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Membership assets savings up net worth drops as expected

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ALEXANDRIA, Va. (5/28/2009)—Although fewer loans were issued, the National Credit Union Administration (NCUA) Wednesday reported a double-digit increase in overall member share accounts among its 7,749 federally insured credit unions during the first three months of 2009. The NCUA also reported the return-on-average-assets (ROA) ratio declined from negative 0.01% at yearend 2008 to negative 1.51% at the end of March. However, the NCUA’s reported ROA decline does not consider what earnings would have been absent the NCUA’s corporate stabilization costs, which can be spread out under provisions signed into law last week. CUNA economists estimate with that taken into account, ROA would have been close to break even. Lending growth overall was essentially flat, with mortgage lending staying apace with other loan products that showed little or negative growth, primarily as a result of historically low home loan rates. Yet, credit unions continued to maintain strong capital levels, at close to 10%, despite a slow economy and the expense of the corporate stabilization program. In a statement accompanying the release of the quarterly figures, NCUA Chairman Michael Fryzel said that credit union members were “strong depositors, posting gains in every category” of member share and savings accounts during the 2009 first quarter. Fryzel noted that credit unions’ continued strong capital levels came despite negative effects of the still-troubled economy and the estimated costs associated with National Credit Union Share Insurance Fund replenishment for corporate stabilization costs. Credit union financial positions overall will be substantially improved by the aforementioned, recently signed law that allows credit unions to spread costs associated with the NCUA’s stabilizations efforts over seven and eight years. Also noted in the report, the net worth of federally insured credit unions declined by 3.9% percent during the quarter, to a total of $83.1 billion. By the numbers, the total assets held by federally chartered credit unions increased by 5.6% to a total of $856.4 billion. Total investments increased by 14.5%t and shares increased by 6.4%, for totals of $189.8 billion and $724.5 billion, respectively. Share drafts increased by 6.7%, regular shares increased by 7.9%, money market shares increased 8.2%, share certificates grew 3.9%, and IRA/KEOGH accounts rose by 6.5%, NCUA said. Credit unions’ overall loan delinquency rate showed the smallest quarterly increase in more than a year, to 1.44% at March 31 up from 1.37% at year-end 2008.

Inside Washington (05/27/2009)

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* WASHINGTON (5/28/09)--The Federal Reserve Board Wednesday approved amendments to Appendix A of Regulation CC regarding the restructuring of check processing operations. On July 25, the banks will transfer the check-processing operations of the head office of the Federal Reserve Bank of Minneapolis to the head office of the Federal Reserve Bank of Cleveland ... * WASHINGTON (5/28/09)--In advance of the Treasury’s anticipated July release of a regulatory restructuring package, an independent and nonpartisan research organization offered a list of 57 recommendations for financial structure (American Banker May 27). The Committee on Capital Markets Regulation, which comprises 25 leaders from the investor, business, finance law accounting and academia communities, recommends establishing a Financial Services Authority to oversee the financial system and giving the Fed the power to oversee systemically important institutions. It also calls for increasing disclosures for investors and of bank metrics, and listing and trading of credit default swaps on exchanges ... * WASHINGTON (5/28/09)--Sen. Jack Reed (D-R.I.) expressed concerns about private-equity firms purchasing failing banks in a letter he sent to banking regulators and the Treasury Department last week. The purchases represent another “dangerous” example of institutions and firms shopping around a risky activity until they find a regulator who will allow it, he said. Last week, the Federal Deposit Insurance Corp. said it would provide guidance on the matter ... * WASHINGTON (5/28/09)--About 102 lenders have been kicked out of the Federal Housing Administration’s (FHA) single-family mortgage insurance program for violations. The Department of Housing and Urban Development (HUD) said it would crack down on lenders who do not meet high standards of conduct (National Mortgage News May 27). For example, Hogar Mortgage and Financial Services Inc. was suspended by HUD from making loans for five years. The lender also must pay a $151,000 fine. Hogar violated FHA underwriting requirements. Of its 680 FHA loans, 19 defaulted or resulted in a claim ... * WASHINGTON (5/28/09)--In a op-ed Wednesday, Washington Post business and economic columnist Steven Pearlstein blasted Comptroller of the Currency John Dugan for saying that a special assessment by the Federal Deposit Insurance Corp. (FDIC) was unfair to large banks, and for “running interference for the big banks he is supposed to regulate.” Dugan remains in denial about his agency’s role in the financial crisis, according to Pearlstein. Dugan had rejected an idea by FDIC Chair Sheila Bair to impose an assessment fee to replenish the FDIC reserve fund, which has been depleted by bank failures. It irked Dugan that the burden for supporting the fund would be placed on the bigger banks instead of on community and regional institutions, Pearlstein said ... * WASHINGTON (5/28/09)--Some banks are asking the government if they can use public money to purchase bad bank assets. The banks are lobbying to bid on assets for sale under the government’s Public Private Investment Program (PPIP). Specifically, the banks are interested in the Legacy Loans Program, which will use the PPIP infusion to sell whole loans, including commercial and residential mortgages (The Wall Street Journal May 27). Officials haven’t said if banks can buy and sell loans yet. Some critics say that if banks are allowed to bid on the assets, they will benefit from taxpayer money. PPIP, expected to launch this summer, was established to sell bad bank assets to private investors in exchange for financial aid ...

Bank earnings low but best in a year

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WASHINGTON (5/28/09)—Although bank and thrift earnings were down more than 60% from a year ago, the Federal Deposit Insurance Corp. (FDIC) reported Wednesday that net income for its federally insured institutions for the first quarter of 2009 was the best it’s been in four quarters. Net income for the January 1-to-March 31 period was $7.6 billion, down $11.7 billion, or 60.8%, from the $19.3 billion the industry earned in the first quarter of 2008. However, the picture looks brighter when compared to the reported $36.9 billion of losses in the fourth quarter of last year. The FDIC attributed the year-to-year earnings drop, in part, to higher loan-loss provisions, increased goodwill write-downs, and reduced income from securitization activities. The agency said three out of five insured institutions reported lower net income in the first quarter and one in five was unprofitable. The FDIC’s Quarterly Banking Profile also reported that the agency’s Deposit Insurance Fund (DIF) reserve ratio fell to 0.27%, a decline from 0.36% of insured deposits. Other points of interest:
* The FDIC has set aside $28 billion in reserve to cover projected losses for the next 12 months; * The FDIC will collect more than $8 billion in premiums during the second quarter, including $5.6 billion from the special assessment the FDIC Board approved on May 22; and * Insured deposits increased 1.7% in the quarter -- approximately $82 billion -- and are up 9% over the last 12 months.
FDIC Chairman Sheila Bair said in a release that the growth in insured deposits is a “vote of confidence from bank customers” who “obviously see the value of the FDIC guarantee." The National Credit Union Administration released comparable figures regarding first-quarter performance by federally insured credit unions Wednesday. (See related story: CU membership, assets, savings grow; net income down.)

Discord could delay regulatory reforms

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WASHINGTON (5/28/09)-- U.S. Treasury Secretary Timothy Geithner has promised to present a comprehensive blueprint for regulatory reform in the coming weeks, saying in a recent interview with Bloomberg TV that he wanted people to “be able to look at the whole” plan all at once instead of breaking the potential regulatory changes into smaller “pieces.” However, American Banker on May 27 reported that institutional infighting, a loaded legislative calendar, and simple differences in regulatory approach may prevent lawmakers and other government officials from completing any substantive regulatory reform in the near future. President Barack Obama’s administration has not yet spelled out how it thinks the current regulatory structure should be reformatted, although late-breaking stories last night said senior administration officials are considering a single agency to regulate the banking industry. The Washington Post, for instance, said the administration may push legislative reforms that would create a new, single authority to police risks to the financial system, as well as a new agency to oversee consumer protections. Still, as the American Banker noted, whatever form a new regulatory scheme takes, the administration and influential congressmen have different views on how to tackle the reform legislatively. House Financial Services Committee Chairman Barney Frank (D-Mass.) has suggested that the larger task of governmental agency consolidation could be treated separately from a bill aimed at enhancing oversight of “systemically important institutions.” Frank has publicly supported allowing the Federal Reserve to oversee said institutions. However, Sen. Chris Dodd (D-Conn.) and others favor an all-in-one approach to regulatory reform, noting how difficult it can often be to get a single bill passed, not to mention multiple bills, the paper reported. Washington turf wars could also forestall any regulatory progress, as various regulatory agencies may fight over what role they would take on in an altered regulatory landscape. Recently, Securities and Exchange Commission (SEC) Chairman Mary Schapiro said she would question any regulatory model that would shift investor protection functions to another oversight body. The article also noted some speculation during the past few weeks that Sen. Richard Durbin (D-Ill.) could advocate for the creation of a financial products safety commission similar to the current Consumer Products Safety Commission.

CUNA seeks limit on student loan disclosures for CUs

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WASHINGTON (5/28/09)—The Credit Union National Association (CUNA) has asked the Federal Reserve to limit the scope of new disclosure requirements for private student loans under Regulation Z to those loans that only have “the common characteristics” of traditional student loans. As currently constructed, the new Regulation Z disclosures would apply to any loans for “private education” and “postsecondary educational expenses.” In a recent comment letter, CUNA Senior Assistant General Counsel Jeffrey Bloch said that these overly broad terms could lead to loans that are only “tangentially related to student lending” being covered under these regulatory requirements. As a result, “credit unions that do not view themselves as private student lenders may not be aware that they may have to comply with these new rules,” Bloch added. Restricting the purview of Regulation Z to traditional student loans would allow credit unions to continue their current lending activities while providing consumers with the same level of protections that are currently required under Regulation Z. Consumers should also be limited to a three-day cancellation period for any student loan, CUNA added. Further, CUNA said, credit unions should be given one full year to prepare for compliance with this new rule after it is issued in final form.

Overdraft disclosure plan needs new look CUNA

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WASHINGTON (5/28/09)—The Credit Union National Association (CUNA) has said that the National Credit Union Administration (NCUA) should ask all credit unions for further input before potentially expanding its overdraft protection disclosure requirements under the altered Truth in Savings rules. In a recent comment letter, CUNA said that expanding disclosure requirements to credit unions that do not “promote the payment” of overdrafts will likely not be helpful, but would provide “another example of information overload that is confusing to consumers.” The NCUA should work with credit unions to “determine if some flexibility is possible for credit unions to disclose this information in a less burdensome manner,” the CUNA letter said. The level of customer service demonstrated my many credit unions in the event of an overdraft or repeated returned checks “justifies an exemption for credit unions with regard to these new disclosure requirements,” the letter added. Elsewhere in the letter, CUNA stated that it supports proposals to require electronic transmission of Truth-in-Savings-related disclosures. CUNA also supports NCUA’s determination that funds that are accessible under overdraft protection plans should not be counted as a credit union member’s available balance when that member makes an account balance inquiry. Use the resource link below to access the complete CUNA comment letter.