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Inside Washington (06/10/2009)

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* WASHINGTON (6/11/09)--The Federal Reserve Board will not have sole responsibility to handle systemic risk, said Treasury Secretary Timothy Geithner Tuesday (American Banker June 10). The job is too big for one agency, he told a Senate Appropriations financial services subcommittee. Geithner hinted that he might support an idea suggested by Federal Deposit Insurance Corp. Chairman Sheila Bair to create a regulatory council. Geithner also said during the hearing that the Obama administration’s regulatory revamping plan could be announced next week--but wouldn’t have a framework to revamp Fannie Mae and Freddie Mac. Sen. Dick Durbin (D-Ill.), who has pushed for legislation to reform mortgage bankruptcy proceedings and place rate caps on consumer credit products, asked Geithner during the hearing if a voluntary loan modification program would be enough to stem foreclosures. Geithner, who said he opposes rate caps, told Durbin that the Obama administration’s proposal will be much different than the previous administration’s, and that regardless of the plans, homeowners may still have a few challenging years ahead ... * WASHINGTON (6/11/09)--Rep. Carolyn Maloney (D-N.Y.) said she supports a recommendation to continue stress-testing the nation’s larges financial institutions. Elizabeth Warren, who chairs the oversight panel of the Troubled Asset Relief Program, said the stress tests were helpful but limited (American Banker June 10). The tests should be repeated as long as banks hold toxic assets on their balances sheets, Warren said. Maloney agreed, saying the tests should be extended beyond next year, especially given concerns in the commercial real estate market ... * WASHINGTON (6/11/09)--Critics question what the Treasury Department will do once it receives $68 billion from 10 banks slated to repay their government capital from the Troubled Asset Relief Program (TARP). After the funds are repaid, TARP will have $270 billion left. The funds could be used to offset the national deficit, or be placed into a reserve for future use, said President Barack Obama (American Banker June 10). The money, by law, will go into the Treasury’s general fund, said Treasury Secretary Timothy Geithner. However, critics question if the repayment could cause backlash from institutions that cannot repay the funds--such as Bank of America Corp. and Citigroup Inc. Of the 10 institutions that announced their repayments Tuesday, JPMorgan Chase and Co. was cleared to repay the largest amount at $25 billion ... * WASHINGTON (6/11/09)--The House Oversight Committee Tuesday subpoenaed the Federal Reserve Board for documents regarding the purchase of Merrill Lynch and Co. by Bank of America ( June 10). Bank of America Corp. CEO Kenneth Lewis said he was pushed by federal officials to complete the purchase after he became aware of significant losses at Merrill Lynch. In prepared remarks for testimony today, Lewis said the Treasury and Fed asked Bank of America to delay any action to slow the transaction because of Merrill’s losses. The government and Bank of American knew that if Merrill Lynch collapsed, it could trigger a crisis, Lewis said ... * WASHINGTON (6/11/09)--Senate Banking Committee Chairman Christopher Dodd (D-Conn.) encouraged the Federal Reserve Board to require credit card companies to get their customers’ permission before enrolling them in overdraft programs (American Banker June 10). The opt-in approach provides better consumer protection because the default then would be on overdraft service or fees, while the opt-out just continues the status quo, Dodd said. He also noted his concern that banks may start hitting consumers with other fees since new credit card standards--the Credit Card Accountability, Responsibility and Disclosure Act--were signed into law recently ...

CUNA MBL cap is No. 1 deterrent to SBA lending

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WASHINGTON (6/11/09)—Credit Union National Association (CUNA) witness Roger Heacock told the House Small Business Committee Wednesday that credit unions stand ready to do more to provide credit to small businesses. Heacock is president/CEO of Black Hills FCU, Rapid City, S.D., which
Click to view larger image CUNA witness Roger Heacock outlines credit union challenges to participating in SBA guaranteed loan programs. Number one, he says, is the low MBL cap, which keeps some credit unions from setting up small business lending programs in the first place. Heacock is president/CEO of Black Hills FCU, in South Dakota. To Heacock's right is National Association of Small Business Investment Companies witness Hollis Huels. (CUNA photo)
received a South Dakota district Small Business Administration (SBA) award for writing more SBA loans in the state than any other financial institution during 2008-2009. The loans totaled just over $1.6 million, and averaged $56,703 per loan. “We have a number of members who started small businesses using SBA loan funds, while continuing to work at their primary job as their main source of income. The SBA helped us be there for our members, and this has resulted in additional employment opportunities,” Heacock testified before the committee. However, he added, some credit unions find SBA fees prohibitive and the application process unnecessarily complex, creating barriers to participation. Another barrier, identified by Heacock as the number one obstacle, is the restrictive 12.25%-of-assets cap imposed on credit union member business lending (MBL) just over 10 years ago. While noting the cap does not apply to SBA loans, he pointed out it is a huge deterrent to credit unions' developing MBL programs, without which they cannot pursue SBA programs. Also, without the cap, credit unions could infuse communities with as much as $10 billion of small business credit, CUNA has noted. Heacock acknowledged that there can be additional risk to small-business types of borrowers and noted that “other lenders shy away from helping them because there is not a proven cash flow.” “We are able to do this type of lending because of the guarantee that SBA provides,” he said referring to his credit union’s experience, “The programs allow us to help the borrower who comes in and may not have the equity investment we would generally like to see, but has a good business plan.” “The SBA helps us create an acceptable level of risk and it is a win-win situation for all of us – the credit union, the SBA and the borrower,” he added. In response to a question, Heacock also addressed the negative role some federal credit union examiners play in credit union interest in SBA guaranteed lending programs and business lending in general. He told the committee members, "Examiners' anti-business lending approach in some parts of the country is hurting credit union lending to small businesses." The committee hearing, overall, was intended as an exploratory look at the role of the SBA’s financing programs in providing access to capital for small businesses. Additionally, the committee intended to examine better ways to achieve the SBA mission of providing access to capital for small businesses. Two panels of witnesses were scheduled to testify. Along with Heacock, the first panel featured representatives from the Independent Community Bankers of America, American Bankers Association, National Association of Development Companies, and the National Association of Small Business Investment Companies. The second panel was comprised of representatives from the following organizations: the Biotechnology Industry Organization, the International Franchise Association, Associated Equipment Distributors, and National Marine Manufacturers Association. Use the resource link below to read CUNA's entire statement.

Alternative capital questions arise at NCUA symposium

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WASHINGTON (6/11/09)—National Credit Union Administration (NCUA) board member Gigi Hyland said this week that while the NCUA is studying the concept of allowing credit unions to pursue supplemental capital, there is no set timeline for such a move. Hyland was addressing the NCUA’s symposium highlighting the 75th anniversary of the 1934 Federal Credit Union Act. She noted that the NCUA is conducting studies to develop an official position on the issue and to prepare the board for possible discussion of alternative capital with legislators. Speaking on his own behalf at the symposium, NCUA Deputy Executive Director Larry Fazio also addressed alternative capital. He said he has mixed feelings about the use of alternative capital, and that any move toward allowing alternative sources should only be done after intense deliberation. The optimal approach to the issue, Fazio opined, would be to allow the U.S. Congress to address this issue legislatively. Fazio questioned the overall benefit of allowing alternative capital, saying that larger credit unions may be the only ones that benefit. Internationally, credit unions have issued alternative capital with mixed results, he said. However, fellow panelist Andy Poprawa, president/CEO of Deposit Insurance Corp. of Ontario, said that while the structure of credit unions in Canada is somewhat different from those in the United States, Canadian credit unions that have issued alternative capital through shares have not sacrificed their institutional safety. They also, he said, have maintained the same levels of protections. Canadian credit unions that have issued shares have also been able to keep the core values of the credit union movement while enhancing their financial standing as well. The Credit Union National Association (CUNA) supports expanding the sources of capital available to credit unions. Such expansion, CUNA says, will support continued credit union growth and help credit unions provide the services that members demand, while meeting statutory net worth requirements.

Uncle Sam assures summer commuters on CU funds

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ALEXANDRIA, Va. (6/11/09)—The National Credit Union Administration (NCUA) Wednesday unveiled its new summer transit bus advertisement campaign aimed at assuring members of the public that their money is safe with credit unions. The campaign began on June 1 and is scheduled to run through Aug.
NCUA commuter bus ad campaign.
31. It will appear on local transit buses in nine major metropolitan areas in three states: Arizona, California, Florida, and the District of Columbia. The ad, featuring a traditional and familiar picture of Uncle Sam-- a symbol of the United States government--with his fingered pointed at the viewer, proclaims, “Your Federally Insured Credit Union Funds are Safe up to $250, 000,” and prominently displays the NCUA logo. The ad will follow commuters around in a total of 1,700 transit buses in the following cities: In Arizona, Phoenix; in California, Sacramento, San Francisco, Santa Clara Valley, Los Angeles, San Diego; in Florida, Tampa and Ft. Myers; and Washington, D.C.

Durbin is back with interchange fee bill

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WASHINGTON (6/11/09)—As he pledged to do when his interchange fee amendments failed to be included in a credit card bill passed into law in May, Sen. Richard Durbin (D-Ill.) has resurrected legislation that could impose government limits on the rates set for credit and debit card processing—i.e., interchange fees. The new bill, S. 1212, is very similar to one Durbin introduced in the last Congress, right down to its name, the Credit Card Fair Fee Act. It proposes to establish a full-time panel of three Electronic Payment System Judges to intervene in disputes between card service providers and merchants regarding fees set for use of the electronic payments system. The tribunal would have broad power to determine access rates and terms and to impose civil money penalties on any party deemed to be out of compliance with its authorities. The Credit Union National Association (CUNA) has said that such a tribunal would be costly and would serve to impose government decisions on a system that is more appropriately governed by the market. CUNA Senior Vice President of Legislative Affairs John Magill said Wednesday, “We will continue to reach out to Sen. Durbin and other senators to stress the importance of interchange to credit unions and their 92 million members.” Along with CUNA, all members of the Electronic Payments Coalition and the U.S. Department of Justice have been among opponents of the "fair fee" legislation. “The merchants' effort to avoid paying their fair share of electronic transactions threatens the integrity of the payment processing system. Our consumer members value the debit cards and credit cards issued by their credit union,” Magill said. He added, “We will do everything we can to ensure our members are not adversely affected by the merchants' legislative strategy to reduce the merchants' obligation in the marketplace.” Proponents of the legislation, such as the large National Retail Federation, argue that the savings merchants might realize on interchange fees would benefit consumers. However, according to CO-OP Financial Services President/CEO Stan Hollen in 2008, "Past experience with similar legislation in Australia suggests the merchants did not pass any interchange reduction on to consumers."