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Approved NCUA budget has 12.1 increase for 2009

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ALEXANDRIA, Va. (11/21/08)—The National Credit Union Administration (NCUA) Board during its monthly November meeting approved the final fiscal year 2009 budget and the initial year 2010 budget. The board set the 2009 budget at $177.86 million--a 12.1% increase from the 2008—but about $5 million less than the agency said it would need at its annual budget briefing last month.
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The shift in part reflects a significant downward revision in the number of new examiners the agency thinks it will need. However, 2009’s travel budget increased by 34%, which NCUA staff partially attributed to the revised examination cycle. For the fiscal year 2010, NCUA approved a tentative budget of $189.97 million--a 6.8% increase over the requested amount for 2009. CUNA’s Examination and Supervision Subcommittee will continue to monitor the agency’s budget, especially given the current economic crisis, according to CUNA Deputy General Counsel Mary Dunn. The NCUA Board yesterday also approved an increase in the 2009 operating fee scale, which the agency uses to determine the operating fee assessed to federal credit unions. The changes increase the operating fee scale by 6.77%. The operating fees for federal credit unions, which will be assessed based on assets as of Dec. 31, 2008, will be due to NCUA no later than April 15, 2009. In addition, the board during Thursday’s meeting increased the Overhead Transfer Rate (OTR) from the current 52% to 53.8% for 2009. Under the Federal Credit Union Act, NCUA may transfer funds from the National Credit Union Share Insurance Fund (NCUSIF) to fund administrative and other expenses related to federal share insurance. NCUA uses the OTR to allocate those expenses. According to the agency, the 2009 OTR reflects the results of its most recent examiner survey that it says indicates examiners are spending a larger amount of their time on insurance related issues--such as financial analysis, evaluating risks, and assessing efforts to protect earnings and net worth. NCUA staff indicated that the OTR increase attributable to insurance related issues is a trend likely to continue. Meanwhile, NCUA staff reported that NCUSIF’s equity level is now at 1.27% and is expected to be at that level at the end of this year--precluding the possibility of an NCUSIF dividend to federally insured credit unions. Agency staff noted that its 1.27% estimate is .01% below October’s projection. There are currently 246 CAMEL 4 and 5 credit unions, up from 211 at the end of last year. The total insurance loss expense for 2008 is estimated to be approximately $176.5 million.

CU service to underserved Rule change

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WASHINGTON (11/21/08)—Final changes to the National Credit Union Administration’s process of approving multiple group credit unions' service to underserved areas are a significant improvement from the agency’s original proposal, according to the Credit Union National Association (CUNA). However, while CUNA appreciates the modifications, the group will continue to seek changes to a rule it believes is needlessly complex. NCUA made the following changes to its proposal:
*The final rule preserves for “underserved area” applicants the existing exemption from a requirement to submit a supplemental letter. The agency had considered requiring a supporting letter from credit unions seeking to add an underserved area: * The final rule changes the economic distress criteria for determining if a community is an investment area so that it is more compatible with the criteria used by the Community Development Financial Institutions (CDFI) Fund. To qualify as an underserved area, the local community must be an “investment area,” as defined by the CDFI Fund and it must also be underserved by other financial institutions; and * The final rule eases a burden that would have required a one-page narrative statement that describes the “significant unmet needs” for loans or other financial services in a proposed area, which would be supported by relevant data. The final rule allows credit unions to meet this obligation by fulfilling the current requirement to “identify the credit and depository needs of the community and detail how the credit union plans to serve those needs.”
The rule is effective 30 days after publication in the Federal Register. Use the resource link below to access the complete rule.

Low-income standard broadened NCUA under plan

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WASHINGTON (11/21/08)—As it adopted a plan to broaden its rule on low-income designation, the National Credit Union Administration (NCUA) Thursday approved changes to its original plan that are intended to provide greater clarity to the process. The low-income designation rule is important in determining whether a credit union qualifies for assistance to help low-income members. NCUA board member Gigi Hyland said prior to the NCUA’s vote on the final that she hoped the agency’s action would serve to encourage credit unions to explore low-income designation by making the rules easier to understand. With low-income designation, a credit union can qualify for subsidies from the NCUA’s Community Development Revolving Loan Fund. Under the new designation rule, median family income (MFI) will be used instead of median household income (MHI) to define whether a credit union’s members may be considered low-income. To be a low-income credit union, a majority of members must meet the income standard. The switch to MFI is meant to eliminate confusion associated with the need to adjust MHI in metropolitan areas with higher costs of living. Also, the change betters aligns NCUA low-income designation criteria with its criteria for adding an underserved areas to a federal credit union’s field of membership and certification as a Community Development Financial Institution, according the agency. Under the final rule, low-income members are those who earn 80% or less of their metropolitan area MFI. Credit unions are not required to apply for low-income status. Based on information culled during a routine examination, an NCUA regional director will notify the credit union that it qualifies. The credit union then has 30 days to accept the designation. Use the resource link below to access the complete final regulation.

Post-merger net worth definition tweaked by NCUA

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ALEXANDRIA, Va. (11/21/08)--The National Credit Union Administration (NCUA) board yesterday voted unanimously to change the prompt corrective action (PCA) definition of a natural person credit union's "net worth" to include as capital the retained earnings of a credit union that is merging into it. The rule applies to credit union mergers taking place after Dec. 31, 2008. The change would be consistent for corporate credit unions as well. The new rule, in effect, implements a statutory correction that was carried in The Financial Services Relief Act of 2006, which addressed accounting anomalies that have arisen since PCA requirements were first instituted. At the time PCA requirements were mandated in 1998 by the Credit Union Membership Access Act, the "pooling method" was used for the financial reporting of a credit union merger. This allowed the acquiring credit union to combine its own retained earnings with that of the merged credit union for determining the post-merger net worth ratio for purposes of complying with PCA requirements. In 2001, Financial Accounting Statement (FAS) No. 141 replaced the "pooling method" with the "purchase method" for business combinations, with the effect that an acquirer's net worth would not increase as a result of the merger. This potentially reduces the post-merger net worth. The Financial Services Relief Act of 2006 essentially reversed that policy by expanding the PCA definition of "net worth" to incorporate the retained earnings of the merged credit union. This would also apply to other combinations, such as purchase and assumption transactions. These changes will only apply to measuring capital under PCA and will not apply for other financial reporting purposes. At the time the change was proposed in July, NCUA staff members told the board that credit unions have a more limited statutory definition of "net worth" than banks and thrifts do and that--had credit union net worth been defined in a manner similar to the definition applicable to banks and thrifts--the "congressional fix" for the "merger accounting problem" would not have been necessary. NCUA staff also noted that the new regime for net worth calculation in mergers would not reinstate the "pooling method," but would have a similar practical effect.

NCUA accelerates to 12-month exam schedule

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ALEXANDRIA, Va.(11/21/08)—Extraordinary economic times and an incumbent need to be proactive rather than reactive in credit union regulation spurred the National Credit Union Administration (NCUA) to approve an accelerated schedule for risk-based examinations. At its open board meeting Thursday, the NCUA approved a 12-month examination cycle, to supplant the current 18-month cycle. NCUA Executive Director Len Skiles, in presenting the plan to the board for consideration, said that more-frequent on-site reviews are warranted under the current economic upheaval in order to identify and mitigate safety and soundness concerns at an earlier stage. Earlier problem detection and earlier remedial action must go hand-in-hand, Skiles said, to potentially save the NCUA’s share insurance fund millions of dollars in addressing credit union problems. Skiles acknowledged that implementation of the accelerated exam schedule will be challenging and there is a cost associated with it, but he added that otherwise there was no downside to more frequent regulatory observations. Approximately $6.84 million has been budgeted for the program in 2009. The program authorizes 56 new positions, including 50 examiners, five supervisory examiners, and one human resource specialist. The hirings will occur throughout the year; therefore the NCUA equates the hiring to 45 new full-time equivalent positions. The focus of the program will be on states where market dislocations are the greatest. Under the approved rule, agency staff will present a written evaluation of and briefing on the 12-month program at the October 2009 NCUA open board meeting. Use the resource link below to access the NCUA regulation.

Inside Washington (11/20/2008)

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* WASHINGTON (11/21/08)--The financial services industry’s conversion to check imaging from paper check processing is nearly complete, payments executives estimate (American Banker Nov. 20). The shift to imaging is increasing sharply, said Richard R. Oliver, executive vice president, Federal Reserve Bank of Atlanta and manager of the Fed’s retail payments office. By the end of next year, the Federal Reserve expects to consolidate its item-processing operations to two locations--one in Atlanta for images, and one in Cleveland, Ohio, for paper checks and adjustments. Some check processors report that they are imaging nearly 100% of their incoming checks. Fiserv Inc., a nonbank check processor, is imaging 100% of its checks. Clearing House Payments Co. LLC said its image-exchange customers are sending 85% to 90% of their checks as images. Clearing House also reported that its volume grew 67% in October compared with last year. ...

Archived CU economic and legislative webinar available

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Click to view larger image From left, CUNA President/CEO Dan Mica, Political Affairs Senior Vice President Richard Gose and Legislative Affairs Vice President Ryan Donovan read questions from credit unions during yesterday's live CUNA webinar. The event was webcast from the CUNA offices on Pennsylvania Avenue in Washington, D.C. (Photo provided by CUNA)
WASHINGTON (11/20/08)—More than 600 credit unions tuned into Wednesday’s live webinar from the Credit Union National Association (CUNA) to address the challenges presented to credit unions as a result of the financial crisis. The event featured CUNA President/CEO Dan Mica, Political Affairs Senior Vice President Richard Gose, Legislative Affairs Vice President Ryan Donovan and Senior Economist Steve Rick. Rick provided an update of the current economic climate, Gose gave an overview of the election results, and Donovan offered a legislative update. Each focused on the credit union impact. With a new “working majority” in Congress, Mica said credit unions have a number of vital issues coming up. “Some issues will be in our best interest, and some will not,” he explained. “We will need to be even more nimble to move from one end of the spectrum to the other." The group discussed the opportunities and challenges ahead for credit union--including secondary capital, prompt corrective action reform, member business lending, protecting credit unions' regulatory structure/insurance fund, and leveraging the "white hat" image to help members and the country. Mica provided a glimpse of CUNA's approach to these issues in the 111th Congress. Affiliated credit unions can watch the one-hour archived webinar by clicking on the resource link below.