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Inside Washington (06/27/2011)

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* WASHINGTON (6/28/11)--The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, said Saturday Basel’s proposed capital surcharge for the largest financial institutions will be 1% to 2.5%, depending on a bank’s systemic importance. Many regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair and Federal Reserve Board Gov. Dan Tarullo, had indicated they favor a minimum 3% surcharge (American Banker June 27). The surcharge will not be fully effective until Jan. 1, 2019. Broader Basel III requirements also require all internationally active banks to hold common equity of 7% by 2019. International regulators also indicated that they would accept alternative forms of capital, including hybrid instruments such as contingent capital, to meet the surcharge requirements. U.S. regulators did not favor that approach, but European supervisors have been lobbying hard to include such instruments … * WASHINGTON (6/28/11)--In her last speech before leaving the Federal Deposit Insurance Corp. (FDIC), Chairman Sheila Bair called for longer-term, strategic economic policies to avoid the type of thinking that caused the financial crisis and is threatening current regulatory reforms. Bair, speaking before the National Press Club, called “short-termism” a growing problem in both business and government. She said short-term thinking is “a market failure that leads to underinvestment in valuable projects with long payoff periods.” Bair said the reason that lenders were willing to make risky loans--and security issuers were willing to fund them--during the mortgage crisis--is that they knew they would be paid up front. Mortgage investors and the homeowners, meanwhile ended up bearing the long-term consequences. She said the FDIC is determined to press for a more systemically important financial institution resolution framework …

CUNA urges interest other changes to prepay program

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WASHINGTON (6/28/11)--In advance of the National Credit Union Administration’s (NCUA) Wednesday meeting to consider whether to advance its idea to allow credit unions a prepayment option for their corporate stabilization assessments, the Credit Union National Association (CUNA) Monday wrote to the agency board members reiterating the group’s strong support for the plan. CUNA also urged the NCUA board to incorporate into a final plan changes CUNA has recommended, including allowing payment of some interest on the prepaid funds. The recommendations include:
* Raising the target minimum commitment level to $1 billion, up from $300 million; * Avoiding the establishment of an unneeded, additional liquidity buffer for the fund and instead applying any excess prepayments against this year’s assessments on a pro-rata basis; and * Allowing small credit unions to participate in the program if they want to do so, rather than setting a $10,000 prepayment minimum. That minimum could keep credit unions with assets less than $2.8 million--or about 6,023 credit unions--from being able to participate.
As noted, CUNA also urged the agency to amend its proposal to allow payment of some interest on the prepaid assessments. “While we understand that NCUA has determined that under the Federal Credit Union Act (FCU Act) it is essential that the ‘gift’ nature of the prepayments be preserved, the payment of at least some interest on the prepayments is a very important issue for credit unions,” CUNA President/CEO Bill Cheney wrote. Cheney added that an Internal Revenue Service (IRS) definition of “gift,” which has been recognized by the courts, states “a gift is made when someone provides property (including money) without expecting to receive something of at least equal value in return.” “We believe the payment of at least some interest on the prepaid (assessments) pegged to, but somewhat less than, the rate that (Temporary Corporate Credit Union Stabilization Fund) pays to the U.S. Treasury for its line of credit would be permissible, consistent with the FCU Act and the IRS’s definition,” Cheney wrote. The NCUA is scheduled to meet Wednesday to decide whether or not to establish a prepayment plan for corporate fund assessments. Even if the agency decides then to move ahead at that time, it has said it will not implement a plan if "subscriptions" by credit unions total less than $300 million. It is expected that credit unions will have 40 days after this week’s meeting to notify the agency of intentions to participate.

Compliance CUNA adds RSS Feed to CompBlog

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WASHINGTON (6/28/11)--The Credit Union National Association (CUNA) has added an RSS feed to its new compliance blog, CompBlog. RSS, which stands for “really simple syndication,” is a format used to syndicate--or “feed”-- content automatically. CUNA’s CompBlog users will need a “RSS reader” or “feed aggregator,” such as Google Reader, to access the feed. Then RSS subscribers will automatically receive the blog’s updates without having to check the webpage every day. Use the first resource link below to visit CUNA’s CompBlog and click “CompBlog RSS” in the right-hand column of the page. Then just click on “subscribe” and save the feed in your Internet browser. CUNA's CompBlog combines the information that credit union compliance professionals have relied on for years in CUNA's Compliance Challenge with content previously found in its popular "What's New in Compliance"--and serves it up in a timely delivery format. CUNA launched CompBlog on June 20. CompBlog readers can send comments and questions to CUNA's compliance department via the blog, and keep the conversation going with their peers on COBWEB, CUNA's popular compliance listserv. Readers with an idea for a post or a question should contact CUNA’s compliance team at cucomply@cuna.com.

Housing finance reform hearing today CUNA testifies

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WASHINGTON (6/28/11)--Rod Staatz, who is president/CEO of SECU of Maryland and a member of the Credit Union National Association’s (CUNA) board of directors, is scheduled to testify today before a Senate Banking Committee hearing on housing finance reform. In his testimony, Staatz is expected to describe the state of credit union mortgage lending and outline key principles that should guide the nation’s housing finance reform. These include:
* The need for affordable access for credit unions and other small lenders to the secondary market for mortgage loans; * The importance of preserving the 30-year, fixed-rate mortgage instrument; * The need for a durable secondary market, one that can weather economic adversities; and * The need for an orderly transition to a revised system.
Staatz is also a member of CUNA’s GSE Reform Task Force. He is expected to discuss another important housing topic--the definition of a qualified residential mortgage (QRM). The Dodd-Frank Wall Street Reform Act requires regulators to write a rule on credit risk retention for securitized assets, but allows QRMs to be exempted from the requirement that the lender retain 5% of the credit risk. CUNA supports the goals of a bi-partisan group of U.S. House and Senate lawmakers that have urged regulators not to be rigid in setting the rules. The lawmakers have said a current proposal to require a 20% down payment for a loan to be defined as a QRM would "shut out responsible homebuyers and further cripple the housing market."

Two small CUs placed into conservatorships

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ALEXANDRIA, Va. (6/28/11)--Just two-and-a-half weeks after issuing a cease-and-desist order to the $7 million-asset credit union, the National Credit Union Administration (NCUA) assumed control of Borinquen FCU of Philadelphia on Friday. Under NCUA control, the credit union will continue to provide services to 8,600 Borinquen members, while working to resolve issues the agency said have affected the safety and soundness of the institution. In its cease-and-desist order, the NCUA noted that the credit union has had "serious and persistent record keeping problems" and had failed to perform yearly audits. The NCUA ordered the credit union to:
* Obtain an opinion audit and member account verifications from a certified public accountant; * Reconcile its cash and bank accounts; and * Establish a Bank Secrecy Act compliance program by June 30.
Borinquen FCU is the seventh federally insured credit union placed into conservatorship during 2011. Also on Friday, the NCUA announced it had placed O.U.R. FCU of Eugene, Ore., with $4.3 million in asset, into conservatorship to allow it to continue full operations for its 2,184 members while operating under NCUA control and addressing “previous service and operational weaknesses.” Borinquen and O.U.R. are the seventh and eighth credit unions, respectively, to be placed into conservatorships this year. Use the resource link to see information posted on the credit unions’ websites to help members understand the impact of the conservatorship.

July 25 brings new option for LICU qualification

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WASHINGTON (6/28/11)--Starting next month, federal credit unions have a new option for providing actual income information about their members as a basis for qualifying as a low-income credit union. Back in 2008, the National Credit Union Administration (NCUA) amended its low-income rule to allow credit unions, as an alternative to relying on NCUA’s geo-coding software, the option of providing actual income information about their members as a basis for qualifying as a low-income credit union. Under this new final rule that becomes effective July 25, the NCUA will allow federal credit unions to submit an analysis of a statistically valid sample of member income data--as opposed to actual income information--as evidence they qualify for the designation. In a recently released final rule analysis, the Credit Union National Association (CUNA) has noted these key points of the new rule:
* The random sample must be representative of the membership, sufficient in both number and scope on which to base conclusions, and have a minimal confidence level of 95% and a confidence interval of 5%; and * The NCUA will evaluate the sample income data and the supporting narrative to verify it is a statistically valid, random sample.
The new rule prohibits combining a survey and loan file review. Specifically, the rule states that a credit union must draw the sample either entirely from loan files or entirely from the survey, and must not combine a loan file review with a survey. To read the entire CUNA analysis, use the resource link below.