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New FASB GAAP plan would affect CUs over 10M

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WASHINGTON (5/28/10)--The Financial Accounting Standards Board (FASB) this week proposed changes that would, among other things, greatly expand the range of financial instruments that are to be measured at market value, including loans. The FASB exposure draft would also provide that loan loss reserves be measured on a forward-looking “expected loss” basis. This differs from the current method, which uses a historical “incurred loss” approach. The Credit Union National Association’s (CUNA) Accounting Subcommittee has been weighing-in with FASB regarding this proposal on accounting for financial instruments over the past year. Following his speech at CUNA’s Governmental Affairs Conference this past February, several members of the Subcommittee and CUNA staff met with FASB Chairman Robert Herz to discuss a range of accounting issues and concerns of the credit union industry, including the subject of this week’s exposure draft. FASB in a release said that the objective of the new accounting standard “is to provide financial statement users a more timely, transparent, and representative depiction of an entity’s exposure to risk from financial instruments based on how they are utilized in an entity’s business model.” The proposed changes would modify U.S. Generally Accepted Accounting Principles (GAAP); credit unions over $10 million in assets are required to comply with GAAP. Once adopted, FASB expects the rule to take effect sometime in 2013. However, non-public entities with less than $1 billion in assets will be permitted a four-year deferral from certain requirements, such as those relating to loans. Herz encouraged all that would be affected by the proposal to “carefully review the proposal.” “Through its due process, the FASB will ensure that it obtains and considers a broad range of input on this important proposal,” Herz added. FASB will accept comments on the exposure draft through September 30. In addition, the International Accounting Standards Board (IASB), the international accounting standard-setter, has a similar proposal out for comment. The two Boards are working together and hope to ultimately adopt a single standard for accounting for financial instruments. However, a number of inconsistencies between the proposals may prevent such convergence. CUNA’s Accounting Subcommittee will thoroughly examine this issue in the near future. A CUNA-led audio conference tentatively scheduled for late July will feature several accounting professionals, and will likely include staff from the National Credit Union Administration and Financial Accounting Foundation, the organization that oversees FASB. CUNA representatives said that they would do all that they could to "minimize the impact of this proposal on the credit union industry.”

Inside Washington (05/27/2010)

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* WASHINGTON (5/28/10)--Michael Barr, Treasury assistant secretary of financial institutions, did not take a position on several key issues in the regulatory reform bill during a briefing this week. Barr said the Obama administration has no preference whether a proposed consumer financial protection division is housed as a separate agency or inside the Fed. The administration is “fine” with either approach, Barr said American Banker (May 27). Regarding a provision by Sen. Blanche Lincoln (R-Ark.) that would force banks to divest their derivatives operations to prevent them from taking risks, Barr said the goal of the provision may be better dealt with in the Volcker Rule. The Volcker Rule would limit investments in private-equity firms and hedge funds, and ban proprietary trading. Barr also failed to comment on Sen. Richard Durbin’s (D-Ill.) measure that would require the Fed to make sure interchange fees on debit cards are “reasonable” and allow merchants to give discounts on particular forms of payment--such as cash. The provision is not in the House version. The Credit Union National Association (CUNA) has said it would not support the interchange measure. CUNA wrote to House members urging them not to support the interchange amendment because it would dramatically alter the electronic payments system, and make it very difficult for card-issuing credit unions and community banks to continue to provide a wide array of products and services to consumers ... * WASHINGTON (5/28/10)--The Federal Deposit Insurance Corp. (FDIC) and China are working to better coordinate their resolution functions after United Commercial Bank of San Francisco failed in November. The bank had operations in China. The agreement between the FDIC and the China Banking Regulatory Commission says the two will: improve mutual understanding about their respective national regulations and laws on bank insolvency; cooperate in developing resiliency and resolution plans for banks operating in both the U.S. and China; conduct joint contingency planning to improve readiness for any future resolutions; enhance information exchanges about developing issues and cross-border financial institutions during periods of financial stress; and develop closer coordination to implement their resolution responsibilities in future crisis involving banks operating in both countries ...

CUNA leagues rally CUs to action on interchange

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WASHINGTON (5/28/10)—As the effort to affect interchange legislation continues, the Credit Union National Association (CUNA) and credit union leagues are encouraging credit union employees and members to contact their congressional representatives over the upcoming memorial day recess. CUNA and the Leagues are working to help spread credit unions’ anti-interchange-legislation message throughout next week’s scheduled congressional district meetings, where credit union supporters will be able to directly address the interchange issue with their representatives. Credit union backers can also reach their representatives via letter, which CUNA has provided talking points for at http://capwiz.com/cuna/home/ . More direct action will follow in June, with CUNA and the credit union leagues backing a nationwide fly-in and another round of CUNA’s National Hike the Hill set to take place on June 8, 9 and 10. The interchange amendment was included in the Senate version of the regulatory reform package, S. 3217, the Restoring American Financial Stability Act (RAFSA), which passed the Senate earlier this month by a 59-39 vote. However, the House version of regulatory reform, which was passed late last year, does not address interchange fees. As the House and Senate move forward to design a single bill that both houses of Congress can ratify, CUNA will continue its push against the interchange language and urge federal lawmakers to drop any such provision out of a final bill. CUNA President/CEO Dan Mica has called on credit unions to “engage at the grassroots level right away.” For more materials to help in this coordinated effort, use the resource link.

Consumer choice imperiled by interchange amendment CUNAICBA

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WASHINGTON (5/28/10)--Consumers could lose important card choices if the U.S. Congress allows government intervention in setting interchange fees, and the Credit Union National Association (CUNA) and Independent Community Bankers of America (ICBA) urged House members to reject interchange provisions in a final financial regulatory reform bill. The joint letter, signed by CUNA President/CEO Dan Mica and ICBA President/CEO Camden Fine and sent today, reaches House legislators as they suit up to reconcile differences between the House-approved reg reform bill and one approved just last week by the Senate, which included an interchange provision. The interchange amendment would dramatically alter the electronic payments system, the letter warns lawmakers, and make it very difficult for card-issuing credit unions and community banks to continue to provide a wide array of products and services to consumers. Furthermore, the missive says, the Senate adopted the amendment without any hearing on its on consumers or the market, and in the face of tremendous political pressure from merchants “intent on passing their costs off on others,” including consumers. On the latter point, the trade groups describe a long history of the merchants trying to do just that: “Whether through pending class action litigation in federal court, legislation in the states, or pending bills in the House, the merchants have pursued a number of different attacks on our institutions’ ability to serve consumers, in addition to the recent expansive and harmful Senate amendment.” The Senate interchange language would direct the Federal Reserve to issue regulations to govern interchange fees charged for debit card transactions, which, the letter says, forces the Fed into the role of a price-fixing body, when interchange fees sound be driven by market forces. “Our institutions—with their exclusive focus on local communities, underserved populations, and rural areas—issue debit and credit cards as a service to their local customers, and they continue to do so fairly and honestly, often with better rates and terms than can be found at larger institutions. “The key that makes this possible is the existing interchange system, which allows community banks and credit unions to compete directly with the largest banks in the debit and credit card marketplace,” the joint letter argues. For more, use the resource link below.

Treasury sends bill to lift MBL cap to Capitol Hill

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WASHINGTON (5/28/10)--Legislation that would lift the cap on member business lending (MBL) for credit unions could see congressional action soon after the Treasury this week said it “could support proposals to increase credit union [MBL] provided safety and soundness concerns are addressed” and forwarded its own MBL proposal to the hill. Commenting on the Treasury proposal, the Credit Union National Association's (CUNA) Senior Vice President of Legislative Affairs John Magill said that CUNA has been "working on this language for months with Senators and Treasury officials, and we are very pleased that this seems to be moving forward." Rep. Paul Kanjorski (D-Penn.) and Sen. Mark Udall (D-Colo.), in their respective congressional bodies, have introduced legislation that would lift the MBL cap. The Treasury’s comments came in the form of a letter to House Financial Services Committee Chairman Barney Frank (D-Mass.), wherein Treasury Secretary Tim Geithner said that the Treasury would work with Congress and would seek to ensure that any MBL reforms “are not done in a way that inappropriately introduces more risk to credit union members, the credit union system, the National Credit Union Share Insurance Fund, or the financial system as a whole.” CUNA has estimated that lifting the MBL cap to 25% of a credit union’s assets would create over 100,000 new jobs and inject over $10 billion in funds into the economy, at no cost to taxpayers. The Treasury’s proposed legislation would establish a maximum MBL limit of 27.5% of a credit union’s total assets. The proposal also states that the growth of a given credit union’s MBL portfolio may be no more than 30% annually. Credit unions that wish to lift their MBL cap must be well capitalized, must be lending at a ratio near the current cap for the previous four quarters, must have a minimum of five years of underwriting and servicing MBLs, and must demonstrate sufficient experience in managing these types of loans. The National Credit Union Administration would also be granted the authority to “set rules creating intermediate [MBL] limits and to require approval before any credit union can move to the next higher limit.” The Treasury also called on the NCUA to “be vigilant and carefully oversee implementation” of the MBL program by reporting on MBL “activity and loan performance.” The Obama administration earlier this month voiced support for raising credit unions' business lending capacity, and House Financial Services Committee Chairman Barney Frank (D-Mass.) said his committee would consider an administration proposal to that effect--in a markup--"fairly soon." That markup has not yet been scheduled.