent joint policy statement with the Federal Financial Institutions Examination Council (FFIEC) that spoke in support of prudent commercial real estate loan workouts. The NCUA/FFIEC statement “provides guidance for examiners and financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties,” according to Matz. The NCUA will also provide examiners and constituents with further guidance, information on best practices, and insight into the underwriting and examination of member business lending during a Nov. 18 webcast led by board member Gigi Hyland, the letter added.

NCUA to remain independent under Dodd plan CUNA

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WASHINGTON (11/12/09)--While Sen. Chris Dodd’s recently released financial regulatory overhaul discussion draft would, if approved, bring sweeping changes to the financial services landscape, CUNA commended the Senator for not changing the National Credit Union Administration’s authority as sole safety and soundness regulator for credit unions. Dodd’s bill would consolidate the powers of other Federal regulators, including the Office of the Comptroller of the Currency, the Office of Thrift Savings, the state-based authorities of the Federal Deposit Insurance Corporation, and the state bank and holding company oversight authority of the Federal Reserve, into a single financial institutions regulatory administration. Following the introduction of the bill, John Magill, senior vice president of CUNA's legislative affairs department, commended the senator for recognizing the needs of credit unions and granting the NCUA its continued regulatory independence. “The Dodd bill provides great news for credit unions on this issue because it helps to solidify recent House comments to CUNA which promised the uninterrupted continuation of the NCUA’s role as federal credit union regulator,” Magill added. Dodd’s legislation would also address the systemic risks posed by derivatives and discourage much of the excessive financial firm growth exemplified by so-called “too big to fail” institutions. The bill would also promote the creation of a consumer financial protection agency (CFPA) similar to that proposed by both the Obama administration and members of the House of Representatives. The consumer protection duties of the National Credit Union Administration (NCUA) would be folded into this agency under Dodd's bill. Dodd’s version of the CFPA would be led by a five member board with a single independent director, and would be the sole agency held accountable for consumer protection. The resources of this version of the CFPA would, according to a summary of the legislation, focus on “mortgage bankers, brokers, finance companies” and large financial institutions, and the CFPA would have “broad authority” to “investigate and react to abuses as they develop.” The House version of the CFPA legislation, H.R. 3126, the Consumer Financial Protection Agency (CFPA) Act of 2009, contains similar provisions, and would, as currently written, also be managed by a five-member board. CUNA is working with Rep. Barney Frank (D-Mass.) to modify this bill before it moves on to the full House. While the Senate version of the CFPA would not exempt credit unions from examination and supervision by CFPA, CUNA will be working hard to fix this issue.