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Inside Washington (05/11/2010)

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* WASHINGTON (5/12/10)--The Federal Reserve could begin testing a program as early as June to extract excess cash from the financial system, the central bank said Monday. The announcement signals that Europe’s debt problems are not preventing the Fed from unwinding a stimulus plan, said American Banker (May 11). The Fed has authorized up to five small offerings of term deposits. The term deposit facility could provide an extra incentive for banks to keep their money at the Fed instead of lending it out--which could help control inflation, the publication said. The Fed had flooded the system with cash by purchasing assets, leading banks to shore up $1.1 trillion in extra reserves. The Fed holds those funds in overnight accounts. Now that the economy is on a more solid foundation, the Fed is looking to remove its emergency support to tighten credit. In a statement, the Fed said the offerings are part of “prudent planning” and do not have any implications for “near-term conduct” of monetary policy ... * WASHINGTON (5/12/10)--The Federal Reserve has decided to reopen swap lines with the European Central Bank and banks in Canada, the United Kingdom, Japan and Switzerland. The decision places the central bank in a “delicate political position,” said American Banker (May 11). Fed officials dispute that they re-opened the lines so they could bail out foreign banks. Instead, they said they want to improve liquidity conditions in the U.S. dollar funding markets and to prevent troubles in Europe from spreading. In the swap lines, the Fed lends to foreign central banks, which then use the money to make U.S. dollar loans to financial institutions in their home markets ... * WASHINGTON (5/12/10)--Sens. Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) Monday released language to strengthen the Volcker Rule--named after former Federal Reserve president Paul Volcker--which would ban proprietary trading by banks and also crack down on investments in private equity ventures and hedge funds (American Banker May 11). The amendment would allow banks to continue proprietary trading for buying and selling activities that do not result in a conflict of interest. Under the amendment, banks also could provide advisory services to hedge funds as long as they do not create taxpayer bailout risk. Regulators must adopt rules that impose higher capital standards on systemically significant companies and nonbanks ...

NCUA invokes disaster relief for Tenn. CUs and members

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ALEXANDRIA, Va. (5/12/10)--The National Credit Union Administration (NCUA) yesterday encouraged credit unions “to make loans with special terms and reduced documentation” to members that have been affected by the recent severe weather in Tennessee. The NCUA will also take its own actions in response to the floods, tornadoes, and severe thunderstorms which resulted in portions of that state being declared federal disaster areas by the President. The NCUA has offered to “reschedule routine examinations of affected credit unions,” to fully back lines of credit for credit unions through its National Credit Union Share Insurance Fund (NCUSIF), and to “make loans to meet the liquidity needs of member credit unions through the Central Liquidity Facility.” The NCUA also works to “determine the safety of credit union staff and operational condition of credit unions,” to “provide needed material and technical assistance to affected credit unions,” and to “return credit unions to normal operations as quickly as possible” following disaster conditions. For the full NCUA release, use the resource link.

CUNA Auto dealer BCFP exemption could kill balance

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WASHINGTON (5/12/10)--The Credit Union National Association (CUNA) urged lawmakers to oppose any regulatory reform amendments that would “upset the balance” of proposed consumer protections, as the trade group continued to provide input as reform process moves forward in the Senate. In a letter to Senate Banking Committee leaders Chris Dodd (D-Conn.) and Richard Shelby (R-Ala.), CUNA opposed “excluding any non-depository institution provider of financial products, including auto dealers, from the rules promulgated” by the proposed bureau of consumer financial protection (BCFP). Doing so would “defeat the purpose of creating the new consumer regulator, would put credit unions at a competitive disadvantage in the new regulatory regime,” and could potentially “cause confusion for consumers of financial products,” the letter added. The BCFP would write and regulate rules for financial firms and, as currently constructed, would oversee credit unions with over $10 billion in assets. CUNA has asked that the National Credit Union Administration be allowed to retain full authority over the credit union system, regardless of asset size. Dodd, who introduced his Senate regulatory package earlier this year, said that he could back an amendment introduced by Sen. Susan Collins (R-Me.) that would instruct federal regulators to tighten capital requirements for financial institutions.

Compliance Which new rules apply to branded gift cards

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WASHINGTON (5/12/10)--Recent Federal Reserve amendments to Regulation E that restrict dormancy, inactivity and service fees and expiration dates that apply to store gift cards also cover card network-branded gift cards, according to the Credit Union National Association. In the May edition of CUNA’s compliance challenge, CUNA advises credit unions that the same rules that apply to gift certificates and general use prepaid cards that are used for personal, family or household purposes will also apply to branded cards, which are linked to companies such as Visa and Mastercard and are redeemable by retailers that accept the card brand. These cards are sold by many credit unions. The new rules governing gift cards will be implemented alongside a number of other provisions set forth by the Credit Card Accountability Responsibility and Disclosure Act of 2009. Under the CARD Act, gift cards that are sold on or after August 22 must "fully comply" with the new rules. However, CUNA adds, state laws that provide greater consumer protection regarding fees or expiration dates on gift cards will not be preempted by these new rules. Another Challenge Q&A explains that the Reg E overdraft rules do not require credit unions to send written confirmations to members when they elect to revoke their access to overdraft services for ATM and one-time debit card transactions. “The credit union only has to provide confirmation of the member's affirmative consent (opt-in) to the credit union’s overdraft service for ATM and one-time debit card transactions,” CUNA added. For this months compliance challenge, use the resource link.