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CUNA Tax Status Advocacy Takes To N.H. Airwaves

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WASHINGTON (7/10/13)--D. Arnie Arnesen of WNHN 94.7FM, Concord, N.H., invited the Credit Union National Association's Paul Gentile to go on air Tuesday to discuss a BUZZFLASH.COM headline that recently blared, "Monopolistic Too-Big-to-Fail Banks Try to Crush Credit Unions as Competition by Removing Tax Exemption."
 
During a 30-minute segment of "Attitude with Arnie," Arensen asked Gentile to address claims by banks that the credit union tax exemption gives "unfair advantage" to "large" credit unions.
 
Gentile explained that credit unions find the charge "ridiculous." He put it into perspective for the radio audience by noting that of the nation's four largest banks, each one, individually, is greater in asset size than the entire credit union system. In fact, the credit union system represents 6% of the financial services marketplace.
 
"So portraying us as big-growth credit unions, taking over the marketplace, just is not true," Gentile said. He said the banks really are taking issue with competition.
 
"Wherever credit unions exist, we make banks more competitive--so even bank customers benefit" from the existence of credit unions' generally better rates and lower fees, he noted.

Gentile also made the points that:
  • Everyone can join a credit union, though not everyone can join every credit union;
  • Consumers should go to CUNA's consumer website, aSmarterChoice.org, to answer three simple questions to find a credit union they are eligible to join; and
  • Credit unions are financial cooperatives created to serve the credit and savings needs of their members. Being member-owned and not-for-profit means they are not driven by a need to provide profits for shareholders.
Gentile, who is CUNA's executive vice president for strategic communications and marketing, drove home the point that if the credit union tax exemption were to "go away, credit unions would go away" and consumers would lose.
 
Arensen noted that with the credit union tax exemption, it is the American "little guy" who benefits.
 
The leaders of the Senate Finance Committee, Sens. Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), have asked their Senate colleagues to be ready to tackle a tax reform vote early this fall. The committee plans to take a "blank slate" approach to a bill, which would remove all tax expenditures from the code and would add back in those that make the grade.
 
All proposed language for a bill must be submitted for the committee's consideration by July 26.
 
Early this year, CUNA and the state credit union leagues launched a groundbreaking  'Don't Tax My Credit Union!' grassroots advocacy campaign to support the credit union tax status. It combines CUNA's traditional efforts of such things as email-writing drives, with new social media and online outreach efforts.
 
For more CUNA/league advocacy resources, use the resource links.

FDIC, OCC Join Fed In Basel III Approval

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WASHINGTON (7/10/13)--The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency on Tuesday approved interim final rules to implement Basel III regulatory capital reforms in the United States, joining the Federal Reserve, which approved its own final rules earlier this month.

The Basel III changes "will create a stronger, more resilient industry better able to withstand environments of economic stress in the future," FDIC Chairman Martin Gruenberg said.

The international bank rules, which will require banks to hold more capital as a buffer against future financial shocks, do not apply to credit unions in the United States. In general, the Basel III standards are intended to apply to "internationally active" banks, but can be applied to credit unions in other countries as well.

Basel III standards for banks in the United States will require common equity of 4.5%. Banks also must hold a 2.5% conservation buffer, which will be gradually introduced, and to increase their Tier 1 levels from 4% to 6%. The rule includes a minimum leverage ratio of 4% for all banking organizations.

The phase-in period for smaller, less complex banking organizations will not begin until January 2015 while the phase-in period for larger institutions begins in January 2014.

The FDIC also approved a joint interagency Notice of Proposed Rulemaking to strengthen the supplementary leverage requirements for large, systemically important financial institutions.

For more, use the resource link.

CUNA Analysis Covers NCUA Loan Participation Rule

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WASHINGTON (7/10/13)--The full details of the National Credit Union Administration's final rule on loan participations, which was approved at the agency's June open board meeting, are laid out in a new Credit Union National Association final rule analysis.

The rule features many improvements suggested by CUNA even though CUNA did not support any new loan participation rule at this time.

The original effective date was July 25, but CUNA strongly urged the agency to address the effective date to give credit unions flexibility to adequately prepare for the rule's changes. The new effective date for the final rule is Sept. 23.

The final rule sets a limit on loans from one originator of 100% of a credit union's net worth. This is up from a proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower.

CUNA urged such changes and the CUNA board emphasized credit union concerns as it worked to make the rule more practicable.

The agency also approved a provision so that credit unions pushed over the limit by new rule can move their loans into line: such credit unions would not have to sell loans immediately to come into compliance but can bring their participation activity into line in the ordinary course of business or seek a waiver.

For the full CUNA analysis, use the resource link.

CDRLF/CDFI Spending, CFPB Changes Proposed In House Bill

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WASHINGTON (7/10/13)--Funding for the National Credit Union Administration's Community Development Revolving Loan Fund (CDRLF) program would total $500,000 in 2014 under the House Financial Services and General Government Appropriations bill, released Tuesday. Funding for the Community Development Financial Institutions Fund and the Consumer Financial Protection Bureau are also addressed in the bill.

The Obama administration has requested $1.127 million in CDRLF funding in its own 2014 budget. A total of $1.144 million in CDRLF funding was approved in the 2013 budget. The CDRLF provides loans and technical assistance to federal and state credit unions that are designated as low-income credit unions, as defined by NCUA regulations.

Last August, the NCUA awarded $1.4 million in technical assistance grants to just over 100 small credit unions through the CDRLF.

Funding for the U.S. Treasury's Community Development Financial Institutions (CDFI) fund, which helps locally based financial institutions--including credit unions--offer small business, consumer and home loans in communities and populations that lack access to affordable credit, would total $221 million under the House bill. The fund received $210 million in government backing for fiscal 2013, and the administration this year requested $224.9 million in funds for 2014.

The bill would also make CFPB funding subject to the appropriations process, and would require the bureau to file reports on its funding and activities with House and Senate appropriations committees, the House Financial Services Committee and the Senate Banking Committee.

Under the bill, the director of the Office of Management and Budget would also be required to detail Dodd-Frank Act implementation costs, including the estimated mandatory and discretionary obligations of funds through fiscal year 2018.

The bill is scheduled to be marked up by the House Appropriations financial services and general government subcommittee today.

World Council: IASB Changes Could Create CU Capital Issues

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WASHINGTON (7/10/13)--Credit unions are concerned that loan loss expenses created by the International Accounting Standards Board's proposal to transition to an expected loss model for loans and other financial instruments could substantially deplete some credit unions' regulatory capital levels, the World Council of Credit Unions wrote in a letter to IASB.

The letter follows the recent release of IASB's Financial Instruments: Expected Credit Losses exposure draft. The World Council opposes this exposure draft, as proposed, and urged the IASB to either retain an incurred credit loss model or make significant changes in the final version of the standard to address credit union concerns.

This depletion of regulatory capital that could occur in an expected loss model would likely increase credit unions' loan loss expenses, even though credit unions' underlying economic credit risk exposures, and total amount of reserves and allowances held to protect the institution and its members against losses, would not be changed as an economic matter, World Council Chief Counsel Michael Edwards wrote.

"Unlike joint-stock company banks, credit unions must rely primarily on earnings retention to build capital and have limited, if any, means of raising additional capital," Edwards explained. This capital level depletion could make impacted credit unions subject to mandatory supervisory remedial actions such as "Prompt Corrective Action" rules, he added.

Retaining an incurred loss approach, especially with respect to smaller, community financial institutions, could help remedy this potential regulatory capital issue, Edwards said.  If, however, the IASB decides the proceed with an expected credit loss approach, World Council supports the IASB's proposed "Stage 1" approach that limits expected credit losses to a 12 months lookout period until an instrument experiences "significant deterioration in credit quality" such as being in arrears for more than 30 days.

Other potential actions that could improve the IASB proposal for credit unions include:
  • Allowing a long transitional period for phase-in of the new standard so that credit unions have sufficient time to build up additional loan loss reserves;
  • Not requiring the discounting of expected future cash flows at the credit-adjusted effective interest rate; and
  • Allowing jurisdictional accounting authorities and/or regulators the option to establish simplified credit loss methodologies for small financial institutions, especially those in developing countries and/or those with limited staff resources, for whom full compliance with the proposed expected credit loss model would be an excessively burdensome compliance requirement.
For the full World Council letter, use the resource link.

FSOC Makes First 'Systemically Important' Designations Of Nonbanks

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WASHINGTON (7/10/13)--Saying it was taking a "decisive step to address threats to U.S. financial stability and create a safer and more resilient financial system," the  Financial Stability Oversight Council (FSOC) Tuesday voted to designate two nonbank financial companies for "consolidated supervision and enhanced prudential standards."
 
Under authority granted by the Dodd-Frank Act, the FSOC named the following nonbank financial companies as "systemically important financial institutions":
  • American International Group Inc. and
  • General Electric Capital Corp. Inc. 
The designation does not constitute a determination that the companies are currently experiencing material financial distress. 
 
It does, however, subject them to supervision by the Federal Reserve Board and to enhanced prudential standards. 
 
The council determined that if material financial distress were to occur at either of these companies, it could pose a threat to U.S. financial stability. 
 
Use the resource link for more information on the process for the council's nonbank financial company designations and the council's resolutions and basis for its designations.

House Member Pens Concerns Re: FATCA Compliance Cost, More

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WASHINGTON (7/10/13)--A House Financial Services Committee member, Rep. Bill Posey (R-Fla.), said in a recent letter to Treasury Secretary Jack Lew that regulations that would require U.S. credit unions and banks to collect information on interest paid to nonresident aliens, and to report that information to regulators, would create burdensome compliance costs for those institutions.

Citing this and other issues, Posey called for The Foreign Account Tax Compliance Act (FATCA) to be "either substantially amended or repealed, and replaced with a cooperative scheme that penalizes actual tax evasion without harming the innocent."

Posey's concerns mirror those aired earlier this year by the Credit Union National Association.

FATCA is designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities. Some provisions would apply to U.S. credit unions that make international payments. U.S. credit unions would also be required to identify and withhold on so-called "pass-thru payments" to FFIs involving transfers of U.S.-sourced investment or interest income an FFI that has not yet been subject to taxation.

Portions of FATCA that impact Form 1042-S filings are already in effect. Other provisions will be phased in between January 2014 and January 2017.

To cope with the FATCA changes, credit unions would need to establish procedures and practices, including staff training, for ongoing identification of covered entities and transactions, and take additional steps to ensure they met their reporting and withholding compliance responsibilities when facing transactions that come under IRS regulations.

CUNA in a May letter to Congress said legislators did not appear to have U.S. credit unions nor banks in mind when it developed the FATCA provisions in 2010. "Yet U.S. financial institutions will be required to bear a large proportion of FATCA's compliance burdens," CUNA President/CEO Bill Cheney said.