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Hefty assessment on banks approved by FDIC

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WASHINGTON (3/2/08)--To address the ongoing problems in the banking system, the Federal Deposit Insurance Corp. (FDIC) took dramatic action Friday. The agency approved a final rule on risk-based assessments, as well as amendments to its plan to restore its insurance fund. It also issued an interim rule on an emergency special assessment of 20 basis points on FDIC-insured depository institutions, a premium that will total approximately $15 billion. The emergency special assessment combined with a longer-term fee increase, also approved by the FDIC board at the Friday meeting, means that FDIC-insured banks and thrifts will have to pay approximately $27 billion in total insurance premiums in 2009. The FDIC took these measures to repair its already weakened insurance fund, which absorbed $18 billion in losses last year. The FDIC estimates that the fund could experience approximately $65 billion in losses over the next five years. As of December 2008, the FDIC's fund had a balance of approximately $19 billion. Friday’s actions increased the quarterly insurance fees required of FDIC-insured institutions; these fees vary depending on the risk category of the institution and its investments. Included in the board’s actions was an “emergency special assessment” of 20 basis points. All FDIC-insured institutions must pay the “emergency special assessment” of 20 basis points, which will be imposed June 30 and collected on Sept. 30. FDIC staff noted that emergency action was required because, without immediate intervention, the reserve ratio of the fund would drop close to zero or become negative in 2009. The FDIC also approved a rule that gives it the authority to assess future emergency assessments if warranted. As noted, the FDIC also adopted changes to the fund’s restoration plan, increasing from to seven years from five years the period over which it must restore the fund’s reserve ratio to 1.15%. The agency’s staff noted that many member institutions urged FDIC to take advantage of its authority to extend the restoration period beyond five years. Such an extension is permitted for the FDIC under “extraordinary circumstances.” The FDIC did not issue guidance or otherwise indicate how insured institutions must account for the fund’s restoration. The agency last imposed a special assessment in 1996, but that assessment did not apply to most FDIC-insured banks and thrifts.

Inside Washington (02/27/2009)

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* WASHINGTON (3/2/08)—The Federal Deposit Insurance Corporation (FDIC) voted Friday to amend the restoration plan for the Deposit Insurance Fund (DIF). The agency, in a release, said under a restoration plan approved last October, the agency set a rate schedule to raise the DIF reserve ratio to 1.15% within five years. Friday’s action extends the restoration plan horizon to seven years in recognition of the “current significant strains on banks and the financial system and the likelihood of a severe recession.” The amended restoration plan was accompanied by a final rule that sets assessment rates and makes adjustments that improve how the assessment system differentiates for risk. Currently, most banks are in the best risk category and pay anywhere from 12 cents per $100 of deposits to 14 cents per $100 for insurance. Under the final rule, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1. The FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment on the industry on June 30. The assessment is to be collected on Sept. 30… * WASHINGTON (3/2/08)—Daniel Tarullo was formally sworn in as a member of the Board of Governors of the Federal Reserve System at a ceremony Friday in the atrium of the Fed’s main building here. Federal Reserve Chairman Ben Bernanke presided over the ceremony. Tarullo assumed his position on Jan, 28, following his confirmation by the U.S. Senate the previous day. His term expires Jan. 31, 2022…

Examiner guidance on CU SIP

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ALEXANDRIA, Va. (3/2/09)--The National Credit Union Administration (NCUA) unveiled supervisory guidance for its examination staff regarding the impact the agency’s corporate stabilization program may have on credit union balance sheets. The NCUA said its Supervisory Letter 09-01 instructs examination staff to differentiate between the impact of recent NCUA actions and operational activities by credit union management when evaluating credit union performance and risk profile. The letter also sets forth guidance allowing for examiner recognition of possible temporary reductions in return on assets (ROA) resulting from credit union participation in the Credit Union System Investment Program (CU SIP). NCUA Chairman Michael Fryzel said the supervisory letter “makes clear and appropriate distinctions between NCUA board actions related to the corporates and decisions made by an individual credit union.” He said credit union members deserve to know the bigger picture factors that are having an effect on their credit union’s bottom line. He added they also need to know “that the regulator is working with the industry to maintain a strong and vibrant credit union system despite the adverse environment.”

Senate to take up spending bill today

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WASHINGTON (3/2/09)—The U.S. Senate is scheduled to take up an omnibus appropriations bill today that includes language removing the statutory cap on the lending authority of the Central Liquidity Facility (CLF). The bill, approved last week by the House of Representatives, also includes provisions to expand lending in disadvantaged communities by doubling appropriations for the U.S. Treasury Department's Community Development Financial Institutions (CDFI) Fund. The Obama administration wants more than $200 million to be available for the CDFI Fund. Another spending measure of interest to credit unions, the National Credit Union Administration’s (NCUA) Community Development Revolving Loan Fund program would get $1 million, available until Sept. 30, 2010, for technical assistance to low-income designated credit unions. Regarding the NCUA’s CLF, in 1981, Congress imposed a $600 million cap. It increased the CLF’s borrowing authority to more than $21 billion during Y2K to provide assurance during the millennium date change; however, in FY2001-2008 the cap has been maintained at $1.5 billion. Last year, the Credit Union National Association (CUNA) worked to get the cap lifted to $41.5 billion in the Continuing Resolution, but that expires on March 6. The Credit Union National Association (CUNA) has a long-standing policy of supporting removal of the cap on CLF’s borrowing authority. The role of the CLF is back-up liquidity provider, compared to the role of the Federal Reserve System’s discount window, which is lender of last resort. The Senate is not expected to vote on the spending bill until later this week and is expected to make changes to the House-passed version. That means the House and Senate will have to meet in conference to hammer out the differences in the bills.

New credit card rule analysis CUNA

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WASHINGTON (3/2/09)—An analysis of a final rule governing certain credit card practices is now available on the Credit Union National Association’s (CUNA) website. The CUNA analysis addresses the rule adopted by The National Credit Union Administration (NCUA), along with the Federal Reserve Board and the Office of Thrift Supervision (OTS), which is effective July 1. 2010. Only federal credit unions fall under the provisions of the new requirements. However, the CUNA analysis advises that the Federal Trade Commission (FTC), with authority in this area over state-chartered credit unions, may expect state-chartered credit unions to comply with the rule. Practices addressed in the NCUA-Fed-OTS rule include:
* Time periods for making payments; * How payments may be allocated to card balances; * Allowable interest rate increases on outstanding balances; * Acceptable methods for computing balances that are subject to interest charges, and * Definition of excessive security deposits and fees that are charged when credit is issued.
The prohibited acts or practices outlined in the final rule will not be deemed unfair or deceptive if they occurred prior to the effective date, unless other specific circumstances suggest otherwise, CUNA notes. Use the resource link below for the complete analysis.

NCUSIF shows preliminary accounting decisions

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ALEXANDRIA, Va. (3/2/09)—The most recent monthly National Credit Union Share Insurance Fund (NCUSIF) report showed the fund booked both the expenses and the income associated with the corporate credit union stabilization plan in January. The National Credit Union Administration’s (NCUA) NCUSIF booked, for accounting purposes, a $1 billion expense for “Loss on Investment – Corporate” that is related to its capital infusion into U.S. Central FCU. It also booked a $3.7 billion "Insurance Loss Expense" to control for the risk associated with NCUA's guarantee of "excess" corporate credit union share deposits. The information was revealed last week at the NCUA’s open board meeting. Although the NCUA booked the $1 billion investment in U.S. Central as an insurance fund loss, that investment has not been economically impaired. The agency is writing it off because the money will not be available to pay off any possible future insurance losses until U.S. Central repays the NCUSIF's "capital note." The $3.7 billion related to the corporate share guarantee has similarly not been economically impaired, but has been added to the NCUSIF's reserve for insurance losses, which now stands at over $3.9 billion. However, the NCUA also booked the NCUSIF’s $4.84 billion in “accrued recapitalization and premium income” in January, again for accounting purposes, despite the fact that NCUA has not yet collected the premium from credit unions. Unless the NCUA adopts an alternative approach to how the costs of the corporate stabilization program will be paid or changes course on its accounting decision, its action could force credit unions to have to reflect all of their insurance costs for the corporate assistance, the replenishment of the 1% deposit and the premium, on their March call reports. The NCUA, as a government agency, has flexibility to deviate from Generally Accepted Accounting Principles (GAAP) in its financial reporting if the Office of Management and Budget (OMB) and the Comptroller General agree to such a deviation. The Credit Union National Association (CUNA) has urged the agency to work with OMB and the Comptroller General to use that authority to spread out the impact of the agency’s Corporate Credit Union Stabilization program on the NCUSIF and ultimately credit unions, said Mary Dunn, CUNA deputy general counsel, last week. She added, “We will continue pressing NCUA to take steps to mitigate the costs of the assistance to the corporate credit unions.” The NCUA also reported that January 2009 NCUSIF actual net income was $150.7 million, significantly higher than the $128.3 million in net income that NCUA staff originally budgeted for January 2009.