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CUNA asks NCUA to re-work net worth plan

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WASHINGTON (5/24/11)--The Credit Union National Association (CUNA) in a Monday comment letter said that while it generally supports the National Credit Union Administration’s (NCUA) proposed revisions to "net worth" and "equity ratio" definitions, portions of the agency’s proposal addressing so-called “bargain purchase gains” are problematic. A “bargain purchase,” in this case, is defined as a situation in which the fair value of net assets acquired in a credit union merger is greater than the fair value of the acquired credit union. The CUNA comment letter noted that this treatment may improve matters for some merging credit unions by reducing the difference between regulatory net worth and net worth under U.S. generally accepted accounting principles under a particular set of facts and circumstances. However, this treatment could cause problems in certain cases. Overall, CUNA said, the benefits of this treatment are questionable, and this portion of the proposal should not be finalized before it can be studied further by accounting professionals. A separate proposal could then be offered, if needed, CUNA suggested. The “bargain purchase” provisions were issued as part of a larger proposal that was released at the NCUA’s March board meeting. The NCUA proposal would also amend the Federal Credit Union Act's definition of "net worth" for natural-person credit unions under NCUA's Prompt Corrective Action authorities to allow the NCUA's Section 208 Assistance made to troubled credit unions to qualify as regulatory net worth. The NCUA proposal also included a "technical correction" to its regulatory definition of "net worth." This technical correction would generally decrease the amount of a combined credit union's "net worth" in a credit union merger. The proposed equity ratio changes would clarify that the National Credit Union Share Insurance Fund's (NCUSIF) equity ratio must be based solely on the financial statements of the NCUSIF alone without consolidation with other statements, such as those of conserved credit unions. CUNA in its letter spoke in support of the section 208 assistance changes, saying that these permitting that assistance would help maintain the safety and soundness of the credit union system and is consistent with statutory requirements. CUNA also said it supports the NCUA’s proposed NCUSIF clarification. For the full comment letter, use the resource link.

Hearings of interest before Memorial Day breaks

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WASHINGTON (5/24/11)--Both the House and Senate are in session this week, with notable hearings taking place in both bodies of Congress. The first hearing of credit union interest will take place on Tuesday, when the House Financial Services Committee conducts a mark-up session covering the derivatives section of the Dodd-Frank Wall Street Reform Act. Two of that panel's subcommittees have scheduled hearings for Wednesday. The subcommittee on insurance, housing and community opportunity will discuss the future roles of the Federal Housing Administration, the Rural Housing Service, and the Government National Mortgage Association in housing markets. And the capital markets subcommittee will discuss additional steps needed to end the bailout of government-sponsored entities (GSE) Fannie Mae and Freddie Mac. That GSE hearing is expected to focus on seven separate bills. Those bills would, in part, prevent dividend payment decreases, abolish the affordable housing trust fund, and prevent legislators and regulators from creating a future system similar to the current GSE setup. The GSE-related bills would also set a cap for government assistance to the GSEs, subject them to freedom of information act standards, require them to dispose of all assets that are not mission-critical, and prevent taxpayers from paying for the legal fees of Fannie and Freddie executives. The Senate Banking subcommittee on securities, insurance and investment subcommittee will also hold a hearing on Wednesday, discussing derivatives clearinghouses. Further Senate Banking action will take place on Wednesday, with the National Association of Realtors, the National Multi-Housing Council and National Apartment Association, and the National Association of Home Builders testifying during a hearing on potential housing finance reforms. The House Financial Services subcommittee on financial institutions and consumer credit has also planned a Thursday hearing on Federal Deposit Insurance Corp. oversight. The FDIC”s current role, and its work during the recent financial crisis, will be examined during that hearing. Aside from the hearings, little of this week’s action is expected to be relevant to credit unions. Discussion and votes on the Patriot Act and budgetary issues are expected. After this week, the House and Senate will not be in session at the same time again until the week of June 13. The Senate will recess until June 6 at the end of this week. The House will return to work following the Memorial Day holiday, but they will leave for the week of June 6.

NCUA rate-risk plan is onerous unnecessary CUNA

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WASHINGTON (5/24/11)--The National Credit Union Administration (NCUA) has not fully demonstrated a need for a new interest rate risk rule, especially one that makes compliance with the rule a condition of keeping National Credit Union Share Insurance (NCUSIF), the Credit Union National Association (CUNA) has said. The NCUA earlier this year proposed amending its federal share insurance regulations to include a requirement that federally insured credit unions have both a written interest rate risk (IRR) policy and an effective interest rate risk management program. The proposal would not apply to credit unions with less than $10 million in assets and credit unions with assets of $10 million to $50 million that meet set mortgage and investment volume criteria. Those covered by the rule would need to address IRR from several sources, including re-pricing risk, yield-curve risk, spread risk, basis risk and options risk. The agency could withhold NCUSIF coverage of member accounts for credit unions that did not comply with the proposal if it is adopted. CUNA in its comment letter said that it “has consistently supported appropriate safety and soundness regulations that are well-tailored to address problem areas and that enhance strong yet reasonable oversight,” but added that the agency has not justified the need for the rule. Also, tying compliance to federal share insurance coverage, with the possibly of losing coverage, would be “a punitive and unnecessary step that the agency does not need to take,” CUNA said. Noting the budensome regulatory environment under which credit unions operate, CUNA added that the proposal, if adopted, “would result in significant overlap between the rule and existing agency guidance on asset/liability management and concentration risk.” The NCUA already has the supervisory mechanisms needed to “monitor, assess and direct corrections be made to any deficiencies in credit unions’ interest rate risk policies and management,” CUNA added. The IRR proposal could also allow some agency examiners to micromanage the credit unions they oversee, CUNA warned. The NCUA has previously estimated that about 25% of credit unions, or around 800, would need to develop written IRR policies if its proposal is made final. CUNA suggested that the NCUA first focus on these credit unions before it imposes a broader rate-risk proposal. CUNA noted that the proposed guidance could be useful to credit unions, as long as it is not a regulation, and that the agency should post it on its website as a resource for credit unions. For the full comment letter, use the resource link.

Cheney promotes on the airwaves

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WASHINGTON (5/24/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney launched a radio tour this week to call attention to, the new web site CUNA and the leagues have created to help consumers learn more about credit unions and find one they are eligible to join. Cheney underscored the value and service credit unions routinely provide consumers in a series of radio interviews focused on the recent launch of He spoke yesterday with the Ohio Radio Network, which has 37 affiliated stations, the 40-affiliate Tennessee Radio Network, the Montana-based Northern News Net, which has 24 affiliated stations, plus stations in Boston, Buffalo and Virginia. Later this week Cheney is scheduled to talk about the new site with the Fox News radio network and Wall Street Journal radio, among others. “Last year consumers saved $6.5 billion in better rates and lower fees using not-for-profit credit unions rather than banks. Credit unions are the smarter choice for financial services,” Cheney emphasized during the interviews.“If you want to know more about credit unions, is a great place to start.” Cheney pointed out the credit union locater tool on has the ability not only to show consumers which credit unions are nearby, but which ones they are eligible to join. He also discussed the new site’s other major features, including basic information on credit unions, member testimonials, examples of what the media has been saying, and a bank v. credit union average rate and fee comparisons. The new consumer site debuted at CUNA’s Governmental Affairs Conference earlier this year. The stimulus for the project came from a task force created by the American Association of Credit Union Leagues (AACUL) with the goal of raising awareness and fostering credit union membership growth, especially among young adults. Its online locator tool is powered by and includes all U.S. credit union in its database.

Inside Washington (05/23/2011)

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* WASHINGTON (5/24/11)--The Office of the Comptroller of the Currency (OCC) outlined a more thorough process for big banks to review their foreclosures on Friday. Joe Evers, the OCC’s deputy comptroller for large banks, emphasized that the process will not include short cuts such as submitting a high-level sample of foreclosures (American Banker May 23). Large banks such as Bank of America Corp. and Wells Fargo & Co. may have several thousand foreclosure files reviewed by auditors. Any errors will result in more extensive reviews, possibly of entire portfolios, according to the OCC. But the findings of the reviews will be sealed, a detail that some critics criticized. Law firms will review foreclosures to determine if servicers had proper legal standing, but the OCC will not allow them to audit fees and penalties assessed. The process will be handled by accounting firms such as PricewaterhouseCoopers LLP, Navigant Consulting Inc. and Promontory Financial Group LLC. Francine McKenna, a forensic accountant, questioned whether the large accounting firms would be credible, because they had signed off on financial statements of mortgage servicers … * WASHINGTON (5/24/11)--A long list of proposed new rules could have negative consequences for the securitization market, financial services representatives told a Senate Banking Committee on Friday (American Banker May 23). They worry that rules such as new risk-retention requirements, proposed Basel III restrictions, Volcker Rule limitations and enhanced derivatives regulation will give the private market little chance of making a full recovery. Their primary concern is how the risk-retention proposal will affect the securitization market. A proposal by federal banking regulators requires lenders to retain 5% of the credit risk on loans they securitize. Some in the industry maintain that the criteria are too strict and will result in less-available mortgage credit. But Sen. Jack Reed (D-R.I.) said because lenders were allowed to cut corners during the financial crisis--emphasizing volume over quality and easy fees over long-term viability--government intervention became necessary to maintain the viability of the markets …