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Inside Washington (04/14/2011)

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* WASHINGTON (4/15/11)--Concluding a two-year bipartisan investigation, Sens. Carl Levin (D-Mich.) and Tom Coburn (R-Okla.), chairman and ranking Republican on the Senate permanent subcommittee on investigations Wednesday released a 635-page final report on their inquiry into the primary causes of the financial crisis. The report catalogs conflicts of interest, heedless risk-taking and failures of federal oversight that helped push the country into the deepest recession since the Great Depression. “High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets,” said Levin. The Levin-Coburn report expands on evidence gathered at four subcommittee hearings in April 2010, examining four aspects of the crisis through detailed case studies: high-risk mortgage lending, using the case of Washington Mutual Bank, a $300 billion thrift that became the largest bank failure in U.S. history; regulatory inaction, focusing on the Office of Thrift Supervision’s failed oversight of Washington Mutual; inflated credit ratings that misled investors, examining the actions of the nation’s two largest credit rating agencies, Moody’s and Standard & Poor’s; and the role played by investment banks, focusing primarily on Goldman Sachs, in creating and selling structured finance products that foisted billions of dollars of losses on investors, while the bank itself profited from betting against the mortgage market … * WASHINGTON (4/15/11)--U.S. regulators on Wednesday announced enforcement actions on 14 large banks to address negligence residential mortgage loan servicing and foreclosure processing. The orders did not include fines, though the Federal Reserve said it plans to announce monetary sanctions at a later date. Some attorneys general and administration officials urged agencies to fine big banks $20 billion or dedicate a like amount to modifying distressed mortgages (The Wall Street Journal April 14). The actions taken Wednesday require each servicer to take a number of actions, including making significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact; ensure that foreclosures are not pursued once a mortgage has been approved for modification unless repayments are not made; establish controls and oversight over the activities of third-party vendors; provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and strengthen programs to ensure compliance with state and federal laws regarding servicing and foreclosures Observers cautioned that the orders could make it more difficult for state attorneys general to extract greater concessions from the banks. Iowa's attorney general said it would not change his state’s approach in negotiations …

Comment on NCUA compensation proposal sought

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WASHINGTON (4/15/11)--The Credit Union National Association (CUNA) has reached out to credit unions, asking them to comment on a proposed rule that seeks to ensure that financial institutions account for risk when they design their individual incentive-based compensation arrangements, such as bonuses or commissions. Credit unions and other financial institutions with $1 billion or more in assets would be required to ensure that their incentive-based compensation arrangements "appropriately balance risk and financial rewards," are "compatible with effective controls and risk management," and are "supported by strong corporate governance," according to the proposal. The Dodd-Frank Act defines incentive-based compensation to mean any variable compensation, in any form, that serves as an incentive for performance. The proposal states that “generally, compensation that is awarded solely for, and the payment of which is solely tied to, continued employment (e.g., salary) would not be considered incentive-based compensation.” The compensation proposal does not cover salaries or other compensation, such as bonuses, where risk is not involved. Credit unions with $10 billion or more in total assets would be forced to comply with additional requirements. The proposed rule was jointly issued by the NCUA, the Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission. The proposed provisions would be effective six months after publication of the final rule in the Federal Register, with annual reports due within 90 days of the end of a credit union’s fiscal year. CUNA in the comment call asks if this planned six-month effective date delay gives impacted credit unions enough time to comply with the proposed rules. CUNA has also asked if the proposed definition of “compensation” for credit unions, which differs slightly from the definition applied to other institutions, should be changed. Comments are due to CUNA by May 16. Comments solicited by the NCUA should be submitted by May 31. For the full comment call, use the resource link.

Final corporate CU rule leads April agency discussion

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ALEXANDRIA, Va. (4/15/11)--The National Credit Union Administration’s (NCUA) final corporate credit union rule will be a key item for the board’s consideration when it convenes for its next monthly board meeting on April 21. NCUA Chairman Debbie Matz earlier this month said that agency staffers were "working diligently" on "potentially significant changes" to its corporate proposal. The agency has reviewed 227 comment letters on the proposal. The NCUA’s corporate proposal, which was published for comments in November, would alter some internal control and reporting requirements and proposed limiting credit union membership in corporates generally to one corporate at a time. It would also set up a process under which all entities that use a corporate credit union would pay into the Corporate Stabilization Fund or face negative consequences. “The Credit Union National Association’s (CUNA) biggest concerns regarding the proposal include whether credit unions would be limited to membership in only one corporate credit union. Other issues involve the provision that would essentially require all entities using corporate credit unions to pay into the Corporate Stabilization Fund,” CUNA Deputy General Counsel Mary Dunn said. CUNA has also asked if there is sufficient legal authority to support these changes. Corporate credit union service organization activities and guidelines for the agency’s supervisory review committee will also be discussed. The NCUA's monthly report on the status of its insurance funds will also be delivered during the meeting. A closed NCUA session will follow the open meeting. Insurance appeals and supervisory matters will be discussed during the closed meeting. For the full NCUA meeting agenda, use the resource link.

CUNA interchange teleconference archive posted

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WASHINGTON (4/15/11)--Audio of Wednesday’s national credit union interchange teleconference has now been posted on the Credit Union National Association’s (CUNA) homepage. During the 30-minute audio call, CUNA President/CEO Bill Cheney said that now is the time for credit unions to band together and use their "big voice" to oppose proposed interchange changes. The opportunities to ask legislators to stop, study and start over on interchange fee cap legislation are growing fewer as the July 21 effective date approaches, and Cheney said that the upcoming two-week congressional district work period provides one such opportunity. Credit union representatives that secure meetings with their respective legislators during this work period should thank the legislators that are supporting an interchange implementation delay, and ask those who have not yet signed on as co-sponsors to do so. "There is really no better way to talk to a member of Congress than face-to-face," Cheney emphasized. To hear the teleconference in full, use the resource link.

Rep. Biggert backs CU Youth Week on House floor

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WASHINGTON (4/15/11)--National Credit Union Youth Week, which starts on Sunday and runs through the 23rd, is one of many ways that non-profits and other groups work “to protect consumers and prepare our children to prosper in today’s sophisticated marketplace,” Rep. Judy Biggert (R-Ill.) said in a Thursday statement delivered on the House floor.

The legislator in her statement also noted that National Credit Union Youth Week “focuses on teaching young Americans about the benefits of setting goals and saving to reach them.” Credit unions and leagues nationwide are preparing special activities for National Credit Union Youth Week. (See related story: CUs prepared for National CU Youth Week) Biggert spoke to recognize April as Financial Literacy Month. The National Credit Union Administration (NCUA) chose Financial Literacy Month to kick off its new Financial Education and Financial Literacy Initiative, a technical assistance grant (TAG) project that will aim to "improve financial literacy among the general population, particularly students." NCUA Chairman Debbie Matz this week said that the NCUA “is dedicated to giving students everywhere the opportunity to gain financial skills.” Grants provided through the initative will “facilitate credit union efforts to ensure that today’s teenagers develop the ability to make smart financial decisions,” she said. The NCUA initiative will make $200,000 in grants available to credit unions that take part in programs related to in-school financial counseling, first-time homebuyer counseling, online financial literacy efforts, and other financial literacy projects. (See related April 7 story: Education, fin lit initiatives will get CDRLF boost) “This initiative invests in our future,” Matz added.