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Inside Washington (11/17/2008)

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* ALEXANDRIA, Va. (11/18/08)—National Credit Union Administration (NCUA) Chairman Michael Fryzel last week reiterated the agency’s ongoing initiatives to protect consumers. They include the agency’s: multi-faceted media campaign to communicate facts about the National Credit Union Share Insurance Fund (NCUSIF) to credit union members and the general public; enhancement of NCUA’S Consumer Assistance Hotline, including expanded hours and number of available lines; continued close supervision of credit unions, particularly those dealing with exposure to a declining housing market and simultaneous credit crunch, and with additional attention to credit card and home equity delinquencies; performing comprehensive "stress tests" to gauge the NCUSIF’s ability to withstand potential losses during market dislocations; daily monitoring of the liquidity position of corporate credit unions and establishment of a team of capital markets specialists to aid the corporate credit union network; and a proposal to return to a 12-month supervisory contact/examination schedule for all federally insured credit unions. Fryzel made his remarks at the California/Nevada Credit Union League’s Annual Meeting and Convention in San Francisco. Fryzel challenged credit unions to develop fresh ideas about what they can do better and to reconnect to the philosophy of people helping people … * WASHINGTON (11/18/08)--The Federal Deposit Insurance Corp.’s (FDIC) loan modification plan is better than other government and industry plans to stop foreclosures, observers say (American Banker Nov. 17). It is still unclear if the proposal will solve conflict between investors and mortgage servicers, but the plan could “make a difference,” according to Ellen Seidman, director, New America Foundation’s Financial Services and Education Project. The proposal has safeguards so that it won’t become a catalyst for service to dump bad loans, she added. Congress supports the plan and hopes Treasury Secretary Henry Paulson will support it when he testifies today at a House Financial Services Committee hearing. The Bush administration opposes the plan ... * WASHINGTON (11/18/08)--Regulators Friday agreed to join efforts to oversee credit default swaps, with plans for at least one clearinghouse to be in place by the end of 2008. The President’s Working Group on Financial Markets, the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission signed a memorandum of understanding to share information (The Washington Post Nov. 15). Wall Street had been pressured by government officials to create a small clearinghouse to soften losses from the failure of a credit default swap dealer. Credit default swaps were developed about 10 years ago so bondholders could protect themselves against borrower defaults ... * WASHINGTON (11/18/08)--The Financial Crimes Enforcement Network updated its BSA electronic filing specifications. New error codes for e-filing have been added ...

Lame duck session packed with CU interest

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WASHINGTON (11/18/08)—Congress is back only briefly this week for a post-election lame duck session, but even so there are seven scheduled hearings of interest to credit unions. Chief among them is today’s study of the administration’s economic stabilization efforts and the evolving Troubled Asset Relief Program (TARP). The Credit Union National Association (CUNA) sent a statement to be included in today’s House Financial Services Committee record of its hearing with the lengthy title, “Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and of Government Lending and Insurance Facilities: Impact on Economy and Credit Availability.” CUNA has urged both lawmakers and Bush administration officials to ensure that credit union interests are addressed in any rescue plan so the country’s 8,000 cooperatively owned financial institutions may help their 90 million members deal with the country’s financial crisis. CUNA backs a plan under which the National Credit Union Administration would develop a "shadow TARP" program for credit unions that would purchase mortgage loans and mortgage-related assets from credit unions, but wants backup funding from the Treasury if necessary. Scheduled to testify at today’s hearing are U.S. Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and Federal Deposit Insurance Corp. Chairman Sheila Bair, as well as representatives from the Financial Services Roundtable, and banking and insurance industries. The committee will also hear from economists Alan Blinder and Martin Feldstein. Also of note to credit unions this week:
* Senate Banking Committee hearing today to examine the state of the country’s automobile industry; * House Financial Services Committee Nov. 19 hearing on a bill, currently being drafted, which would extend TARP to the country’s auto industry. Witnesses: to be announced. * Senate Banking Committee Nov. 19 nomination hearing to consider Neil Barofsky for the position of special inspector general for TARP; * Senate Budget Committee on the country’s economic outlook and options for further economic stimuli plans; * Senate Judiciary Committee Nov. 19 hearing titled, “Helping Families Save Their Homes: The Role of Bankruptcy Law;" and * House Small Business Committee review on Nov. 20 of recent federal efforts to improve credit conditions for small businesses.
Regarding pending credit union regulatory improvement legislation, congressional leaders’ announcements that they will not seek to address additional economic stimulus legislation this week has dashed long-shot hopes that some credit union provisions could be enacted this year. The House and Senate will return to full session on Jan. 6. to swear in the 111th Congress.

SBA changes to improve credit access

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WASHINGTON (11/18/08)—Credit unions and other lending partners of the U.S. Small Business Administration (SBA) will benefit from two recent changes the agency instituted to help increase small business access to capital. First, an interim final rule now allows new SBA loans to be made with an alternative base interest rate. The one-month LIBOR rate may now be used, in addition to the previously allowed prime rate. The SBA announcement explained the need increased rate flexibility this way: “In the past 60 days, both the prime and LIBOR rates have not yet returned to their historical relationship-of roughly 300 basis points between the two rates. “The mismatch between the rates is squeezing SBA lenders out of the lending market, since their costs are based on the LIBOR rate.” The SBA’s second rule change allows a new structure for assembling SBA loans into pools for sale in the secondary market. The SBA maintains that because the average interest rate will now be used, the pools will be easier for pool assemblers to create, thus providing incentives for more investors to bid on these loans. "The challenge small businesses face today is not the cost of capital, it is access to capital," said SBA Acting Administrator Sandy Baruah. Baruah added, “Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren't lending and borrowers aren't borrowing. This indicates markets are frozen due to liquidity concerns. “This interim final rule is an important step to reenergize the lenders to make SBA- backed loans and will help open the gateway of capital for entrepreneurs." The effective date for both changes was Nov. 13.

CUNA New Form 990 UBIT webinar here

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WASHINGTON (11/18/08)—An important resource for state-chartered credit unions on new Form 990 reporting rules and other unrelated business income tax (UBIT) information has been added to the Credit Union National Association (CUNA) website. Credit unions can access CUNA’s archived version of its recent webinar, “New 990 Reporting Rules,” now through May 11. The webinar features:
* A UBIT background session presented by Larry Blanchard of CUNA Mutual Group, including an overview of UBIT, its application to credit unions, impact on credit union accounting issues, and current litigation surrounding UBIT issues. Blanchard is the chair of CUNA’s UBIT Steering Committee. * Karen Gries and Rich Gabrielson, from the accounting firm of LarsenAllen, LLP, discussing the recently redesigned Internal Revenue Form 990, which is filed annually by state-chartered credit unions.
Gries and Gabrielson noted that changes to the IRS form are intended to enhance transparency and promote tax compliance. The new form will be used for the 2008 tax year, filed in 2009. The LarsenAllen experts shared preparation tips, such as the fact that there will be transition relief available for smaller organizations using a phase-in requirement for filing the new form over a three year period. Also, they highlighted a number of items on the new form that may be of importance to credit unions, such as a front-page summary snapshot, the governance section, information on noncash contribution reporting, and the form’s focus on compensation/excess benefit transactions. Gries and Gabrielson discussed some potential problems for credit unions using the new form. For instance, they noted that the “governance” section requests information regarding the business and family relationships of certain individuals—such as officers, directors, trustees or key employees. It seeks information also on the number of voting and independent members of the board, and whether a copy of the Form 990 is provided to board prior to filing. The form also asks for a description of the board's process of review, which Gries and Gabrielson said may require a credit union to reschedule its board meeting to accommodate a board review before the filing of the form. For full details on this and other Form 990 issues, use the resource link below to sign up for the CUNA webinar.

Dialogue part of Nov. 19 Dan Mica webinar

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WASHINGTON (11/18/08)--The challenges presented to credit unions as a result of the financial crisis will be addressed in a special live nationwide webinar featuring Credit Union National Association (CUNA) President/CEO Dan Mica, Wednesday at 2 p.m. ET. The medium will allow credit unions to correspond directly with Mica during the event. The Internet-based video conference--open to all CUNA-affiliated credit unions at no charge--will focus on the financial crisis and how credit unions can leverage their "white hat image" to help minimize the impact of the crisis on credit union members, as well as the nation itself. "We are developing a vision for how credit unions can work for their members and the nation, through the Congress and the regulatory agencies, to help them through these difficult times," Mica said. "The Congress will have a 'working majority,' meaning that if they decide to do something quickly, they can move very fast. We are going to need to be ready to act in any number of ways." Affiliated credit unions can hear directly from Dan Mica about the Nov. 19 webinar, by clicking on the image below.
Click to view video (affiliated credit unions only)

Thorough review of fair value accounting urged

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WASHINGTON (11/18/08)--The Credit Union National Association (CUNA) has urged the Securities and Exchange Commission (SEC) to perform a “thorough and comprehensive examination of the positive and negative effects of mark-to-market accounting, especially when used in a stagnant market.” CUNA’s viewed were expressed in a comment letter to the SEC in response to its 90-day study on mark-to-market accounting. “While credit unions generally practice more conservative investment strategies than other financial institutions, the wide-spread nature of the current financial crisis is likely to have at least some effect on credit unions,” noted CUNA. The trade association encouraged the SEC to explore how an institution's intent to hold an asset can be incorporated into determining its "fair value." “We also ask that the study include a look at auditor practices and the inflexibility shown by some firms in conducting the measurement process under fair value accounting,” wrote CUNA. Access the full letter using the resource link below.