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Inside Washington (05/07/2010)

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* WASHINGTON (5/10/10)--The Senate shot down a measure that would cap the size of the nation’s largest banks. The measure, by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.), would have capped banks at 10% of the nation’s insured deposits. Banks’ nondeposit liabilities would have been limited to 2% of the nation’s gross domestic product and 3% for financial institutions that do not own a bank (American Banker May 7). Sen. Mark Warner (D-Va.) said that the cap was “not the appropriate restriction” because the existing regulatory reform bill already has a 10% total liability cap. Brown said his amendment was needed because institutions slated too big to fail are unfairly competitive in the market and too risky ... * WASHINGTON (5/10/10)--The U.S. was not ready for the financial crisis of 2007-2008 and underestimated its impact, according to Treasury Secretary Timothy Geithner and former Treasury Secretary Henry Paulson. Both testified before the Financial Crisis Inquiry Commission, which was appointed by Congress to determine the root of the crisis. Paulson said he knew of financial trouble when he took office in 2006 but was surprised by the severity of it (Reuters May 6). Geithner said there had been complacency in the financial system, which led participants and regulators to think they could handle the problems. If the government had acted more quickly to place constraints on risk-taking, the crisis would have been less severe, he said. Paulson added that he wished he’d been able to communicate with Americans better as to why the government bailouts were for them and not Wall Street. Also, Geithner warned against preventing banks from engaging in some risk-taking activity on behalf of customers ... * WASHINGTON (5/10/10)--The top Republican member of the House Financial Services Committee Friday proposed that the American public be given 30 days to review and comment upon the amended version of a financial regulatory reform bill prior to the U.S. Senate’s final vote on the package. Rep. Spencer Bachus, of Alabama, made the recommendation in letters sent to Senate Majority Leader Harry Reid (D-Nev.), Republican Leader Mitch McConnell, of Kentucky, and Sens. Christopher Dodd, of Connecticut, and Richard Shelby, of Alabama, the top Democrat and Republican, respectively, of the Senate Banking Committee. Bachus argued that the size and scope of the legislation “warrant a significant amount of transparency and time” for the public to read its content and assess its impact …

Senate bill gives balance to needed reforms CUNA

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WASHINGTON (5/10/10)—The Credit Union National Association (CUNA) Friday said that it believes the U.S. Senate's proposed financial regulatory reform bill, for the most part, presents a balanced approach to needed changes in the financial system. CUNA noted that much of the legislation's focus shows a recognition that the credit union system has performed well throughout the crisis and remains strong. As part of its ongoing efforts to affect the legislative discussion that is now forming the new structure of financial regulation into the future, CUNA sent a series of letters late last week to comment on the progress of a reform bill being debated in the U.S. Senate, S. 3217, the Restoring American Financial Stability Act (RAFSA). The U.S. House approved a similar bill last December, the Wall Street Reform and Consumer Protection Act (H.R. 4173). CUNA President/CEO Dan Mica wrote to all senators: “We do not dispute the need for financial regulatory reform legislation, and we recognize that much of this bill’s focus is on correcting regulatory shortcomings that have little or nothing to do with credit unions.“ He added that while CUNA does still have “a small number of outstanding concerns” with respect to the legislation, CUNA appreciates that many of the issues it has raised have been addressed. Currently, an issue that threatens to force CUNA to oppose the bill, Mica said, is the outcome of two amendments that would make changes to the card payments system. The amendments, SA 3769 and SA 3771, proposed by Sen. Richard Durbin (D-Ill.), would “increase costs and reduce choice for consumers” and would “give the largest merchants further leverage to harm small businesses, which are already under significant pressures in this difficult economy,” Mica wrote. If those provisions were to be adopted into the bills language, CUNA, Mica warned, would change course and “strongly oppose enactment of this legislation.” The bulk of the comprehensive Mica letter outlines the credit union provisions in S.3217 and notes the CUNA-backed changes that the federal lawmakers have made to original language. “While we will continue to seek improvements in this legislation, we believe that S. 3217 takes a balanced approach” and “corrects the shortcomings of the existing system that contributed to the crisis, protects the financial system from future systemic threats, and does not adversely affect those parts of the system that have performed well throughout the crisis.” Also on Friday, CUNA sent a letter to Senate lawmakers urging them to adopt an amendment (SA 3843) to permanently increase the National Credit Union Share Insurance Fund coverage amount to $250,000. Under the provisions of the Emergency Economic Stabilization Act, the higher share insurance coverage amount, like the federal bank insurance level, expires at the end of 2013. In a separate letter, CUNA continued to oppose an amendment that would impose an arbitrary, fifty-cents limit on the amount of an automatic teller machine (ATM) transaction. Use the resource link below to read the complete CUNA letters.

GAO issues recommendations on leveraging rules

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WASHINGTON (5/10/10)—The Government Accountability Office (GAO) Friday released results of a 2009 study of the role of leverage in the recent financial crisis and federal oversight of leverage. The results focus on three areas:
* How leveraging and de-leveraging by financial institutions may have contributed to the crisis; * How federal financial regulators limit the buildup of leverage; and * Limitations the crisis has revealed in regulatory approaches used to restrict leverage and regulatory proposals to address them.
The GAO made two recommendations. First, it backed the merit of establishing systemwide leverage oversight to a single regulator. Second, the GAO recommended that as Federal bank regulators assess the extent to which reforms under Basel II, the new risk-based capital framework, would address “risk evaluation and regulatory oversight concerns associated with advanced modeling approaches used for capital adequacy purposes.” Use the resource link to read the report.

Three banned from future CU work

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ALEXANDRIA, Va. (5/10/10)—Three former credit union employees have been banned from future work at any federally insured financial institution under prohibition orders issued by the National Credit Union Administration (NCUA). In its announcement Friday, the NCUA noted the following details of the enforcement orders:
* Mia Frances Chaney, a former employee of Magnolia FCU, Jackson, Miss., was convicted of bank fraud and sentenced to 12 months and a day imprisonment, three years supervised release, and she also was ordered to pay $46,063 in restitution; * Jolene Constantine, a former employee of Peoples 1st Choice FCU, Glen Rock, N.J., did not admit or deny fault, but signed an order of prohibition to avoid the time and cost of administrative litigation; and * Tammy Law, a former employee of Pioneer CU, Mountain Home, Idaho, was convicted of embezzlement and sentenced to 46 months imprisonment, 3 years supervised release and ordered to pay $564,215 in restitution.
Violation of a prohibition order is a felony offense punishable by imprisonment and a fine of up to $1 million.

May 17 is Form 990 deadline

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WASHINGTON (5/10/10)--State-chartered credit unions and other tax-exempt organizations must file their 990 forms by May 17 or risk losing their tax-exempt status, the Internal Revenue Service reminded on Friday. State-chartered credit unions are required to file Form 990 with the IRS annually, although a few states still permit group 990 filings. Federal credit unions are not required to file, since they are not subject to unrelated business income taxes. Under the 2006 Pension Protection Act, Form 990-series information returns are due on the fifteenth day of the fifth month after an organization’s fiscal year ends, and many organizations use the calendar year as their fiscal year. That would make the form’s due-date May 15, but since that date falls this year on a Saturday, the IRS designated May 17 as the deadline. Organizations can request an extension of their filing date by filing Form 8868 by the original due date. However, the IRS warns in its release, absent a request for extension, there is no grace period from filing by the original due date. Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N (e-Postcard). Tax-exempts with annual receipts above $25,000 must file a Form 990 or 990-EZ, depending on their annual receipts. Any tax-exempt organization that has not filed the required form in three consecutive years automatically loses its tax-exempt status, effective as of the due date of the annual filing. The IRS revised its Form 990, also know as the Return of Organization Exempt from Income Tax, effective beginning the 2008 tax year. Use the resource links below for more information.