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CUNA economist backs jobs creation plan

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WASHINGTON (2/28/09)—President Barack Obama signed the $787 billion stimulus bill into law yesterday in an action the administration has said it hopes will create 3.5 million jobs and bolster the troubled U.S. economy. Last week, as the stimulus debate closed on Capitol Hill, Credit Union National Association (CUNA) Chief Economist Bill Hampel said the jobs-creation portion of the effort should have been even bigger. In a Feb. 13 article in Politico, called “Economists predict stimulus effects,” Hampel said, “The biggest requirement of the stimulus package is to break the current near-term downward cycle” of rising job loss, falling consumer confidence and plunging spending.” Hampel added, “You get some of the biggest bang for the buck” by preventing layoffs, since a dollar spent to keep someone in a job is just as effective as one spent to hire a worker – and it takes a lot less time than other forms of spending. The CUNA chief economist also reminded that even with the bill signed into law, it will take time for its impact to be felt. Among other things, the bill funnels money to alternative energy projects, provides tax cuts for individuals and businesses and gives aid to states. The stimulus package also carries provision for tax cuts, infrastructure projects, and aid to the states. Politico is a prominent publication widely read on Capitol Hill and by Washington's political establishment. Use the resource link below to read the full article.

Dodd asked by CUNA to seek OTTI repair

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WASHINGTON (2/18/09)—Some credit unions have experienced serious reductions in capital as a result of the application of fair-value accounting to certain assets and the Credit Union National Association (CUNA) continues to seek legislative relief. In a recent letter to Sen. Christopher Dodd (D-Conn.), CUNA President/CEO Dan Mica expressed CUNA’s “strongest support” for efforts to address accounting rules on fair value and other-than-temporarily impaired (OTTI) assets. Mica noted that, like other financial institutions, federally insured credit unions with more than $10 million in assets are required to follow U.S. Generally Accepted Accounting Principles (GAAP). Therefore, Mica explained, for mortgage-backed securities (MBS) and mortgage servicing rights, credit unions follow the Financial Accounting Standards Board's (FASB) rules on fair value and mark-to-market accounting in valuing these assets and reflecting them on their financial statements and regulatory call reports. Because of this a number of credit unions—like other financial institutions and companies-- have experienced serious reductions in their capital, according to CUNA. “Fair value accounting impacts the application of accounting standards to assets that must be treated as other-than-temporarily-impaired (OTTI), such as MBS. That is because FASB requires OTTI assets to be written down for the entire difference between their cost and fair value on the day they are recorded,” Mica said. “ Because of the current illiquid market conditions, the difference in these values can be substantial and result in charges to earnings that represent unnecessary and overstated capital reductions,” Mica said in his Feb. 13 letter to the Senate Banking Committee chairman. Mica urged Congress to act to address the burden fair value presents to credit unions. CUNA backs the following actions:
* Direct the Securities and Exchange Commission SEC), under the new chairman, and the FASB to refine "fair value" for periods when an active market for a security does not exist; and * Direct the SEC and FASB to address OTTI again and to recognize the differences between credit losses and liquidity losses due to inactive markets.

Truth-in-Savings final rule analysis offered by CUNA

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WASHINGTON (2/18/09)--The Credit Union National Association (CUNA) has analyzed a final rule by the Federal Reserve Board that addresses disclosures in connection with overdraft protection plans. Although credit unions are not subject to the Fed’s rule, CUNA expects the National Credit Union Administration to issue a similar rule in the future. The final rule--effective July 1, 2010--amends Regulation DD, the Truth in Savings Act. It requires financial institutions to:
* Disclose on a periodic statement the dollar amounts charged for overdraft fees and returned item fees, both for the month and year-to-date; and * Provide account balance information through an automated system that discloses only the amount of funds available for withdrawal, without including the additional funds that would be available under an overdraft program.
In conjunction with this final rule, the Fed also issued a proposal under Regulation E, the Electronic Fund Transfer Act that will provide additional protections relating to the assessment of overdraft fees. These changes will only apply to ATM and debit card transactions. For more information, use the links.

NCUA opines on conflict-of-interest lending reg

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WASHINGTON (2/18/09)--A National Credit Union Administration (NCUA) provision that prohibits credit union officials from receiving compensation when making loans does not apply when a credit union sells loans it previously made, according to NCUA Associate General Counsel Sheila Albin. NCUA responded to a letter questioning whether a general lending regulation prevents credit unions from selling loans to a bank in which one of the credit union’s directors owns stock. The provision, Section 701.21 (c)(8), applies when credit unions make loans to their members, but not to a credit union’s sale of whole loans or participating interest in loans it has granted. “Credit union officials are cautioned, however, to avoid any impropriety when deliberating on or participating in the determination of any matter affecting their pecuniary interest, including the sale of credit union loans to a bank in which an official owns a minority interest,” Albin wrote. In general, the interested director should not deliberate or vote on the transaction. The purpose of the rule is to ensure that an individual in a position of authority does not put self-interest ahead of the credit union’s interest in making good loans and providing good services to members, NCUA said. For the full letter, use the link.

Inside Washington (02/17/2009)

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* ALEXANDRIA, Va. (2/18/09)--A recent National Credit Union Administration (NCUA) legal opinion letter (NCUA General Counsel Opinion 09-0108) explained why a federal credit union is not subject to the Freedom of Information Act (FOIA). Under FOIA, federal agencies are required to make certain records available to the public. However, the NCUA wrote, the law defines agency to include “any executive department, military department, government corporation, government controlled corporation, or other establishment in the executive branch of the government (including the Executive Office of the President), or any independent regulatory agency.” NCUA Associate General Counsel Sheila Albin wrote in the Jan. 26 opinion, “While federal credit unions may be considered federal instrumentalities under certain federal laws, for example tax and bankruptcy laws, federal credit unions are not agencies for purposes of FOIA” … * WASHINGTON (2/18/09)--Financial industry observers are concerned about the possible subjectivity of stress tests at large banks. The Treasury announced last week that tests would be given to 18 of the nation’s largest banks, but it provided no further information (American Banker Feb. 17). The tests, which regulators are developing, could recognize unemployment or a bank’s exposure to derivatives. Ultimately, observers say the tests could indicate a change in the way Troubled Asset Relief Program (TARP) money is used if TARP funds are given to banks who fail the tests. Previously, TARP was given only to healthy banks. Banks were required to stress test their capital levels under original Basel II rules finalized last year ... * WASHINGTON (2/18/09)--Executive compensation limits in a $787 billion economic stimulus package signed by President Barack Obama Tuesday appear to be eased. The compromise package did not include several, more restrictive provisions in the Senate version of the stimulus (American Banker Feb. 17). Two provisions that were killed would have scaled back executive bonuses of more than $100,000 at companies with Troubled Asset Relief Program (TARP) funds and would have limited the total annual compensation executives could receive to $400,000. Under current law, companies are banned from giving bonuses to senior executives until TARP funds are repaid. The Obama administration has indicated that it would revise the executive compensation limits after the legislation is signed. One revision would limit compensation to $500,000 for companies receiving TARP funds ... * WASHINGTON (2/18/09)--The Federal Reserve Board announced that it will restructure its check processing operations in the Third and Fifth Districts. As of April 18, the Baltimore branch office of the Federal Reserve Bank of Richmond no longer will process checks. Banks served by that office will report to the Federal Reserve Bank of Philadelphia. Some deposited checks that currently are non local checks will become local checks subject to shorter permissible hold periods in affected regions ...