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Inside Washington (05/24/2010)

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* WASHINGTON (5/25/10)--National Credit Union Administration (NCUA) Board Member Michael Fryzel praised the Michigan Credit Union League’s commitment to credit unions and their members at the league’s annual convention in Detroit Friday. He also discussed corporate credit unions, member business lending, legacy assets, 12-month examinations and assessments. Last week “the administration joined numerous members of Congress who have said they support raising the cap on member business loans. In fact, as federal regulator and insurer, NCUA has said the cap should be totally eliminated and the agency should be given authority to set the rules that govern how much individual credit unions can lend. These rules will be based on a credit union’s safety and soundness, capital structure and ability to be involved in that product” ... * WASHINGTON (5/25/10)--President Barack Obama proclaimed May 23-29 as National Small Business Week. The U.S. Small Business Administration observes National Small Business Week in Washington, D.C., May 23-25. “Small business owners embody the spirit of entrepreneurship and strong work ethic that lie at the heart of the American dream,” he said. “They are the backbone of our nation’s economy, they employ tens of millions of workers, and in the past 15 years, they have created the majority of new private sector jobs.” Obama has proposed creating a $30 billion lending fund to help increase the flow of credit to small businesses and called on Congress to pass the legislative quickly. Also during the week, entrepreneurs are honored with awards, including the National Small Business Person of the Year for 2010, and state small business winners ... * WASHINGTON (5/25/10)--The Treasury Department has lowered its estimate of the cost to taxpayers for the Troubled Asset Relief Program (TARP) to $105.4 billion, down from its most recent estimate of $117 billion (Dow Jones May 24). Treasury Secretary Timothy Geithner had predicted earlier this month that TARP would cost less than $100 billion. The latest revision reflects rising prices for Citigroup common stock, of which Treasury is a major holder. On Friday, shares closed at $3.75. When Treasury obtained 7.7 billion Citigroup shares each had a value of $3.25 ... * WASHINGTON (5/25/10)--The regulatory reform bill the Senate passed last week will do little to restructure financial regulatory framework, with the exception of eliminating the Office of Thrift Supervision (OTS), said American Banker (May 24). Many financial observers had said the reform legislation was a good opportunity to rework the supervisory structure, which currently includes four banking regulators. However, the administration had other priorities, said Michael Barr, Treasury assistant secretary. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) originally proposed combining the regulators into one agency in his initial regulatory reform bill last fall. However, after revisions, the bill this spring only would eliminate the OTS and strip the Federal Reserve Board of most of its supervisory powers. The powers have since been restored. The Credit Union National Association (CUNA) also successfully lobbied on behalf of credit unions in regards to the bill to ensure the National Credit Union Administration would remain the prudential regulator for credit unions ...

Senate House prep next step of reg restructuring debate

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WASHINGTON (5/25/10)--With the Senate last week approving its version of financial regulatory reform, that legislation is now awaiting conference action between members of the House and the Senate. The Senate had not determined its conferees at press time, but the Credit Union National Association expects that list to include Senate Banking Committee Chairman Chris Dodd (D-Conn.), ranking committee member Richard Shelby (R-Ala.), Blanche Lincoln (D-Ark.), and Saxby Chambliss (R-Ga.). The House may not determine its own conferees this week, opting instead to appoint them following the upcoming memorial day break. House Financial Services Committee Chairman Barney Frank (D-Mass.), ranking committee member Spencer Bachus (R-Ala.) will likely be among the House conferees. The conference session could take as little as two days. In a related event, late Monday the Senate passed a motion 60-30 to instruct its eventual conferees to accept the House language exempting auto dealers from the reg restructuring bill. For this week, the most meaningful issues, for the finance industry at least, will arise before the House Financial Services Committee. On Tuesday, the panel will conduct a hearing on the Obama administration's plans to preserve and transform public and assisted housing. Housing will also be a central aspect of a Wednesday House Financial Serivices subcommittee on capital markets hearing on Federal Housing Finance Agency oversight. This hearing will be one of many on the housing financing system, and Rep. Paul Kanjorski (D-Pa.), who will chair the hearing, said Monday that Congress "must work as quickly as possible to reform our housing finance system in a way that will limit taxpayer risk and establish a more stable, long-term funding source. "Future hearings will explore important issues like the role and regulation of mortgage insurance, the housing finance systems of other countries, and the structure and function of guarantee fees,” Kanjorski added. A House finance committee subcommittee on oversight and investigation will also discuss the impact that efforts to block terrorist financing have had on lawful charities on Wednesday.

Guidance for June 1 UIGEA compliance CUNA

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WASHINGTON (5/25/10)--The Credit Union National Association (CUNA) this week will address the myriad questions regarding the pending Unlawful Internet Gambling Enforcement Act (UIGEA) regulations during a May 27 audio conference. The UIGEA regulations, which will become effective on June 1, will require credit unions and other financial institutions to establish and implement policies and procedures to identify and block restricted internet gambling transactions, or rely on those procedures established by the payments system. During the audio conference, CUNA’s director of compliance information Valerie Moss and CUNA Mutual Group’s Ann Davidson will cover how credit unions can create disclosures or addendums to their membership agreements, how to identify the ACH-related risks that UIGEA presents, and examine how to avoid potential risks to card programs. Basic staff training on the rules of UIGEA will also be covered during the conference. The Federal Reserve late last week issued its own guidance for examiners ahead of the UIGEA implementation date. To view the Fed release and sign up for CUNA’s audio conference, use the resource links.

CUNA RegFlex plan needs big changes

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WASHINGTON (5/25/10)--The Credit Union National Association (CUNA) has urged the National Credit Union Administration (NCUA) to revise or to simply not adopt the recently proposed changes to its RegFlex program. The NCUA proposal, which was announced in March, would eliminate RegFlex authority for credit unions in regard to the 5% limit on fixed asset investments, the requirement for the personal guarantees of borrowers for member business loans (MBLs), stress testing of certain investments, and discretionary control of investments. While CUNA agreed that all NCUA programs “should be monitored and reviewed periodically to ensure they are meeting their objectives,” CUNA strongly supports the RegFlex program and has urged the agency not to undermine it with this proposal. CUNA in a comment letter said that if the agency is convinced changes in the RegFlex program are called for, it should address them in a “more targeted” manner that would not jeopardize the overall program. Specifically, CUNA senior vice president and deputy general counsel Mary Dunn recommended that NCUA consider whether the provisions regarding revocation of RegFlex authority for specific exemptions should be strengthened as opposed to eliminating RegFlex authority for all federal credit unions in key areas. Such steps could include setting aside more capital by credit unions that are experiencing material problems or “instituting increased safety and soundness procedures at the credit union,” when there are significant safety and soundness issues, CUNA added. CUNA also addressed a number of specific concerns regarding RegFlex authority with respect to MBLs and fixed assets. On MBLs, CUNA said rather than forcing RegFlex credit unions to require personal guarantees from borrowers that receive credit union MBLs, the NCUA should “address MBL concerns on an individual credit union basis." The letter also notes that "NCUA has authority now to direct any RegFlex credit union that is experiencing unacceptably high levels of defaults with MBLs to forfeit its RegFlex eligibility as it relates to MBLs” until the credit union “can demonstrate it is able to manage the risks." In addition, CUNA noted that MBL lending should be facilitated for well-managed credit unions in order to assist small business, communities and the economic recovery. Proposed changes that would impose a 5% fixed asset investment limit on currently exempt RegFlex credit unions “could negatively impact credit unions' planned branching activities” and be “very problematic for RegFlex credit unions that are about to begin, or have already begun, the construction phase of branch expansion,” CUNA added. CUNA further recommended that regarding investment authority delegation under the RegFlex program, NCUA consider a lower level of delegation authority rather than eliminating it altogether. The NCUA should also request further credit union comment on potential changes to rules governing the delegation of investment authority before taking any action, CUNA said. CUNA also noted that while federal credit union officials generally backed “some stress testing of the securities that a credit union is holding,” they did not agree that the NCUA “should totally eliminate flexibility for well- managed credit unions regarding such testing.” The letter also notes that CUNA is reviewing credit unions regulatory burdens and will be accumulating information and sharing it with policymakers in the coming months. For the full CUNA comment letter, use the resource link.