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Inside Washington (11/27/2007)

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* WASHINGTON (11/28/07)--Bank regulators need to watch activities taking place outside of the balance sheet, said John Bovenzi, chief operating officer of the Federal Deposit Insurance Corp. during the China International Banking Convention in Beijing two weeks ago (American Banker Nov. 27). Given the problems in the subprime market, regulators need to improve consumer protection, he said, noting that Basel II may not be enough to protect financial institutions from risk when leaving their structured investment vehicles behind … * WASHINGTON (11/28/07)--The Federal Reserve released data Friday indicating that discount window lending to troubled financial institutions was $2 million as of Nov. 21. Lending to healthy institutions was steady at $11 million. About $45 million was provided as seasonal credit to support rural financial institutions (American Banker Nov. 27). Of that amount, $15 million was from the Federal Reserve Bank of Kansas City. About $11 million was distributed by the Minneapolis Federal Reserve Bank, and $12 million by the San Francisco Federal Reserve Bank … * WASHINGTON (11/28/07)--The maximum 2008 conforming loan limit for single-family mortgages purchased by Fannie Mae and Freddie Mac will remain at the 2007 level of $417,000 for one-unit properties in most of the U.S., announced Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart. Higher limits will apply to Alaska, Hawaii, Guam, the U.S. Virgin Islands and properties with more than one unit. The loan limit is based on the October-to-October change in the average house price in the Monthly Rate Survey of the Federal Housing Finance Board (FHFB). The FHFB reported the decline in the average price was $10,685, or 3.49%, to $295,573 in October 2007 from $306,258 in October 2006. The combined two-year decline is now 3.65% … * WASHINGTON (11/28/07)--Arguments made in a Monday hearing ask the U.S. Supreme Court to overturn a 2006 ruling stating that employees cannot sue their employers for mishandling 401(k) or retirement accounts. Last year’s ruling was built off of the 1974 Employee Retirement Income Security Act (Erisa), in which the appeals court viewed the law as one allowing lawsuits for improper management of plans, but not for individual accounts (The New York Times Nov. 27). In the case, James LaRue had sued the consulting firm handling his retirement account when he realized that the plan’s administrator didn’t transfer his investments as he had requested, resulting in a $150,000 loss. On Monday, LaRue’s lawyer argued that the appeals court misinterpreted Erisa and created a distinction between the plan and individual accounts. Justice Stephen G. Breyer noted that it would be difficult the draw the distinctions, arguing that it wouldn’t matter where the losses came from … * WASHINGTON (11.28/07)—The Small Business Administration (SBA) announced two personnel changes Tuesday: Molly Wilkinson will become SBA’s chief of staff in January, replacing Joel Szabat; and Eric Zarnikow, beginning next week, will be the SBA’s associate administrator for the Office of Capital Access. Zarnikow replaces Michael Hager. Wilkinson, who currently is the General Services Administration’s chief acquisition officer, will be responsible for implementing SBA Administrator Steve Preston’s agenda to improve SBA’s efficiency, transparency and accountability, according to the agency. Zarnikow will be responsible for the management and oversight of SBA’s principal lending, international trade, surety bond and venture capital programs, including the new Patriot Express loan, and initiatives designed to reach underserved markets. Since 1994, he has held a number of executive positions at The ServiceMaster Company, including most recently, senior vice president, chief risk officer and treasurer...

CUs unique nature requires own regulator says NCUA

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WASHINGTON (11/28/07)—The National Credit Union Administration (NCUA) pointed to its success under the current regulatory structure and the unique nature of the credit unions under its supervision as key to demonstrating a need to maintain the current regulatory regime. In a comment letter addressed to Treasury Secretary Henry Paulson, the NCUA wrote that several facts concerning the structure and operation of credit unions segregate the financial cooperatives—and their regulatory system—from “the core concerns raised” the an ongoing Treasury study. The Treasury Department has been seeking comment on the regulatory structure of the country's financial institutions and whether improvements are needed. The Treasury request came on the heels of a Government Accountability Office (GAO) study released last month that examined federal financial institution oversight and recommended consolidation of the regulators. “The current regulatory structure for all depository institutions has effectively met the needs of the regulated industries and resulted innovation, leading ultimately to better products, services and choice for the American consumer,” wrote NCUA Chairman JoAnn Johnson. “One concern with the structure (as noted in the GAO report) is the blurred lines of oversight due to changes in the financial industry. The regulators have made changes to address the blurred line between services and are working together through interagency committees to address common issues," she added. The NCUA also said that the current regulatory structure allows depository institutions “of all sizes and types” to be fairly represented in the marketplace due to the “specialized attention provide by each regulatory agency.” “Since each regulator oversees a specific group, the business needs and risks of those groups can be fully understood and regulated accordingly,” Johnson wrote. Among other points addressed by the NCUA, the federal regulator urged modifications to the Fedearl Credit Union Act to “enable credit unions to continue their safe and sound operations and fulfill Congressionally mandated public policy objectives.” Specifically the agency said credit union need: an enhanced and modernized Prompt Corrective Action system which would allow a “more robust” risk-based capital standard’ and clarification that all types of federally chartered credit union may adopt underserved communities. Provisions for both are contained within the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537).

CUNA Garnishments a state issue

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WASHINGTON (11/28/07)—-How financial institutions respond to state court garnishment orders when exempt federal benefit funds are involved would best be addressed by federal policymakers coordinating with state officials to develop model statutory language that all states would be encouraged to adopt, according to the Credit Union National Association (CUNA). The objectives of such language would be to encourage greater uniformity in garnishment proceedings and to ensure adequate notice is provided to consumers by the courts that are reviewing claims for garnishment. It would also address that notice to consumers would spell out the exemptions for federal benefit funds and state that the courts should work with the parties through the hearing or review process to develop garnishment orders that recognize the amount of such funds that are exempt, CUNA wrote in a comment letter to the National Credit Union Administration (NCUA). The NCUA and other federal financial regulators proposed guidance on the issue in September, just as the Senate Finance Committee conducted a hearing on the subject. The agency’s proposed “Guidance on Garnishment of Exempt Federal Benefit Funds” is comprised of nine best practices. It seeks to address situations that arise when a financial institution should be encouraged to develop and maintain sound policies for dealing with garnishments in a pro-consumer manner while recognizing the practical constraints on their operations. However, the CUNA letter said that a number of legal concerns regarding the processing of garnishments are more appropriately the purview of state courts and the parties to the garnishment proceeding, rather than the third party financial institutions. “Credit unions want to uphold the law and make every effort to do so but should not be expected, even through best practices, to assume responsibilities that belong to others,” the CUNA letter said. The subject of garnishments also has received the attention of House members. Earlier this year House Financial Services Committee Chairman Barney Frank (D-Mass.) sent a letter to all the federal financial institution regulators asking them what actions they have taken to ensure compliance with the Social Security Act's prohibition against the garnishment of federal benefits. Frank, at that time, noted a lack of regulatory guidance on the issue. The CUNA comment letter also addressed each of the nine proposed best practices noting that a number of the proposals are simply not workable. The letter, soon to be posted on the CUNA website at, may be read in its entirety by clicking on the Regulatory Advocacy page of the website.