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House panel OKs bill with permanent insurance increase

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WASHINGTON (2/5/09)—The House Financial Services Committee Wednesday approved H.R. 786, a bill designed to make permanent the $250,000 deposit and share insurance increase enacted as part of the Emergency Economic Stabilization Act of 2008. During consideration of the bill, the committee accepted an amendment offered by Rep. Paul Kanjorski (D-Pa.) to extend the amount of time National Credit Union Administration (NCUA) has to restore the National Credit Union Share Insurance Fund (NCUSIF) to its statutorily required levels. Under current law, the fund must be replenished in the calendar year during which it drops below the required level. The Kanjorski amendment would extend this period to five years. The Credit Union National Association (CUNA) strongly backs H.R. 786 and specifically sought such a modification to the NCUSIF restoration period, among other modifications. CUNA also backed a plan to increase NCUA's borrowing authority from the U.S. Treasury Department. Rep. Luis Gutierrez (D-Ill.) offered an amendment to increase NCUA's borrowing power from $100 million to $6 billion. The amendment was approved by voice vote. CUNA believes the increased borrowing authority should give the NCUA additional resources to manage the NCUSIF and deal with problems that may arise. The bill next must be considered by the full House.

NCUA posts accounting info on corporate plan

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WASHINGTON (2/5/09)—The National Credit Union Administration (NCUA) has posted an accounting bulletin for credit unions that addresses the corporate credit union stabilization plan, according to the agency’s deputy executive director. NCUA’s Larry Fazio told the more than 3,000 participants of a Credit Union National Association’s (CUNA’s) Wednesday audio conference that the accounting bulletin is available on the agency website. The bulletin, according to NCUA is intended to provide guidance to credit unions with less than $10 million in total assets on regulatory reporting matters related to recent NCUA Board actions to stabilize the corporate credit union system. “This guidance can be referenced by credit unions larger than $10 million in total assets in consultation with their independent accountants,” the bulletin advises. The bulletin became effective immediately upon its issuance. It will expire, according to the NCUA, when “superseded or incorporated Accounting Manual for Federal Credit Unions, whichever occurs first.” Use the resource link below to access the NCUA bulletin.

Congress to study use of TARP dollars Fed liquidity efforts

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WASHINGTON (2/5/09)—House Financial Services Committee Chairman Barney Frank (D-Mass.) has unveiled plans for two hearings next week: one spotlighting the Federal Reserve’s recent efforts to provide liquidity, another scrutinizing company’s use of TARP funds. Frank said next Tuesday, Feb. 10, the committee will conduct and examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis.” For the following day’s session, the panel has called the CEOs of the first eight companies to receive TARP funds to testify on their use of the government assistance they have received. TARP is short for Troubled Asset Relief Program, which is administered by the U.S. Treasury. Also of interest to credit unions, later this month Federal Reserve Board Chairman Ben Bernanke is expected to testify Feb. 24 on monetary policy before the Senate Banking Committee. He will be presenting the Fed’s semiannual monetary policy report, which will be repeated in the House before the financial services panel.

NCUA consolidation absent from Franks agenda

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WASHINGTON (2/5/09)—Outlining his ideas for re-structuring the federal financial regulatory system, House Financial Services Committee Chairman Barney Frank (D-Mass.) did not mention consolidation of the National Credit Union Administration (NCUA) as one of his goals. "We, quite frankly, would have been very surprised to have heard the Chairman mention NCUA in the context of regulatory restructuring," said Ryan Donovan, vice president of legislative affairs for the Credit Union National Association. Donovan noted that the omission is consistent with the message he has been sending credit unions since March 2008. Frank made his comments during a news conference to outline his committee’s agenda for 2009. Also important for credit unions, Donovan noted Frank reiterated his support for credit unions to have access to Troubled Asset Relief Program (TARP) funds. He indicated a hope that the U.S. Treasury Secretary would make funds available to credit unions. On broad issues, Frank said the biggest near-term issue is to deal with systemic risk. (American Banker Feb. 4) He said his top priority will be to identify and empower a single federal entity to be the systemic risk regulator. He said his second phase of a regulatory restructuring process will involve consideration of merging various federal financial regulators and providing addition consumer protection regulation. Donovan said the agencies mentioned as possible merger candidates were the Securities and Exchange Commission with the Commodities Futures Trading Commission, and the Office of the Comptroller of the Currency with the Office of Thrift Supervision. Consumer protection issues identified by the chairman included possible legislation to curb predatory mortgage lending and abusive credit cards practices. “These bills are expected to be similar to legislation the committee considered in the 110th Congress,” Donovan said. “Also Chairman Frank said his committee would continue to focus on affordable housing, including promoting affordable rental housing,” he added.

CUNA audio conference NCUA must explore options

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WASHINGTON (2/5/09)—Credit Union National Association (CUNA) President/CEO Dan Mica told participants on an audio conference call Wednesday that while CUNA recognizes federal regulators had no choice but to take action on behalf of the corporate credit unions, CUNA opposes the means chosen to fund the corporate credit union stabilization. Close to 3,000 tuned in for CUNA’s audio conference call on issues surrounding the National Credit union Administration’s (NCUA) corporate credit union aid plan.
Click for slide show CUNA President/CEO Dan Mica opens the more-than-hour-long informational session CUNA offered to affiliated credit unions on issues surrounding the National Credit Union Administration’s corporate credit union assistance plan. Close to 3,000 callers participated. (CUNA Photo)
Mica told particpants that alternative funding approaches must be explored, and underscored CUNA is doing just that. He noted that all members of the NCUA board have encouraged CUNA to developed feasible and legal alternatives. Mica added that CUNA's Corporate Credit Union Task Force has been working on alternatives to recommend to NCUA. The CUNA leader urged credit unions to keep sending their ideas for reasonable alternatives to CUNA at Ncuacorp@cuna.com. He also urged credit unions to respond to NCUA's Advance Notice of Proposed Rulemaking on issues relating to the corporates. Comments are due to NCUA April 6, and CUNA has posted a Regulatory Action Call on its Regulatory Advocacy website. NCUA's Central Liquidity Facility (CLF) President Owen Cole reviewed the actions NCUA has taken leading up to the announcement last week that the agency was providing $1 billion in capital assistance to U.S. Central and establishing a program to guarantee all deposits in all corporates. NCUA Deputy Director Larry Fazio detailed the agency's stabilization actions and addressed the costs to the NCUSIF. He said there will be a $1 billion immediate cost for the capital provided to U.S. Central and $3.7 billion loss revenue for the deposit guarantee, resulting in a replenishment of the 1% deposit and an insurance premium for all federally insured credit unions, under the current funding mechanism. He said about 50% of the NCUSIF deposit will be impaired. He also reiterated that the premium has been declared but won't be billed until later in 2009. Both Fazio and Cole supported the development of funding alternatives for the NCUA Board to consider. Fazio also announced the issuance of the agency's accounting bulletin to provide guidance to credit unions with less than $10 million in assets on how to reflect their costs in funding the assistance to the corporates. Credit union of that size do not have to follow Generally Accepted Accounting Principles. (See related story: NCUA posts accounting info on corporate plan) Scott Waite, CFO of Patelco CU, San Francisco, and chairman of CUNA’s Accounting Task Force, provided details of the accounting treatment for credit unions regarding the insurance costs. He said the accounting guidance from NCUA is "as expected." CUNA SVP of Economics Bill Hampel discussed the costs to credit unions. He said there will be an average ROA reduction of 62 basis points and an average net worth reduction of 56 basis points, although individual results will vary. Hampel added that final expenses to credit unions will depend on the analysis of corporate credit union bonds, which the agency has requested, the probability of their sale before maturity, and the impact of NCUA's stabilization action efforts on the corporate system. The CUNA audio conference also included Terry West, president/CEO of VyStar CU and chairman of CUNA’s Corporate Credit Union Taskforce, Eric Richard, CUNA General Counsel, and Mary Dunn, CUNA Deputy General Counsel. Alternatives CUNA has been considering to date include:
* Encourage and enable capital into corporates from natural person credit unions; * Use more of the CLF; * Expand NCUA's Credit Union System Investment Program;* Facilitate the purchase of corporate credit union assets by natural person credit unions; * Allow corporates to infuse capital into the NCUSIF through capitalization investments; * Continue to address accounting issues, including ones relating to securities that are other-than-temporarily-impaired; and * Access TARP funds to back up the NCUSIF as needed.

Inside Washington (02/04/2009)

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* WASHINGTON (2/5/09)--Rep. Thaddeus McCotter (R-Mich.) honored Kensington Valley Community CU, Highland, Mich., on its 50th anniversary. The credit union was originally founded as Huron Valley Schools Employees CU and has $25 million in assets. “The Kensington Valley Community CU has become a landmark in the community it serves by providing important financial services to its members,” he said. McCotter noted the honor in Monday’s Congressional Record ... * WASHINGTON (2/5/09)--The “bad bank” model to relieve banks of bad assets will not work, Sen. Charles Schumer (D-N.Y.) told CNBC Tuesday. The model is flawed because of its high cost, and because the government would have to buy assets at a price that likely doesn’t match the value of the assets. “A better solution is for the government to guarantee the assets below the amount the banks have them in their books,” Schumer said. “The banks would not get away scot-free here. They would have to pay an insurance fee for the guarantee, but they’re not looking into the abyss. It might help them to start lending again.” The senator also noted that the government “can’t just keep saving institutions,” as it is the worst solution to dealing with the financial crisis ...

Costs of corporate stabilization plan on CUNA site

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WASHINGTON (2/5/09)--The Credit Union National Association (CUNA) has posted two pieces of information to its website that will help credit unions estimate the effects of the National Credit Union Administration’s (NCUA) Corporate Stabilization Program on their credit union. CUNA also has posted to its website homepage a link to consolidated resources addressing the agency's stabilization plan. The link includes information on the NCUA's plan, CUNA's call to action and analysis, related News Now stories, and more Regarding the effects-estimation materials, CUNA Senior Economis Mike Schenk said, "The NCUA’s recently announced corporate stabilization program raised many questions from credit unions. The most common of these seems to be ‘What does it mean for me?’ and ‘What will this cost?’ To help credit unions answer those questions, we’ve posted several Excel worksheets on the CUNA website.” One worksheet explains the proposal’s effects on the credit union movement as a whole. The other can be used as a template for credit unions to input their data and estimate program costs. NCUA’s stabilization plan consists of a $1 billion infusion and an initial estimate of $3.70 billion to guarantee corporate deposits. The $3.70 billion corporate share guarantee is an estimate of the total costs associated with a corporate deposit guarantee--it may understate or overstate the true cost of that guarantee. NCUA has engaged PIMCO to analyze corporate investments--and the results of that analysis will be used to more accurately determine the total costs, Schenk said. The final cost estimate also will depend on the stability of corporate funding. The more stable and long-term the funding, the lower the final costs will be. In any event, CUNA, state credit union leagues and others are working with the NCUA to explore alternative funding mechanisms that would ease the financial burdens of the initial plan. If the efforts are successful, the assessment rate could be reduced. For more information, use the link.