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Washington Archive

Washington

Derivatives Proposal Tops NCUA May Agenda

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ALEXANDRIA, Va. (5/10/13)--A long-awaited National Credit Union Administration derivatives proposal will headline the three items on the agenda when the agency holds its May open board meeting at 10 a.m. ET on May 16.

NCUA Chairman Debbie Matz in February hinted that the agency is considering allowing well-run credit unions with the necessary expertise to use simple derivatives to hedge against interest rate risk (IRR). She said managing interest rate risk is a key concern for the agency.

Credit unions that demonstrate a relevant, material IRR exposure, have demonstrated the ability to manage derivatives, and have the net worth and financial health needed to manage derivatives could be allowed to invest in interest rate swaps and interest rate caps, the NCUA indicated last year.

The Credit Union National Association has encouraged the NCUA to permit state and federal credit unions to manage IRR through investments in simple derivatives. CUNA has also told the agency it supports allowing well-managed credit unions to invest in derivatives through third-parties, and granting independent derivative investment authority for certain credit unions with adequate derivatives experience.

The agency currently allows only a select number of federal credit unions to engage in derivatives through an investment pilot program.

Other items on the open board meeting agenda are:

  • A board briefing on a supplemental interagency proposed rule that covers appraisals for higher-priced mortgage loans; and
  • A final rule making technical adjustments to credit union regulations.
The agency is also proposing technical amendments to multiple parts of its rules and regulations. The Credit Union National Association will review these amendments to ascertain their substance.

Consideration of supervisory activities and an appeal under Section 701.14 and Part 747, Subpart J of NCUA regulations are on the closed agenda. The closed board meeting is scheduled to begin after the open meeting has ended.

For the full NCUA agenda, use the resource link.

CFPB Proposes Options to Ease Student Debt Repayment

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WASHINGTON (5/10/13)--Consumer Financial Protection Bureau Director Richard Cordray this week outlined a trio of potential policy and market-based solutions that he said would "help struggling borrowers with unmanageable private student loan debt."

The student debt solutions were unveiled during a Wednesday field hearing in Miami, Fla. The potential actions, which were developed through suggestions from outside commenters, include:

  • Allowing student loan borrowers that have dutifully repaid their loan to refinance their remaining debt at lower interest rates;
  • Lowering monthly repayments to match a negotiated debt-to-income ratio; and
  • Cleaning the slate and creating a payment plan for borrowers that need a way to repair their credit and get out of default.
A comprehensive CFPB student debt report released during the hearing found that Americans hold approximately $1.1 trillion in outstanding student loan debt, and one-in-five U.S. households have at least one resident that has taken out a student loan. The average outstanding balance for student loan borrowers is $26,682, and one-in-eight student loan borrowers owes more than $50,000. Thirty percent of student loan borrowers are delinquent, and a total of 6.7 million are more than 90 days behind on their student loan payments, according to the bureau.

Student loan debt is impacting housing, small business ownership, retirement savings and rural communities, the CFPB report noted.

"Everyone who cares about the future of this country should be focused closely on the many problems posed by a growing student loan debt burden borne by some of our best young people," Cordray said.

Also this week, Sen. Elizabeth Warren (D-Mass.) introduced legislation that aims to address student loan issues. Her bill, the Bank on Students Loan Fairness Act, would offer federal student loans at the same rates that are charged to banks through the Federal Reserve discount window. That rate is currently .75%.

In a recent meeting with CFPB officials, the Credit Union National Association said credit unions could do more to help debt-saddled grads if the maximum credit union student loan maturity of 15 years was increased. (Use the resource link for April 23 News Now story: CFPB Seeks CU Help For Student Loan Issues.)

Fed Official Criticizes Bank Risk Taking

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WASHINGTON (5/10/13)--Federal Reserve Bank of St. Louis President Jim Bullard knocked "too big to fail" banks pretty hard in a recent interview in American Banker, criticizing a "Las Vegas" attitude toward using short-term funds to take big risks and then sticking it to the taxpayer if losses pile up.

Bullard suggested a novel way to control some bank bad behavior: Taxing their short-term borrowings (American Banker May 8).

"You could change the tax code to get more reliance on equity finance and less reliance on debt," the Banker quoted him as saying.  He added, this change would prevent large firms from taking risks with short-term funds, only to come looking for government bailouts when those risks don't pan out.

Overall, he said, the U.S. does not need large banks: They are given unfair subsidies, are difficult to manage, and are not vital to economic growth.

Large, multinational businesses have their own means of accessing the capital they need, and rarely go to banks for back up, he said. Smaller, more nimble institutions could perform many of the same tasks that large banks take on, with far less risk to taxpayers, Bullard added.

Federal Reserve Governor Daniel Tarullo also addressed too-big-to-fail firms in remarks made last week. While much work has been done to address big banks, regulators "would do the American public a fundamental disservice were we to declare victory without tackling the structural weaknesses of short-term wholesale funding markets, both in general and as they affect the too-big-to-fail problem," he said.

"Relatively little has been done to change the structure of wholesale funding markets so as to make them less susceptible to damaging runs," Tarullo said. One way to address these short-term wholesale issues is requiring banks to hold additional capital, ending the need for short-term borrowing.

Too-big-to-fail banks, and how to limit their outsized impact on the economy, continues to be a frequent topic of discussion in Washington, as various regulatory and legislative fixes are discussed.

For Tarullo's full remarks, use the resource link.

Three CUs Among 2013 NACA Fund Applicants

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WASHINGTON (5/10/13)--Three credit unions are among the 65 firms that have requested funding through the 2013 round of the Community Development Financial Institutions (CDFI) Fund's Native American Assistance CDFI Program (NACA) awards.

The credit unions have requested a combined $1.33 million in funds. Altogether, the 65 NACA applicants have requested $26.9 million in total funds. The amount requested is more than double the amount made available this year, and is an increase from the $23 million requested during 2012, the CDFI Fund said in a release. Funding applicants hail from 21 states and the District of Columbia.

"Native CDFIs are active partners in the economic growth of their communities, and the NACA Program continues to serve as vital support for these essential organizations as they work in the some of the most distressed areas in the country," CDFI Fund Director Donna Gambrell said.

NACA applications are being reviewed, and awards are expected to be announced this fall, the CDFI Fund said.

The NACA Program is designed to encourage the creation and strengthening of certified CDFIs that primarily serve Native American, Alaskan Native and Native Hawaiian communities. NACA funds may be used to finance capital or may be provided to financial institutions in the form of technical assistance grants.

For the full CDFI Fund release, use the resource link.

Fannie Mae To Pay $59 Billion Toward Gov't Outlay

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WASHINGTON (5/10/13)--Fannie Mae will soon pay a whopping $59.4 billion in dividends to the U.S. Treasury as it continues to settle debts incurred following a 2008 government conservatorship.

Fannie Mae reported total pre-tax income of $8.1 billion for the first quarter of 2013, the largest quarterly pre-tax income in company history. The record income was due to strong credit results and increased revenue, Fannie Mae said. The government sponsored enterprise (GSE) also released a $50.6 billion valuation allowance on deferred tax assets.

Fellow GSE Freddie Mac also reported near-record profits during the first quarter: that company brought in $4.6 billion in funds.

Fannie and Freddie are currently making quarterly dividend payments to the federal government to repay funds that were used to bail out the two firms. Fannie Mae's portion of those payments will total $95 billion once the $59.4 billion payment is made, the GSE said. The payment will be made by June 30, according to the company. Freddie Mac said it paid $7 billion to the Treasury in the first quarter.

The GSEs have been held under government conservatorship since 2008, and they continue to repay more than $150 billion in taxpayer funds that were used to prop them up.

Some have speculated that the Fannie and Freddie profits, and the resulting repayments, could slow the tempo of GSE reform efforts.

A range of housing policy changes have been discussed by the U.S. House, the Senate, and the Obama administration in recent months, including full market privatization, limiting government market intervention, and several stops in-between.

"Lawmakers in Washington agree on the need to draw private capital back into the mortgage market but no consensus on how to do so has formed," Federal Housing Finance Agency Acting Director Ed DeMarco said in remarks delivered Thursday to the Federal Reserve Bank of Chicago's 49th Annual Conference on Bank Structure and Competition.

Ensuring that credit union interests are represented in any reform of the housing finance system is one of the Credit Union National Association's top 2013 legislative objectives. CUNA has repeatedly said that any changes to secondary mortgage market structure must allow credit unions and other small issuers to maintain full and unrestricted access to that market. CUNA has also highlighted the importance of preserving 30-year, fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity.

Use the resource link to read more.