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NCUA makes key changes to final corporate CU rule

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ALEXANDRIA, Va. (4/22/11)--The National Credit Union Administration (NCUA) on Thursday approved a final corporate credit union rule that alters some corporate internal control and reporting requirements, but made some key changes from its original proposal.
Click to view larger image The NCUA's finacl corporate credit union rule, approved on Thursday, changes some corporate internal control and reporting requirements, but does not limit credit union choice regarding corporates and does not require so-called 'voluntary' payments into the corporate stabilization fund. (CUNA Photo)
For instance, the agency’s final rule did not include a part of the proposal that would have limited credit union membership in the corporates to one at a time. The final also dropped a plan to require virtually every entity that is a member of a corporate credit union to contribute to the Temporary Corporate Credit Union Stabilization Fund. Credit Union National Association (CUNA) President/CEO Bill Cheney credited the NCUA for eliminating these two potential corporate credit union requirements that CUNA “strongly argued were at odds with the interests of credit unions and the agency’s legal authority.” Cheney said that the decision to allow credit unions to belong to more than one corporate “will develop broader support for corporate credit unions that are well-managed and are able to meet agency and credit union due diligence scrutiny.” He added that the NCUA was right to drop the corporate stabilization-related proposal. The final rule, which was approved unanimously by the board, will require corporates to conduct all board of director votes as recorded votes, and to include any “no” votes or abstentions of individual directors in the meeting minutes. Corporates will also be required to establish enterprise-wide risk management (ERM) committees staffed with at least one independent risk management expert. The corporates will also need to incorporate audit, reporting, and audit committee practices that are modeled on Federal Deposit Insurance Corporation (FDIC) requirements and the Sarbanes-Oxley Act. Under these audit requirements, corporate credit unions will need to ensure that material accounting adjustments conform to U.S. Generally Accepted Accounting Principles (GAAP) and file their yearly reports, audits, and other similar reports with the NCUA. Corporates will be permitted to charge one-time or periodic membership fees. There will be no membership vote on the fees, and the corporate will have the authority to expel any member that does not pay a required membership fee within 60 days of the fee’s invoice date. New rules applying to income that corporate credit union executives may receive from related credit union service organizations were also approved. The NCUA said it does not intend to apply these same executive compensation standards to credit unions. The agency reviewed over 200 comment letters on the proposal, and NCUA Board Member Gigi Hyland said that the final rule appropriately balanced credit union industry concerns with what the agency believed should be addressed by the regulations. Portions of the final rule that address corporate board responsibilities, compensation disclosures, and membership fees will come into effect after they are published in the Federal Register. Most of the final rule’s audit and reporting requirements will come into effect on January 1, but some will be delayed for an additional year. The requirement for an assessment by an independent public accountant will not be effective until January 1, 2014. The ERM provisions are expected to come into effect by April of 2013. NCUA Chairman Debbie Matz said that extending many of the corporate rule’s deadlines was one way that the agency could lighten the regulatory burden.

Corporate CUSOs supervision addressed by board

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ALEXANDRIA, Va. (4/22/11)--The main focus of the National Credit Union Administration’s (NCUA) Thursday meeting was the release of a final corporate credit union rule, but other items relating to corporates were also on the agenda. The agency during its open meeting voted to allow corporate credit union service organizations (CUSOs) to provide information technology (IT) services and investment/ asset-liability management services. Corporate CUSOs are currently authorized to conduct brokerage services and investment advisory services. The approved IT services may include web development, hosting, and content management, as well as web security services and software development. IT consulting will also be permitted. Approved investment and asset-liability management services may include asset liability management-related consulting, reporting, and advisory services. The agency also addressed some of its own policies during the meeting, making final the interim Interpretive Ruling and Policy Statement that consolidates the NCUA’s Supervisory Review Committee’s policies and gives that committee the authority to review Technical Assistance Grant denials. The Interpretive Ruling and Policy Statement also addresses appeals to the Supervisory Review Committee regarding CAMEL Code ratings 3, 4 and 5, loan loss reserve provisions, loan classifications, and revocations of RegFlex authority for federal credit unions. The NCUA Supervisory Review Committee is an independent appellate panel that reviews credit unions’ appeals of material supervisory determinations.

Agency insurance losses remain below estimates

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ALEXANDRIA, Va. (4/22/11)—The National Credit Union Administration (NCUA) did not report writing off any National Credit Union Share Insurance Fund (NCUSIF) assets as insurance loss expense for the second time in as many months.
Click to view larger image Click for larger view
Click to view larger image Click for larger view
The agency had originally budgeted $54.2 million in funds to cover expected insurance loss expenses for the month of March but those projected losses did not materialize. NCUA CFO Mary Ann Woodson reported that the NCUSIF’s equity ratio stood at 1.29% as of March 31, and added that $140 million of the NCUSIF’s $1.2 billion in reserves are allocated for expected losses related to specific, troubled natural-person credit unions. A total of $1 billion of those NCUSIF reserves remain unallocated. Woodson in her report noted that the number of CAMEL Code 4 and 5 credit unions increased by 6 in March. The 366 total CAMEL 4 and 5 credit unions represent 5% of insured shares, or $37 billion. The number of CAMEL 3 credit unions declined by 5, dropping that total to 1798. CAMEL 3 credit unions represent 17% of insured shares, or $132 billion. To access this month's NCUA insurance report, use the resource link.

Legal opinion covers CU directorrealtor conflicts

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ALEXANDRIA, Va. (4/22/11)--Current lending rules allow volunteer credit union directors, but not paid officials, to represent a member as a real estate agent in the sale of the member’s home, the National Credit Union Administration (NCUA) said in a recent legal opinion letter. The letter, which was written by NCUA Associate General Counsel Hattie Ulan, specifically responded to a situation in which a director represented a member that faced foreclosure by the first mortgage lender and was in default on a home equity loan that they had obtained from the given credit union. Ulan said that the volunteer director “may receive a commission from an outside party for selling property secured by a loan made by the [credit union,] absent any steering of the borrower to the director’s business interests." Specifically, the NCUA has stated that directors may not receive, directly or indirectly, “any commission, fee or other compensation in connection with any loan made by the credit union.” Listing or selling a property that is financed by the credit union is considered to be “‘in connection with’ the loan” by the NCUA. However, volunteer officials are granted “an exception” to this rule, “provided that no referral has been made by the credit union or the official.” Ulan said that the agency “adopted the exception so as not to discourage volunteers from serving on boards or interfere with their livelihoods.” For the full legal opinion letter, use the resource link.

Inside Washington (04/21/2011)

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* WASHINGTON (4/22/11)--The Senate Banking Committee announced a series of staff changes--both new hirings as well as promotions. Drew Samuelson, who has served for 24 years as chief of staff for Sen. Tim Johnson (D-S.D.), who heads the banking panel, is now senior adviser. Charles Yi will serve as chief counsel and deputy staff director--returning to Capitol Hill after a stint at the U.S. Treasury Department (American Banker April 21). Other staff changes include: Marc Jarsulic, who returns to the committee as chief economist; Laura Swanson, who has worked in Johnson’s office since 2005, has been appointed the committee's new policy director; Jeff Siegel joins the committee as senior counsel; Erin Barry as a professional staff member for housing issues; Glen Sears as a senior policy adviser for oversight efforts; Catherine Galicia as senior counsel on consumer protection issues; and Lynsey Graham as senior counsel ... * WASHINGTON (4/22/11)--U.S. Treasury Department Deputy Secretary Neal Wolin followed up his recent defense of the pace of Dodd-Frank Act implementation by again addressing attacks against the financial reform measures in a recent blog post. Wolin in his post said that the lawmakers that drafted Dodd-Frank “took great care to protect and strengthen” small financial institutions, “helping to ensure that we avoid the concentration that exists in the banking sectors of so many other countries which are dominated by just a handful of very large institutions" (American Banker April 21). Wolin particularly emphasized the role that reduced assessments and higher deposit insurance protection can have in helping smaller institutions. Increased prudential standards and stronger nonbank oversight will also reduce some competitive advantages that the current system gives to larger institutions, Wolin said … * WASHINGTON (4/22/11)--The Federal Deposit Insurance Corp. Thursday sent a letter to its insured banks regarding the agency’s proposal to repeal a statutory prohibition that has banned the payment of interest on demand deposits. The repeal was ordered by the Dodd-Frank Wall Street Reform Act and, like many of provisions of that law, is effective July 21. The agency’s communication reminded interested parties that they have until May 16 to comment …