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Inside Washington (11/24/2010)

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* WASHINGTON (11/29/10)--While banks and thrifts posted profits of $14.5 billion in the third quarter of 2010, a pullback in reserves helped drive the gains, and Federal Deposit Insurance Corp. (FDIC) NChairman Sheila C. Bair last week warned that capital should remain a focus amid continued housing uncertainty. An industry loan loss provision of $34.9 billion, the smallest in three years, drove earnings, as did higher interest income from recent accounting changes. The loan loss provision was 44% smaller than a year earlier. Total loss reserves dropped by 3.8%, to $242 billion, the second straight quarterly dip. Because many institutions entered the recent housing crisis with insufficient reserve levels, Bair warned against reducing the reserves without strong evidence of improved loan performance. The industry’s third-quarter asset growth--an increase of 1.2% to $13.4 trillion--was primarily the result of trading and other investment activities, not lending. Bair also warned about contingent liabilities banks could face from loan-documentation discrepancies that may result in banks being forced to take back securitized loans. Several big banks have been sued by government-sponsored enterprises for this reason … * WASHINGTON (11/29/10)--The Federal Deposit Insurance Corp. (FDIC) has issued final guidance to address the risks associated with overdraft payment programs. The guidance is intended to “ensure robust oversight of automated overdraft programs” offered by certain FDIC-insured institutions. FDIC Chairman Sheila C. Bair said when financial institutions spot a pattern of excessive use of an automated overdraft program, they should contact their customers about a more appropriate and lower-cost alternative that better suits the customers’ needs. In response to concerns about automated overdraft programs, the FDIC on Aug. 11 proposed for public comment guidance on how the banking institutions it supervises should monitor and oversee overdraft programs. The proposed guidance stemmed from both the FDIC's November 2008

iCompliance Challengei covers SAR reporting

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WASHINGTON (11/29/10)--The Credit Union National Association (CUNA) has advised that credit union employees completing supplemental suspicious activity report (SAR) forms may provide a range of dates that a suspected activity has taken place, rather than simply providing the most recent time that a suspicious activity may have happened. According to FinCEN’s instructions, employees should complete the supplemental SAR form and provide a range of dates of suspicious activity that capture activity from the beginning date, as documented on the initial SAR report, up to the most recent occurrence. The dollar amount of the potentially criminal activity should be provided in the aggregate, and should reflect the total of all transactions and not the loss to the credit union. Previously issued SARs should also be mentioned, and the activity itself should be well documented, CUNA added in this month’s Compliance Challenge. The Compliance Challenge also noted that credit unions should retain their own copies of filed SARs and any supporting documentation for a period of five years following the initial SAR filing. FinCEN is unable to verify receipt of previously filed SARs or provide a copy of a previously filed SAR to institutions, the Compliance Challenge notes. For the full Compliance Challenge, use the resource link.

Cheney seeks NCUA corp. CU comment extension

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WASHINGTON (11/29/10)--Credit Union National Association (CUNA) President/CEO Bill Cheney has urged the National Credit Union Administration (NCUA) to extend the comment period for its recently released revisions to corporate credit union rules by a further 60 days. The NCUA’s corporate changes, which were proposed during the agency's November open meeting, would limit credit union membership in corporates to one corporate at a time and change some internal control and reporting requirements via technical amendments. The NCUA also proposed implementing "voluntary" Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessments to privately insured credit unions and non-credit unions, such as credit union leagues, which are members of a corporate. Cheney earlier this month said that these proposed corporate credit union membership requirements and proposed voluntary TCCUSF assessments for non-federally insured entities are areas that "are in need of careful review by credit unions and the agency." While the proposed NCUA changes were given a 30-day comment period, Cheney said that extending the comment deadline for a further 60 days “is reasonable given the importance of the matters the agency is contemplating as well as the numerous other regulatory issues facing credit unions.” Granting additional time to review the NCUA’s proposal and create well-reasoned comments “will benefit credit unions as well as the agency,” Cheney added. The NCUA has said that it welcomes comments on the corporate credit union proposals, and has specifically solicited input on any alternative approaches that may also be able to address the agency's concerns. The corporate proposals could come into effect by late January if the comment period is not extended. For the full comment letter, use the resource link.

OIG notes NCUA IT drawbacks progress

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WASHINGTON (11/29/10)--While the National Credit Union Administration (NCUA) has recently made a significant increase to its 2011 budget to cover increased credit union examinations, its own Office of Inspector General has recommended that the NCUA fix some of its own internal practices by improving its security configuration program. The OIG also recommended that the NCUA improve its contingency planning program for its Federal Information Security Management Act (FISMA) systems in its review of the NCUA’s information systems, security program and controls for compliance with FISMA. The NCUA should also enhance its procedures for ensuring that terminated and inactive user accounts are removed from its systems and implement continuing education requirements for its information technology (IT) employees, the OIG added. The OIG also listed more specific IT-related recommendations for the NCUA, including enhancing the NCUA’s security control assessments, improving its oversight of external service providers and remote access controls, and reviewing its use of Social Security numbers and other personal information. The OIG review credited the NCUA with improving its overall IT security program during the past year. Those improvements included enhancing its policies and procedures, completing e-Authentication risk assessments for its two e-Authentication systems, and completing security control assessments for five of its six FISMA systems. For the full OIG review, use the resource link.

Comment on FinCEN SAR database changes sought

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WASHINGTON (11/29/10)--The Credit Union National Association (CUNA) has asked credit unions to comment on the Financial Crimes Enforcement Network’s (FinCEN) proposed changes to its Bank Secrecy Act (BSA) database. FinCEN has released a series of proposed data fields within the database related to Suspicious Activity Report (SAR) filings by financial institutions. The network has not proposed any new regulatory requirements or attempted to change any SAR-related requirements. Rather, FinCEN is seeking comment on technical matters related to transitioning from the current paper-based system to a modernized information technology environment designed for electronic reporting. The new database will accept XML-based dynamic, state-of-the-art reports, and added that few changes to the existing batch and computer-to-computer filing processes will be made, FINcen said. Comments should be sent to CUNA by Dec. 8. FinCEN will accept comments on the proposal until Dec. 14. For the full comment call, use the resource link.

Final rule analysis covers NCUA RegFlex changes

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WASHINGTON (11/29/10)--The Credit Union National Association (CUNA) has released a final rule analysis on the National Credit Union Administration’s (NCUA) amendments to the Regulatory Flexibility (RegFlex) Program. Under the RegFlex changes, RegFlex credit unions will need to comply with the general limitation of a federal credit union's investment in fixed assets to no more than 5% of its shares and retained earnings. These credit unions will also be subject to certain stress test standards and will be forced to comply with collateral and security provisions that include obtaining the personal liability and guarantee of member business loan borrowers. The NCUA passed the RegFlex changes in an open board meeting held last month. During that meeting, NCUA Chairman Debbie Matz said that the changes were needed to protect the National credit Union Share Insurance Fund. Board member Michael Fryzel also backed the final rule, saying that the original RegFlex rules "may have been too flexible." Board member Gigi Hyland opposed the changes. CUNA has questioned the need for these RegFlex changes, saying that the changes will render the RegFlex program much less helpful to credit unions. CUNA plans to work with the NCUA to revitalize the RegFlex Program if the opportunity presents itself. The final rule comes into effect on November 29. For the CUNA Final Rule Analysis, use the resource link.