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Inside Washington (03/24/2009)

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* WASHINGTON (3/25/09)--Fees charged to financial institutions in the Treasury’s program to relieve bad assets from banks’ balances sheets could actually bolster the Federal Deposit Insurance Corp.’s (FDIC) Deposit Insurance Fund, said FDIC Chairman Sheila Bair. Industry observers had questioned if the program would lead to higher insurance premiums--a claim that government officials said was unlikely. The FDIC’s reserves have dropped to $18.9 billion since the wave of bank failures. The agency would guarantee about $500 billion of debt for public or private funds that are buying the bad mortgage assets. It also would charge a fee for those funds, and the money would be placed into a reserve to build against future losses (American Banker March 23). The FDIC is seeking legislation that would give it more power to charge any assessment and include bank holding companies in the fees. Until a bill is passed, community banks are at risk, according to Chris Low, economist, FTN Financial. Community banks are upset because they are paying to bail out others even though they didn’t get involved with the “bad bets” ... * WASHINGTON (3/25/09)--Questions financial industry observers have about the Treasury’s plan to buy bad assets revolve around the auction process, which will be conducted by the Federal Deposit Insurance Corp. (FDIC). Observers ask if the agency would offer bids that are high enough to encourage bankers to sell illiquid assets (American Banker March 24). FDIC Chairman Sheila Bair said there is always risk, but that the structure has a better chance than other options she’s seen. Observers also asked Bair if banks would be forced to accept a price during bidding if they hesitated to participate. The process would be consultative, Bair said. Other unresolved questions include what loans are eligible for the program and how quickly the plan would be employed. The FDIC said it would soon release more details about the auction ... * WASHINGTON (3/25/09)--Concern over whether bad assets will remain on the Federal Reserve Board’s balance sheet permanently has been expressed by several financial industry observers. The Fed may be taking on risk by accepting the bad assets as loan collateral under the Term Asset-Backed Securities Loan Facility, but it’s a necessary evil, according to Kevin Jacques, former Treasury official (American Banker March 24). Cornelius Hurley, former Fed lawyer, said the Fed doesn’t have a history of dealing with bad assets and added he fears it will be stuck with them until the market improves. Peter Vinella, head of financial services at consulting firm LECG, said although some of the securities that were accepted as collateral after Jan. 1 have been downgraded, the Fed didn’t take on the worst assets--such as subprime mortgages ...

Mica on Fox CUs are the Most Solid Financial System

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WASHINGTON (3/25/09)--Following his Senate Banking Committee testimony yesterday, Credit Union National Association President/CEO Dan Mica appeared on Fox Business Network to underscore the overall strength and safety of the credit union system and promote lifting the statutory member business lending cap as a way to help job-generating small businesses. Interviewed live in the Rotunda of the Cannon House Office Building, Mica said he wants consumers to know that the natural person credit unions--“where you and I put our money”--are safe and sound, with accounts federally insured to $250,000. “We are the most solid financial services system left in the U.S. by any measure,” he added, noting that credit unions’ average capital ratio of nearly 11% is well above the federal “well-capitalized” standard of 7%.
Mica explained the conservatorship of two corporate credit unions, U.S. Central FCU and Western Corporate FCU (Wescorp), stemmed from problems due to “collateral damage” in today’s economy. “It’s what you’ve been talking about all day,” he told Fox. “The rest of the economy is crumbling and it has undercut some of their holdings.” To help credit unions shoulder the cost of the regulators’ action Mica said CUNA is pressing for legislation to spread out the time credit unions have to recognize the cost of the assessment from one year to five or eight years. “Banks already have that authority; we think we should have similar authority,” Mica said. He added that CUNA’s interest in TARP or U.S. Treasury Department funds is as a backup so credit unions are not the only institutions walled off from this option if needed. “We’re talking about parity, we’re talking about a backup, and about equal authority to spread out payments for an assessment for problems these two corporates had,” Mica said. On small business lending, Mica told the Fox audience that lifting the cap would allow credit unions to help small business, which generate 70% of the nation’s jobs. “If we can raise that cap, we can make $10 billion in loans to middle America, Main Street, without a penny from the government,” he said. (See related story: MBLs spotlighted as CUNA testifies on reg restructure.)

No new conservatorships on the horizon NCUA

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WASHINGTON (3/25/09)—In a CBS Radio News interview addressing the conservatorship of two corporate credit unions announced last week National Credit Union Administration (NCUA) officials said they do not foresee, at this time, a need to take similar action anywhere else within the corporate credit union network. The NCUA Friday took control of U.S. Central FCU, Lenexa, Kan., and Western Corporate FCU (Wescorp), San Dimas, Calif. CBS Radio News set up at U.S. Central FCU earlier this week to conduct an interview with the NCUA’s Keith Morton and John Kutchey. Kutchey is acting director of the Office of Examination and Insurance and Morton is director of the agency’s Region IV. The interview was conducted Monday afternoon by Barry Bagnato, who is working on “a broad array of stories concerning the recession” for CBS, according U.S. Central. U.S. Central reported that questions focused on:
* Why the conservatorship was necessary; * The impact of assessments on natural-person credit unions to replenish the National Credit Union Share Insurance Fund (NCUSIF); * The advance notice of proposed rulemaking (ANPR) seeking comment on the structure of the corporate system; * What happened to place U.S. Central in its current position; and * The possibilities other corporate credit unions could face conservatorship.
The NCUA officials explained that the value of mortgage-backed securities held in portfolio decreased because of the current recession and plummeting home values across the nation. Those securities were, however, highly rated when purchased, they added. Kutchey and Morton underscored that consumers will see few changes if any as a result of the NCUA's action. They added credit unions remain well capitalized, with some experiencing loan and asset growth at a time most financial institutions are struggling.

NCUA releases PIMCO FAQs on conservatorships

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ALEXANDRIA, Va. (3/25/09)—The National Credit Union Administration (NCUA) Monday released certain information regarding independent analysis of corporate credit union residential mortgage-backed securities (RMBS) and NCUA’s conservatorship of U.S. Central FCU and Western Corporate FCU. The analysis is from the Pacific Investment Management Company LLC (PIMCO). The NCUA also released an associated frequently-asked-questions (FAQs) document. The NCUA said it requested the PIMCO analysis to obtain “an independent, objective assessment” of potential losses resulting from holding RMBS to maturity. An independent review was necessary, the agency indicated, because:
* The portfolios with RMBS have highly complex structures that require considerable expertise to model and analyze; * The growing amount of unrealized losses on investment securities and the troubling amount of rating downgrades compelled NCUA to independently determine the amount of expected credit impairment; and * The NCUA developed concerns about the portfolio management abilities of the largest corporate credit unions and did not want to rely solely on the institutions’ own analyses.
The NCUA said the PIMCO report augments National Credit Union Share Insurance Fund analysis of the potential losses stemming from corporate credit union portfolios. The agency added that the FAQs explain why the NCUA conserved the corporate credit unions, and provides a wide range of information about their liquidity, what credit unions can do to support stabilization efforts, TARP funding, and the future structure of corporate credit unions. The Credit Union National Association (CUNA), which has been seeking more transparency from the agency regarding its action on corporates, said the information was good as far as it goes, but does not provide any real analysis of the numbers involved. CUNA Deputy General Counsel Mary Dunn said, “We will continue pressing NCUA for much more information so that credit unions can at least have a better understanding of the insurance costs and why NCUA is advising credit unions that capital in these two corporates and possibly others is impaired to the extent NCUA is indicating.” Use the resource links below.

MBLs spotlighted as CUNA testifies on reg restructure

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WASHINGTON (3/25/09)—Credit union member business lending (MBL) was
Click to view larger image CUNA President/CEO Dan Mica (foreground) faces Senate Banking Committee members at a hearing on financial regulatory restructuring, which also broached removing the member business lending cap for credit unions. Panel members include (from left) Sens. Mark Warner (D-Va.), Jon Tester (D-Mont.), Tim Johnson (D-S.D), Christopher Dodd (D-Conn.), chairman, Richard Shelby (R-Ala.), ranking member, and Robert Bennet (R-Utah). Seated to Mica's left: William Atridge, of the Independent COmmunity Bankers of America. (CUNA photo)
spotlighted during a Senate Banking Committee hearing Tuesday on modernizing the structure of financial regulations, at which the Credit Union National Association (CUNA) represented credit union views. In opening remarks, Sen. Charles Schumer encouraged CUNA President/CEO Dan Mica to address the issue of the cap that restrains credit union loans to small businesses, which Mica did in both testimony and remarks. Mica, testifying, reminded the Senate lawmakers that credit unions stand ready to add as much as $10 billion in credit if the cap is removed. On the regulatory issues, Mica told the Senate panel that credit unions need an independent regulator, one that understands the many-layered nuances that so distinctly separate not-for-profit credit unions from their for-profit counterparts. That regulator should be strong, tough, fair and competent, Mica said, but should not be dually responsible for credit unions and banks. He pointed out candidly that, with the history of banking industry attacks on credit unions, putting credit unions under the same regulator as banks would be like “throwing a chicken into the fox’s lair.” Mica, setting aside written remarks, made his points candidly to the Senate Banking Committee at its hearing addressing modernization of the financial regulatory structure. Among structural changes being considered is creation of a new and over-arching systemic risk regulator to be more fully attuned to risks that could arise across the markets. Proponents of such an overseer also argue it would prevent the growth of institutions deemed "too-big-to-fail," which threaten those markets. Mica, in his written testimony, urged Congress to keep credit unions, and other smaller institutions “that have shunned undue risk, out of this new regulatory scheme." In notable exchanges concerning the current 12.25%-of-assets MBL cap, Schumer pushed banking representatives on the witness panel for legitimate reasons not to—even temporarily—remove that limit. In a Q-and-A session, the New York Democrat asked banking representatives to give a good reason why, at a time when there’s “a failure of people being able to get new credit, and existing lines of credit are being pulled” from small businesses, credit unions should be restricted. When the question went largely unanswered, Schumer said he believed history shows the cap was not pushed by regulators but rather by credit unions’ competitors, the banks. Schumer said lawmakers are being flooded with calls from small businesses in good financial standing that have lost their lines of credit at banks that are tightening their lending to cope with financial losses. "We have to find new ways of lending," Schumer said. Schumer has announced his intentions to introduce a bill that would free up credit unions to provide more loans to member businesses, to help ease the credit crunch that Schumer says is caused in part by shrinking bank lending.

CU comment sought on FTC disclosure plan

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WASHINGTON (3/25/09)--The Credit Union National Association (CUNA) issued a comment call on a Federal Trade Commission (FTC) proposal that somewhat eases an agency rule requiring financial institutions without federal share or deposit insurance disclose this to customers. The comment period ends June 5. The FTC had issued a proposed rule in 2005 as part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) to require such disclosure but it was not adopted--in part, because enactment of the 2006 Financial Services Regulatory Relief Act (FSRRA) addressed many of the concerns that were raised by CUNA and others in response to the proposed rule. The agency has now decided to issue a new proposal to incorporate the changes outlined in the FSRRA. The FSRRA continues to require financial institutions that lack federal insurance to disclose this to consumers. However, the proposed change would allow institutions under certain circumstances to provide notice instead of obtaining the signed acknowledgement. CUNA is especially interested in comments to these specific issues raised by the FTC proposal:
* What are the costs and burdens of the proposed rule and what changes should be made to increase benefits for consumers? * The rule does not include specific requirements regarding the size and format of the regulatory disclosures, other than that they be “simple and easy to understand.” Should this rule provide more specific requirements, and if so, what should they be?
Use the resource link below to read the complete comment call.