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Committee vote on exec comp set for July 28

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WASHINGTON (7/23/09)—The House Financial Services Committee set July 28 as the mark up date for its recently announced bill that addresses both corporate and financial institutions executive compensation. H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act, was built on a 2007 House-passed compensation measure known as “Say-on-Pay,” combined with recent proposals unveiled by the U.S. Treasury Department. No limits on executive compensation are contained in the draft. Of its four component parts, two address compensation at financial institutions. "Incentive-Based Compensation Disclosure Requirements" proposes to require financial institutions to disclose compensation structures that include any incentive-based elements. “Compensation Standards for Financial Institutions" would require federal regulators to proscribe "inappropriate or imprudently risky" compensation practices as part of solvency regulation. This latter section—number four in the bill—is the only one that affects credit unions, including privately insured credit unions. It directs the National Credit Union Administration (NCUA) and federal banks and thrift regulators to jointly prescribe regulations requiring all financial institutions to disclose information related to the structure of incentive-based compensation structures. Regulations must be issued within 270 days of the date of enactment. The disclosed information, according to the bill, should be sufficient to determine whether a compensation structure:
* Properly measures and rewards performance; * Is structured to account for the time horizon of risks; * Is aligned with sound risk management; and * Meets other criteria appropriate to reduce unreasonable incentives for officers and employees to take undue risks that could have serious adverse effects.
The section also gives the regulators power to ban any compensation structure or incentive-based payment arrangement determined to encourage inappropriate risks by financial institutions that could have serious adverse effects on economic conditions or financial stability or could threaten the safety and soundness of the institution. The NCUA would enforce the section for federally insured credit unions; the Federal Trade Commission would be responsible for enforcement for privately insured credit unions.

Matz wants CU outreach effective regs at NCUA

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WASHINGTON (7/23/09)--National Credit Union Administration (NCUA) board nominee Deborah Matz told assembled Senate banking committee members that if confirmed she would work to establish a strong partnership with the industry while maintaining the "critical arms-length relationship" between a regulator and the regulated. Matz said she would work to “make certain” that the NCUA would “thoroughly” apply relevant consumer protections, promote “improved financial education,” and encourage member credit unions to “reach out to serve all eligible consumers.”
Click to view larger image Deborah Matz, the Obama administration's choice to fill a vacancy on the National Credit Union Administration board and become chairman, swears to tell the truth during her nomination hearing before the Senate Banking Committee Wednesday. Matz said her experience as a credit union officer taught her the need for "effective, rather than excessive, regulation." (CUNA Photo)
During her testimony, Matz provided legislators with a window into her regulatory philosophy, stating that her recent work as executive vice president and chief operating officer of Suitland, Md.’s $800 million-in-assets Andrews FCU “sensitized” her “to the need for effective, rather than excessive, regulation.” Matz added that as NCUA Chair she would “regulate and supervise credit unions closely, guide them where appropriate, make forceful suggestions, and always appeal to their commitment to their members.” While a number of recently approved changes to the national credit union system have “gone a long way” to stabilizing the corporate credit union system, Matz hinted that further work is needed. Addressing the current weak financial state of corporate credit unions, Matz said that a new corporate rule that would be developed during her tenure would be “fair” and would provide “flexibility” while also providing “sufficient parameters to prevent these events from occurring in the future.” Matz said she plans to begin work on this new rule by discussing it with NCUA staffers, credit union industry members, and other stakeholders, adding that the new rule could be presented by the end of this year. Matz was the lone member of the NCUA board to vote against corporate regulations presented in 2002, saying in her testimony that she did not believe that those regulations “adequately addressed” the critical issue of “risk concentration” at the time. Matz also cited her belief that “the investment authority being granted was overly broad and permissive” as justification for voting against those corporate regulations. Matz said she would also closely monitor the effects of the economy on natural person credit unions to “minimize” any potential damage. Increasing alternatives to payday lending and other sources of short-term loans, as well as aiding underserved consumers through financial education, will also be a point of emphasis for credit unions during her time in office, Matz said. When asked about the proposed creation of a federal Consumer Financial Protection Agency, Matz said that such a body would be effective as long as it streamlined existing regulations and removed redundancies. However, Matz questioned how this new agency would be funded, stating that she did not believe that many credit unions could afford to pay another assessment due to declines in retained earnings. The committee hopes to vote on Matz’s nomination before it begins its summer work period in early August. Matz’s nomination will then move to the full Senate for confirmation.

Bernanke More MBLs a direction to consider

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WASHINGTON (7/23/09)--U.S. Federal Reserve Chairman Ben Bernanke on Wednesday said that legislation that would lift the current member business lending (MBL) cap beyond the statutory rate of 12.25% would be “worth looking at.” Responding to Sen. Charles Shumer’s (D-N.Y.) direct question on small business lending, Bernanke told legislators at a Wednesday Senate banking committee hearing on monetary policy that lifting the MBL cap would be “a direction to consider” as the Fed looks to enable small businesses to have greater access to crucial loans. Schumer earlier this year announced that he plans to draft a bill that would raise the MBL cap. Rep. Ron Kind (D-Wis.) in recent months indicated that there is a "growing sentiment" among members of Congress that the MBL cap should be lifted. Credit Union National Association (CUNA) Small CU Committee member and Allied CU President/CEO Frank Michael recently told a Senate subcommittee hearing that giving the National Credit Union Administration the authority to lift the MBL cap above 20% of assets would "safely and soundly" result in $10 billion in new small business loans within one year. In a Monday story posted in The Wall Street Journal Online, CUNA Chief Economist Bill Hampel said that while credit unions continue to lend to small businesses, they could provide further assistance if the MBL cap was higher. Bernanke during the hearing also commended credit unions for their role in increasing minority involvement in U.S. financial markets through reduced-cost remittances. Rep. Luis Gutierrez (D-Ill.) last month said that he would introduce remittance-related legislation aimed at correcting some of the disclosure and transparency issues faced by the remittance industry. Gutierrez also hinted that larger reforms, including the possible creation of a federal regulatory regime for the remittance industry, could be a part of the ongoing financial industry regulatory reorganization.

House committee favors direct student loans over FFELP

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WASHINGTON (7/23/09)--The House Committee on Education and Labor on Tuesday voted to convert all federal student loans created after June 10, 2010 to “the stable, effective and cost-efficient Direct Loan program.” H.R. 3221, The Student Aid and Fiscal Responsibility Act of 2009, passed 30 to 17 in a committee vote, and will now move on to the full House. The legislation will also invest $40 billion in educational grants, increasing the maximum amount awarded through individual annual Pell Grants to $5,500 per scholarship in 2010 and $6,900 per scholarship in 2019. Federal student aid applications will also be simplified under the legislation. As previously reported, the legislation does eliminate the Federal Family Education Loan Program (FFELP), a program that currently allows over 1,000 credit unions to provide student loans to their members. The Credit Union National Association in a recent letter urged legislators to retain the FFELP, stating that these privately serviced student loans and the resulting customer support were “valuable option(s)”to students in need of educational funding.

New Hope CDCU placed into conservatorship

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ALEXANDRIA, Va. (7/23/09)--The National Credit Union Administration (NCUA) has assumed control of New Hope Community Development FCU, based in Birmingham, Ala., the agency announced Wednesday. Service continues uninterrupted at the credit union, and members can make deposits, access funds, make loan payments and use share drafts, NCUA said. "While the credit union was placed into conservatorship because of declining financial condition, the decision to conserve a credit union enables the institution to continue normal operations with expert management in place," said NCUA's press release. Originally chartered in 1996 to serve the West End community of Birmingham, New Hope Community Development FCU has about $1.3 million in assets and more than 900 members. NCUA noted that member accounts are insured to at least $250,000 under the National Credit Union Share Insurance Fund. Members with questions can contact NCUA's Share Insurance Call Center at 1-800-755-1030 and press 1 during normal business hours Monday through Friday.

Inside Washington (07/22/2009)

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* WASHINGTON (7/23/09)-- White House National Economic Council Director Lawrence Summers has suggested that it would be prudent for some financial institutions to recognize that profits they are currently enjoying reflect the government aid that has been distributed to bolster the economy. (Bloomberg News July 22) Summers said companies have benefited specifically from programs to guarantee debt, backstop commercial-paper issuance and to support weaker financial institutions that were those company’s counterparties, as well as benefiting from a general “aura of government support." However, the president’s chief economic advisor warned that while the economy is no longer in a free fall, it is also unlikely that the nation will experience a robust recovery in 2010. Summers also criticized some banks doing too little to help reduce the number of mortgage foreclosures despite receiving government aid. … * WASHINGTON (7/23/09)--The third-ranking Democrat on the Senate Banking Committee, Rep. Jack Reed of Rhode Island has said Federal Reserve Board Chairman Ben Bernanke deserves a second term in that position because of actions the Fed leader has taken over the past year to help stabilize the economy. Bernanke’s term expires Jan. 31, 2010. To date, President Obama has declined to share his thoughts publicly on who he might want to fill that post. Bernanke is a Republican appointed by former President George W. Bush in 2006. Sen. Charles Schumer (D-N.Y.) has also indicated he would not be “displeased” if Bernanke were re-upped to head the Fed. ( July 22)… * WASHINGTON (7/23/09)—The U.S. Treasury Department has drafted a bill that would bar credit rating agencies from selling consulting services to companies they rate, and would force the agencies to disclose any conflicts of interests. The bill sent to Capitol Hill is intended to reduce or eliminate rating shopping (American Banker July 22)…