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Inside Washington (11/14/2008)

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* WASHINGTON (11/17/08)--The Federal Deposit Insurance Corp. (FDIC) Thursday provided details on a plan intended to prevent 1.5 million foreclosures during the next year. The $24.4 billion-proposal will offer incentives to companies that agree to reduce monthly mortgage payments (The Washington Post Nov. 14) ... * WASHINGTON (11/17/08)--Freddie Mac is asking for $13.8 billion in government after posting a quarterly loss (Associated Press Nov. 14). The government-sponsored enterprise posted a loss of $25.3 billion Friday for the third quarter. Last year, Freddie posted a loss of $1.2 billion for the third quarter. This year’s loss is due to $9.1 billion in write-downs on mortgage securities, $6 billion in credit losses and a $14.3 billion charge to reduce tax asset value. Tightening credit, increasing unemployment rates and poor economic conditions have triggered higher numbers of delinquent loans, Freddie said. Freddie’s loan delinquency rate rose to 1.22% from 0.9% in June ... * WASHINGTON (11/17/08)--During a speech celebrating the 10th anniversary of the euro in Frankfurt, Germany, Federal Reserve Board Chairman Ben Bernanke encouraged central banks to coordinate on policy. “The merits of coordinated monetary policies have been discussed by policymakers and academics for decades, but in practice, such coordination has been quite rare,” he said. Efforts of central banks worldwide have contributed to improvements in the credit market, but the continuing volatility of markets and recent indicators of economic performance confirm that challenges remain, he said. Policymakers will remain in close contact and stand ready to take additional steps if needed. “We are especially aware of the importance of having close working relationships with our central bank colleagues around the world,” Bernanke concluded ...

Fryzel pushes lawmakers to review TARP application

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WASHINGTON (11/17/08)--National Credit Union Administration (NCUA) Chairman Michael Fryzel in a letter Friday asked Congressional leaders to ensure the U.S. Treasury uses the Troubled Assets Relief Program to purchase distress mortgage securities--as stipulated in the Emergency Economic Stabilization Act of 2008. Fryzel’s letter came two days after U.S. Treasury Secretary Henry Paulson said the TARP no longer would seek to buy distressed mortgage-backed assets. The move effectively eliminates the opportunity for credit unions to participate in program. “This concerns me deeply,” wrote Fryzel of the Treasury’s action. “Not only because Congress was specific in the legislation that this was a primary purpose of the rescue package, but also because this provision (in addition to the share insurance coverage increase) was welcomed by credit unions and seen as a mechanism which would enable many of them to remain safe, solvent, and secure,” he said. “While the majority of credit unions are not in need of such relief, there are some which may require its use,” Fryzel wrote. The NCUA letter was addressed to Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Ranking Member Dick Shelby (R-Ala.), as well as House Financial Services Committee Chairman Barney Frank (D-Mass.) and Ranking Member Spencer Bachus (R-Ala.).

State regulator group urges alt capital for CUs

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ARLINGTON, Va. (11/17/08)--The National Association of State Credit Union Supervisors (NASCUS) on Friday urged Congress to pursue “legislative and regulatory amendments” allowing credit unions access to supplemental capital. The group said its primary emphasis for the action is on credit union safety and soundness. “Given the current unpredictable economic conditions, allowing credit unions access to supplemental capital will bolster safety and soundness and provide further stability for the credit union system,” wrote NASCUS in letters to Senate and House leaders. “Unlike other financial institutions, credit union access to capital is limited to reserves and retained earnings from net income,” said NASCUS. “Since net income is not easily increased in a fast-changing environment, regulators recommend additional capital-raising capabilities for credit unions.” In its letter, NASCUS emphasized that while credit unions remain safe and sound in this troubled and volatile market, supplemental capital will enhance their ability to react to market conditions, grow into the future and serve their members in times of economic trouble. “Further, supplemental capital will allow credit unions to protect their liquidity as well as empower them to respond proactively and efficiently in a constantly changing financial environment,” said NASCUS.

Small biz pays price of loan limits on CUs House told

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WASHINGTON (11/17/08)--Small businesses pay the price of the limit on credit union business lending, another reason to lift the cap in upcoming economic stimulus legislation, the Credit Union National Association (CUNA) wrote in letters to leaders of the House of Representatives and its Financial Services Committee. The only group that benefits from the credit unions being limited in business loans is banks, CUNA President and CEO Dan Mica wrote in letters to House Speaker Nancy Pelosi (D-Calif.), Majority Leader Steny Hoyer (D-Md.) and Financial Services Committee Chairman Barney Frank (D-Mass.) and Ranking Member Spencer Bachus (R-Ala.). Further, Mica wrote, an additional $10 billion in business loans could be made by credit unions in the first twelve months once the cap is lifted. “Small businesses pay the price of the credit union business lending cap because they have fewer options; and in the credit crunch, some are finding they have no options at all,” Mica wrote. The CUNA president emphasized that “considerable data on credit union member business lending demonstrates this type of lending is sounder than both commercial extended by banks as well as other types of credit union loans.” Mica called it a “myth” that credit unions do not have a history of making business loans. He said that notion is “dispelled by the fact that when Congress capped credit union business lending, credit unions with significant experience doing this type of lending were exempted by the cap.” Use the link below to access the complete text of CUNA’s letters to the House leaders--text of letter to Speaker Pelosi is same as in others.

CUNA urges Treasury on shadow TARP for CUs

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WASHINGTON (11/17/08)--Noting that credit unions want to handle their own issues themselves arising from the financial crisis, the Credit Union National Association (CUNA) has also urged the Treasury Department to work with the National Credit Union Administration (NCUA) to stand behind credit unions if needed. Wednesday, Treasury Secretary Henry Paulson announced his agency would not pursue a plan to purchase troubled assets from financial institutions under the auspices of the Economic Emergency Stabilization Act (EESA) and its “Troubled Asset Relief Program” (TARP). CUNA President/CEO Dan Mica, in a letter to Paulson, called the decision “troubling,” noting it essentially cuts out credit unions from any help under the EESA. “We continue to believe, however, that because no one knows the extent of the financial crisis, credit unions should, as Congress intended, be able to call upon the resources available under EESA, if the reserves of the National Credit Union Share Insurance Fund (NCUSIF) prove to be insufficient,” Mica wrote to the Treasury secretary. CUNA has urged NCUA to develop a “shadow TARP” program for credit unions that would purchase mortgage loans and mortgage-related assets from credit unions. Under CUNA’s proposal, the program would be self-funded from within the credit union system and operated out of the NCUSIF. Mica said that, by coordinating with NCUA for a broad asset purchase program for credit unions, the program would not only remove these assets from credit unions' balance sheets, but also provide a net worth contribution to affected credit unions achieving the same purpose that the capital purchase program--for which credit unions are not eligible--does for other institutions. “In that connection, we also urge Treasury to work with NCUA to specifically designate and set aside the appropriate level of funds that would be available to purchase credit union assets or provide direct capital infusions, should the need for such assistance from Treasury materialize,” CUNA wrote. Access the full text of CUNA’s letter to the Treasury secretary using the link below.