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Inside Washington (03/18/2010)

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* WASHINGTON (3/19/10)--The Office of the Comptroller of the Currency (OCC) says it sees some flaws in Senate Banking Committee Chairman Christopher Dodd’s (D-Conn.) financial reform bill. The bill intended to define how state consumer protection laws would be applied to national banks--but the OCC said it would be more difficult for a national bank to ignore a state law that the bank thinks interferes with business. It also would be easier for state attorneys to file class action suit against federal banks, said American Banker (March 18). Requirements in the Senate bill also could change the preemption process, OCC said. National banks currently can decide not to follow a state law, pending review from a court or regulator. The Senate bill would not allow a bank to do that without a decision from a court or the OCC, and the process that banks would have to go through to get clearance to ignore a rule could take months or years, the Banker said ... * WASHINGTON (3/19/10)--Federal Reserve Board Chairman Ben Bernanke rejected a proposed bill that would strip the Fed of its powers except over the nation’s largest banks (American Banker March 18). Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has proposed giving the Fed oversight only of holding companies with $50 billion or more in assets. Bernanke said oversight of smaller banks is vital for financial system stability and monetary policy. Paul Volcker, former Fed chairman, supported Bernanke. He said that the Fed needs to have oversight of banks and that setting a $50 billion-asset threshold could widen the problem of “too big to fail” ... * WASHINGTON (3/19/10)--The Financial Crimes Enforcement Network (FINcen) has issued a $110 million civil money penalty against Wachovia Bank, N.A., Charlotte, N.C. According to FINcen’s penalty agreement, Wachovia failed to implement adequate measures to detect and report money laundering involving at least 13 of its non-bank correspondent accounts. Such measures would have enabled Wachovia to obtain due diligence information on customers of the foreign non-bank entity and determine whether related transactions conducted in the U.S. were commensurate with the customers’ normal or expected conduct, or lacked any apparent business or lawful purpose, FINcen said ...

Mica urges MBL passage via major L.A. radio interview

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WASHINGTON (3/19/10)--Interviewed on a major news-talk Los Angeles radio station yesterday, Credit Union National Association (CUNA) President/CEO Dan Mica emphasized credit unions could make $10 billion in loans to help small businesses and create 108,000 new jobs if the U.S. Congress passes legislation raising the current statutory cap. And he said an upcoming jobs package would be a likely vehicle to advance the bill. Mica discussed the member business lending (MBL) issue with Frank Mottek, host of a popular one-hour business program on KNX 1070 radio, the CBS news affiliate in Los Angeles, the second largest news market in the country. Mica told Mottek that CUNA is working to attach the MBL legislation to a jobs measure in Congress. “Right now the second jobs package of the year is being put together,” the CUNA leader explained. With the help of California co-sponsors such as Reps. Ed Royce (R), Brad Sherman (D) and Sen. Barbara Boxer (D), Mica said, CUNA is “trying to see that (the MBL bill) is a part of the second package that should come up in the next few weeks.” The House MBL bill (HR 3380) was introduced by Reps. Royce and Paul Kanjorski (D-Pa.) and currently has 100 co-sponsors; the Senate bill (S. 2919) has 11 co-sponsors. The measures would raise the current MBL cap to 25% of assets from 12.25%. Asked by Mottek about obstacles to passage, Mica noted opposition is coming from some quarters of the community banking industry that do not want the competition. “Of course, our answer is A) we’ve been doing it for 90 years, B) we’re willing to do it, and C) you aren’t willing to do it so let us go ahead and help. If you feel that for business reasons you can’t make those kinds of loans or won’t, don’t stop us from trying to move forward.” Added Mica: “I hope folks who hear this will call their congressman and senators and let them know there ought to be a good, solid choice. No one is anti-bank. But (the banks) certainly shouldn’t try to shut down credit unions at a time when this country and California need them most." To hear an excerpt from the interview, use the resource link below.

Six-year plan outlined by NCUA

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ALEXANDRIA, Va. (3/19/10)—The National Credit Union Administration (NCUA) on Thursday outlined its goals for the next six years in a publicly released strategic plan for 2011 through 2016. The strategic plan features a list of set goals that the NCUA hopes to achieve, including ensuring a “safe, sound and healthy credit union system,” promoting credit union access “to all eligible persons,” furthering the development of a “transparent and effective” regulatory environment, issuing “clearly articulated and easily understood regulations,” and cultivating “an environment that fosters a diverse, well-trained and motivated staff.” The NCUA set specific factors that may help or hinder the achievement of their stated goals. The complexity of credit union products and services, the demand for those services, economic conditions, and potential accounting changes are among the factors that may affect the safety and soundness of the credit union system, the NCUA said. A lack of public awareness, a drop in the number of overall credit unions, and shifts in member needs can affect the availability of credit union services. Additionally, changes in legislation and other finance industry regulation can affect the NCUA’s goal of developing and issuing transparent and easily understood regulations. The Credit Union National Association, in its early comments on this list, suggested ensuring that NCUA staffers are specifically trained to recognize the differences between credit unions and banks. CUNA also suggested adding reducing the regulatory burden on credit unions to the NCUA’s list of stated goals.

NCUA proposes to tighten CU mergers conversion process

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ALEXANDRIA, Va. (3/19/10)—The National Credit Union Administration (NCUA) has proposed a significant rewrite of portions of Sections 701, 708a, and 708b of its rules to address the fiduciary duties of federal credit union directors, credit union-to-bank mergers, and charter and insurance conversions. At its March board meeting held on Thursday the NCUA proposed new rules that would require federal credit union directors to “carry out their duties in good faith, and have, or gain, an understanding of basic finance and accounting practices.” The NCUA would also prohibit federal credit unions from “indemnifying its officials or employees for liability associated with misconduct that is grossly negligent, reckless, or willful in connection with a decision that affects the fundamental rights of members.”
Click to view larger image At the Nationaol Credit Union Administration meeting Thursday agency staff briefed board members on a numver of proposals, including one to tighten the RegFlex prgaram and another to adjust merger and conversions rules. Here a staff member makes a presentation as she faces board member Michael Fryzel (left), Chairman Debbie Matz (center), and Vice Chairman Gigi Hyland. (CUNA Photo)
The Credit Union National Association (CUNA) has called on the NCUA to better explain what “indemnifying” would entail under these circumstances. Mergers and credit union-to-bank conversions would also be affected, with the NCUA proposing certain changes to its current standards governing “the information that credit unions seeking to convert must disclose to members.” This includes the approval of a conversion proposal, the certification of a member vote on that conversion proposal, and the guidelines on how that vote must be completed. Rules governing the disclosure of a merger plan to credit union members and the NCUA are also affected, and the NCUA has also proposed altering some of the steps that follow an approved merger or conversion vote. The NCUA board noted that these proposed changes are a response to alleged voter influencing by some credit union executives. CUNA has pledged to review the NCUA’s proposal to ensure that the proposed changes do not make the credit union-to-bank conversion process so burdensome that it is no longer an option for credit unions.

Some RegFlex provisions rescinded in NCUA plan

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ALEXANDRIA, Va. (3/19/10)--Addressing the National Credit Union Administration’s (NCUA) proposed plans to tighten some of its current regulatory flexibility standards, NCUA Chairman Debbie Matz said that while the NCUA would like to give credit unions as much discretion as possible, safety and soundness must also be considered. The NCUA on Thursday approved a proposed rule that would rescind some exemptions related to fixed assets, member business lending (MBL), stress testing of securities, and the discretionary control of investments. While there is a statutory 5% limit on fixed asset investments for credit unions that are over $1 million in assets, the RegFlex provisions permit some slackening of that limit in certain circumstances. The NCUA, citing its own call report data, argued that “investing in higher levels of non-earning assets can materially affect a credit union’s earnings ability and, therefore, its viability.” The collected call report data “shows a higher percentage of earnings problems among credit unions with more than 5% of shares and retained earnings invested in fixed assets,” with the “percentage of earnings problems” increasing as “the level of fixed assets increases.” The NCUA has found similar losses in the MBL portfolios of some credit unions, with significant increases in delinquencies and charge-offs, and has proposed requiring that all credit unions obtain a loan principal’s guarantee “as part of their own underwriting standards and best practices.” The NCUA has also proposed that all credit unions, including RegFlex credit unions, stress test their securities “as a matter of safety and soundness and responsible business practices.” The NCUA currently allows RegFlex federal credit unions to “delegate discretionary control over the purchase and sale of its investments to certain persons outside the FCU” in excess of the 100% net worth cap that non-RegFlex federal credit unions must comply with. The proposed rule would rescind the 100% net worth exemption for RegFlex federal credit unions. However, NCUA examinations and insurance director Melinda Love said that if the proposal becomes a final rule, credit union total investments above the cap would be grandfathered into the rule. Other portions of RegFlex addressing charitable contributions, nonmember deposits, zero-coupon securities, borrowing repurchased transactions, commercial mortgage related securities, and the purchase of assets from federally insured credit unions are currently being reviewed by NCUA staff, Staff Attorney Frank Kressman said. The Credit Union National Association said that it recognizes the need for regulatory safety and soundness, but will examine the NCUA’s proposals to develop recommendations on how well-run credit unions can maintain the regulatory flexibility that they deserve while maintaining the tools that the NCUA needs to address safety and soundness and other issues facing the credit union system.

CUNA seeks CU improvements in Dodds consumer protections

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WASHINGTON (3/19/10)--The Credit Union National Association (CUNA) encouraged Sen. Chris Dodd (D-Conn.) to consider adding language that gives his proposed Bureau of Consumer Financial Protection (BCFP) “the authority to delegate examination authority for large credit unions to the prudential regulator” rather than limiting the National Credit Union Administration’s (NCUA) authority to credit unions with under $10 billion in assets. Citing CUNA’s “historic concerns with legislative proposals that seek to divide credit unions by asset size,” CUNA in a letter to Dodd also promoted “permitting the BCFP to delegate examination authority for large credit unions to NCUA.” Such a move “would strike a balance that will ensure an appropriate level of examination for compliance with consumer laws” and ensure that “all credit unions have the opportunity to be examined by their prudential regulator.” “Permitting NCUA to use existing resources to supervise all credit unions for compliance with consumer protection law, and giving the BCFP back-up authority to examine credit unions, would permit the BCFP to devote more of its resources on less scrupulous financial services providers while maintaining the authority to intervene with a credit union in the event that it became necessary,” the letter added. Overall, CUNA spoke in support of the BCFP and many of the regulatory reforms proposed by Dodd’s bill, and called for greater protections for consumers of both regulated and, especially, currently unregulated financial products. However, CUNA in the letter expressed concern at portions of the bill that would require the BCFP “to collect depositor data by census tract,” as this could create an unneeded regulatory and reporting burden for credit unions. CUNA urged Dodd’s Senate Banking Committee “to either remove this language from the Committee Print or modify the language to require the BCFP to coordinate with the prudential regulators regarding the type and form of the data, as well as the method of collection, making every effort to reduce duplicative data collection requirements and overall regulatory burden.” CUNA has previously requested that any regulatory changes that are proposed help reduce the amount of burdensome regulation faced by credit unions, and CUNA commended Dodd for directing the BCFP “to ensure that outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed.” This single agency “would be able to identify and streamline duplicative regulatory requirements, thereby reducing regulatory burdens for credit unions as well as improving consumers’ comprehension of the terms and condition of mortgage loans,” the letter added. CUNA was also pleased by the “structure of the capitalization of the Orderly Liquidation Fund (OLF),” especially portions that ensure that credit union members would “not be asked to provide any funds for the initial capitalization of the OLF.” CUNA also commended Dodd for ensuring that only credit unions with over $50 billion in assets would be charged assessments if the OLF needs to be recapitalized. CUNA staff continues to pour over the 1,330 page bill, and may convey “additional technical concerns with the legislation as it proceeds through Committee consideration,” the letter added.

Schumer tells iBloombergi MBLs good in job stim bills

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WASHINGTON (3/19/10)—Sen. Charles Schumer, a supporter of increasing the credit union members business lending (MBL) cap, said this week he’d like to see a cap lift included in a package of job-stimulus proposals the Senate is currently considering. In response to a question posed by a Bloomberg reporter after the Senate passed a $17.6 billion jobs bill Wednesday, Schumer said he plans to push for increased MBL authority for credit unions as a way to help stimulate the economy and hiring. In an article on Schumer and MBLs, Bloomberg quotes John Magill, senior vice president for the Credit Union National Association (CUNA), who noted that the higher cap could create more than 100,000 new jobs and bring $10 billion into the economy at no cost to the taxpayer. “More lending means more capital for small businesses, and that translates into more jobs at a time when job creation is a national priority,” Magill also said. “Given the national conversation about jobs, that is an area where credit unions can help out if we’re given the opportunity to do so,” Ryan Donovan, CUNA’s vice president for legislative affairs, added. Schumer, a New York Democrat, is among co-sponsors supporting Senate legislation to allow credit unions to make loans to their small business members up to 25% of the credit union’s assets. The cap is currently 12.25% of assets. There is a comparable bill in the House. In the article “Schumer Wants Higher Cap for Credit Union Small-Business Loans,” Bloomberg noted that “(t)housands of credit union executives and members visited Capitol Hill” in February to state their case for increased small business lending to credit union members. Hill visits are a pillar of CUNA’s Governmental Affairs Conference, held Feb. 21-25 this year. The article also noted that bank executives continue to meet with lawmakers to oppose the credit union measure.