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House starts reg reform discussion

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WASHINGTON (11/19/09)--Regulatory reform discussion continued on Wednesday as the House Financial Services Committee began its markup of H.R. 3996, the Financial Stability Improvement Act of 2009, with opening statements. The legislation would create a stabilization resolution fund, located at the Federal Deposit Insurance Corporation (FDIC), to cover the cost of resolving failing financial companies that are systemically important to the financial system, and would direct the FDIC to fill this fund by assessing fees on financial companies, including credit unions, with over $10 billion in total assets. A to-be-offered amendment from Rep. Brad Sherman (D-Calif.) would increase the $10 billion-asset funding threshold to $75 billion, effectively exempting all credit unions. CUNA has detailed several reasons that credit unions should be excluded from the legislation, including their member-owned, not-for-profit cooperative business plans. NCUA Chairman Debbie Matz has also called for credit unions to be exempted from the terms of this bill. While it is not known how long regulatory debate will continue, Senate Majority Leader Harry Reid (D-Nev.) and House Majority Leader Steny Hoyer (D-Md.) are reportedly aiming to end this year’s congressional action by Dec. 18.

CUNA urges accounting oversight amendments adoption

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WASHINGTON (11/19/09)—An amendment to bolster government oversight of the Financial Accounting Standards Board (FASB)would improve the accounting board’s policy-making process and help minimize arbitrary rulemaking, the Credit Union National Association (CUNA) said in a letter of support Wednesday. Referring to an amendment designed by Rep. Ed Perlmutter (D-Colo.),CUNA told key lawmakers that the amendment would not compromise the independence or integrity of FASB. CUNA added that it would not impinge on FASB’s setting of accounting standards, nor the oversight of these standards by the Securities and Exchange Commission (SEC), except to the extent that these principles pose systemic risk concerns to the financial services sector of the economy. In its letter seeking support for the amendment from House Financial Services Committee Chairman Barney Frank (D-Mass.) and the panel’s ranking member, Rep. Spencer Bachus (R-Ala.), CUNA said “a range of accounting issues continues to undermine financial institutions' operations.” The letter noted specifically the impact on a financial institution's financial statements of having to determine assets are Other Than Temporarily Impaired (OTTI) Assets and the specter of having to apply fair-value accounting principles to loans and the allowance for loan losses account. The Perlmutter amendment would authorize a systemic risk council the authority to take corrective action regarding accounting matters if the SEC failed to do so, CUNA wrote.

Inside Washington (11/18/2009)

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* WASHINGTON (11/19/09)--During a speech Tuesday, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said that the financial crisis shows that a strong relationship needs to exist between bank regulation and monetary policy (American Banker Nov. 18). In the past, the two had been viewed as separate, she added. Her speech comes as the Senate Banking Committee takes up legislation that would remove supervisory powers from the Federal Reserve Board and other banking agencies ... * WASHINGTON (11/19/09)--The Federal Reserve Board announced Tuesday that it has reduced the maximum maturity of primary credit loans at the discount window to 28 days from 90 days, effective Jan. 14. Primary credit loans will remain eligible for renewal upon a borrower’s request. Prior to August 2007, the maximum available term of primary credit was overnight. The Fed later lengthened this to 30 days on Aug. 17, 2007, and to 90 days on March 16, 2008 ... * WASHINGTON (11/19/09)--The House Financial Services Committee continues to debate over how to end government-funded bailouts in regard to legislation that would allow the Federal Reserve Board to take apart systemically risky firms. A vote on the bill is not expected until later in the week, but panel members worked to revise the legislation Tuesday (American Banker Nov. 18). The panel approved several amendments that would boost taxpayer protections by shrinking the scope of resolutions and by limiting the Fed’s power, focusing on resolving insolvent firms whose troubles could destabilize the financial system, and allowing only the Federal Board of Governors to decide which institutions are considered a risk. Committee chair Barney Frank (D-Mass.) said he is working on other amendments, including provisions to create a $200 billion systemic resolution fund and subject the Fed to an audit ... * WASHINGTON (11/19/09)--Many financial institutions are not stopping their participation in the Transaction Account Guarantee (TAG) Program, even though the Federal Deposit Insurance Corp. (FDIC) has tried to wean the industry off of the blanket coverage. The FDIC extended TAG through June 30, and increased its price. FDIC also gave institutions a chance earlier this month to leave the program. About 80% of banks, however--mostly community banks--have opted to stay in the program. Financial observers say larger institutions do not need to participate because of other aid they’ve received, and that for smaller banks, the cost for participation is modest (American Banker Nov. 18) ...

SBAs Mills promises increased cooperation as CUs help small business

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WASHINGTON (11/19/09)--Small Business Administration Administrator Karen Mills promised increased cooperation with credit unions and small banks as a means of increasing small business activity. Mills spoke during a Department of the Treasury Small Business Financing Forum held Wednesday in Washington. Treasury Secretary Timothy Geithner also spoke during the forum, which was attended by over 100 small business owners, government officials, legislators, and others, saying that the U.S. government needs to work to “support those who support small businesses.” Geithner also encouraged Congress to work to “create the conditions” that will allow small financial institutions to “participate” in the “efforts to promote small business lending.” National Credit Union Administration Chairman Debbie Matz was also in attendance, but did not speak at the forum. Also attending: the Credit Union National Association’s Senior Vice President of Legislative Affairs John Magill, who in a submitted question asked if the Obama administration, which has indicated that job creation is a top priority, would support raising or eliminating the credit union member business lending (MBL) cap. CUNA has steadfastly supported MBL legislation which, if passed, would enable credit unions to continue to provide up to $10 billion in funds to credit union member-owned small businesses within one year and would create an estimated 108,000 new jobs. HR 3380, the Promoting Lending for America's Small Business Act, would increase the MBL cap to 25% of a credit union's total assets, would raise the "de minimis" threshold for a loan to be considered a "member business loan" to $250,000, and would exempt loans made to non-profit religious organizations as well as loans made in qualified underserved areas from the cap. The legislation, which was introduced by Rep. Paul Kanjorski (D-Penn.), is currently awaiting Congressional action.

Hyland urges slow steady approach for CUs taking on MBL

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ALEXANDRIA, Va. (11/19/09)--While she supports credit union involvement in commercial member business lending (MBL), National Credit Union Administration (NCUA) board member Gigi Hyland has urged credit unions to “go slowly” and do their “homework” to ensure that they have appropriate risk management as they develop their loan portfolios. Panelists during the NCUA’s Wednesday MBL web cast said that the best way to ensure that commercial MBLs are executed safely is by following existing MBL rules. While federally-chartered credit unions are not required to have risk rating systems, they are effective when they are used, NCUA Region IV Problem Case Officer and panelist Linda Vick said. When establishing a risk rating system, credit unions should ensure that their ratings “shape or reflect” the nature of their lending decisions, Vick added, saying that credit unions should not adopt a particular form of risk rating system simply to appease examiners. Addressing examination, NCUA MBL Program Officer Erika Eastep advised credit union officials to consult NCUA opinion letters, AIRES exam questionnaires, appendix 10A of the NCUA’s examiner guide, and section 107A of the Federal Credit Union Act to gain insight on what examiners will look for during their inspections. The panelists also detailed the NCUA’s MBL exam process, which includes discussion of strategic goals and objectives department structure, and credit union policies and procedures. The Credit union’s credit memorandum, which is also reviewed during the examination process, should be a standalone document that details what management was thinking when they decided to execute the loan, the panelists added. In preparation for examinations, credit union officials should review “every single loan” in their portfolio on a regular basis, Eastep added. While commercial member business loans can often be complex, the “key” for credit unions looking to engage in these loans is “due diligence, a strategic planning process, and knowing which loans you can do and how you can do them,” Vick said. The NCUA has not provided an official position on H.R. 3380, the Promoting Lending for America's Small Business Act, would increase the MBL cap to 25% of a credit union's total assets, would raise the "de minimis" threshold for a loan to be considered a "member business loan" to $250,000, and would exempt loans made to non-profit religious organizations as well as loans made in qualified underserved areas from the cap. However, Hyland said that the MBL cap is not a statutory issue, and should instead be handled by regulatory action.

Corp CUs budget are NCUA headliners today

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WASHINGTON (11/19/09)--The National Credit Union Administration (NCUA) will unveil its proposed rules on corporate credit unions later today, and while many details of the rules remain unknown, the agency has said that the rules will include new capital standards and will address concentration of risks in mortgage-related securities and other asset-backed securities. The rules are also expected to address executive compensation for corporate credit union leadership. Regardless of the details of the plan, it is expected to generate significant comment from credit union industry insiders. The NCUA's 2010/2011 operating budget will also be discussed during the open portion of the meeting. The agency approved a tentative fiscal 2010 budget of $189.97 million last year. The NCUA earlier this year also approved plans for an office of consumer protection, and while that office has yet to be staffed, many will be watching to see what place, if any, that office takes in the NCUA's budgetary plans. Part of the regulatory revamp debate that is ongoing in Washington surrounds the creation of a proposed Consumer Financial Protection Agency, and the NCUA’s consumer protection duties would be folded into this agency if House and Senate legislation is not amended prior to its potential passage into law. Other items up for discussion during the meeting include:
*The NCUA’s overhead transfer rate and operating fee scale; *The National Credit Union Share Insurance Fund premium and 1% deposit; and *The NCUA’s monthly insurance fund report.
A closed NCUA board meeting will follow the open session.