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Hearings highlight busy Washington week

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WASHINGTON (7/24/12)--Credit unions will want to watch Washington this week as a series of financial hearings highlight U.S. House and Senate schedules.

One noteworthy hearing is scheduled to take place today. Doug Fecher, president/CEO of Wright-Patt CU, Fairborn, Ohio, is scheduled to testify on behalf of the Credit Union National Association and his credit union. The 10 a.m. hearing will focus on the Consumer Financial Protection Bureau's (CFPB) impact on credit markets. (See related News Now story: Wright-Patt CU CEO testifies today on CUNA's behalf)

The House Financial Services financial institutions and consumer credit subcommittee has also scheduled a Tuesday hearing entitled "Examining Consumer Credit Access Concerns, New Products and Federal Regulations." The private student lending market, and how lenders can provide greater flexibility to borrowers, will be examined at a Tuesday Senate Banking Committee hearing.

The House Financial Services Committee on Wednesday will discuss the Financial Stability Oversight Council's annual report with U.S. Treasury Secretary Tim Geithner on Wednesday. A similar hearing is scheduled to be held in the Senate Banking Committee on Thursday.

Tax-exempt organizations will be examined during a Thursday House Ways and Means oversight subcommittee hearing. This is the second in a series of hearings, and U.S. Internal Revenue Service operations, charitable organizations and unrelated business income tax (UBIT) are all scheduled to be discussed.

Neither the tax status of federal credit unions nor the UBIT status of credit unions is expected to come up during the discussion. Not-for-profit credit unions have long believed that income from financial products of all kinds, including sales of insurance products like credit life insurnace and investment products, such as stocks, bonds, mutual funds and annuities, made available by state-chartered credit unions to their members should not be subject to UBIT. The IRS has attempted to assess UBIT on some credit union products, and affected credit unions have successfully defended their right for that income to remain untaxed in in the federal courts.

The Senate is expected to discuss tax cut and tax extension options later in the week, and could also consider cyber-security legislation. However, a firm Senate agenda had not been released at press time.

Bills addressing Obama administration energy policy and the "Regulatory Freeze for Jobs Act of 2012" (H.R. 4078) are expected to be discussed in the House.

Inside Washington (07/23/2012)

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  • WASHINGTON (7/24/12)--A Federal Reserve Board proposal that would place strict limits on the amount of credit exposure the largest banks can have to a major counterparty would overstate the level of excess risk exposures, according to new study by the Clearing House, a trade group. The Fed's plan, released in December, would require banks with more than $50 billion of assets to maintain a two-tier structure in how they limit their counterparty exposures (American Banker July 23). Large banks must comply with a 25% limit on exposure to a single counterparty, as required by the Dodd-Frank Act, but the Fed has said it may impose a secondary limit of 10% on some large banks. Big banks affected by the proposal say the single counterparty credit risk limit is too strict and would cause them to rebalance their portfolios, reducing the liquidity of the derivatives and securities lending markets. The current exposure method in the proposal overstates the underlying risk and is not an accurate exposure measurement tool, said Bob Chakravorti, the Clearing House senior vice president and chief economist ...

CUNA testifies today at House hearing on CFPB

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WASHINGTON (7/24/12)--The burden of complying with ever-changing and ever-increasing regulatory requirements continues to create issues for credit unions and other small institutions, Doug Fecher, president/CEO of Wright-Patt CU, Fairborn, Ohio, will tell members of the House Oversight and Government Reform Committee financial services subcommittee today.

Fecher, who is testifying on behalf of the Credit Union National Association, is scheduled to to speak at a 10 a.m. (ET) hearing entitled "Credit Crunch: Is the Consumer Financial Protection Bureau (CFPB) Restricting Consumer Access to Credit?"

In prepared testimony, Fecher will note that credit unions have been battered by the volume of regulatory changes and by concerns sparked by the financial crisis.  Credit unions are bracing for the next wave of rules created by the Dodd-Frank Wall Street Reform Act.

Regulatory compliance costs reduce credit unions' net income, and while these costs will not drive credit unions into immediate insolvency, they will reduce the protective cushion provided by capital, leaving credit unions less resilient during the next big financial shock, Fecher will note. 

"Credit unions face a crisis of creeping complexity with respect to regulatory burden. This burden will, in my opinion, have a negative impact on credit unions' ability to extend credit to members at reasonable costs. It is not just one new law or revised regulation that challenges credit unions, but the cumulative effect of all regulatory changes," Fecher's testimony will say.

Also scheduled to testify this morning are CFPB Director Richard Cordray, Cato Institute Director of Financial Regulation Studies Mark Calabria, Consumer Bankers Association Executive Vice President Steven Zeisel, and Center for Responsible Lending President Michael Calhoun.

TCCUSF assessment should be low-end CUNA

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WASHINGTON (7/24/12)--Credit Union National Association (CUNA) President/CEO Bill Cheney in a letter to the National Credit Union Administration (NCUA) urged the agency to set its 2012 Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment at the lowest end of its projected eight to 11 basis point of insured shares range.

Considering that estimates of total remaining TCCUSF assessments are still in the range of $4 billion to $4.5 billion, the 2012 assessment should charge credit unions "no more than is necessary for liquidity purposes," Cheney added in the letter.

The CUNA letter was sent ahead of today's NCUA open board meeting. The agenda for the meeting includes:

  • Adjustments to the agency's 2012 operating budget;
  • Discussions of the interest rate cap for federal credit unions;
  • A proposed rule addressing the agency's definition of a credit union that is in "troubled condition";
  • A briefing on an interagency Truth in Lending Act proposal;
  • A report on the status of the agency's insurance funds; and
  • A new emergency liquidity regulation.
The CUNA letter also urged the NCUA to take significant steps to reduce its budget for the remainder of 2012. The agency should also contain expenses and staffing levels for 2013, and develop a budget that does not require any additional funding from credit unions, Cheney wrote. "An even better outcome would be for the agency to cut its budget and to decrease the costs to credit unions needed to operate the agency," he added.

Cheney in the letter noted CUNA has "serious concerns about any new rule for credit unions, including in the area of liquidity." Rather than seeking to regulate liquidity, "a better approach would be to focus on the guidance the federal financial agencies have already produced on liquidity issues," Cheney told the NCUA.

CUNA recognizes that a thorough consideration of  liquidity sources for credit unions should include NCUA's Central Liquidity Facility. CUNA Chief Economist Bill Hampel on Monday noted that the CLF was created 30 years ago to address situations that existed at that time, and the program could use an update. CUNA's System Liquidity Task Force, chaired by VyStar CU, Jacksonville, Fla., CEO Terry West, believes there is a role for the CLF, but is examining how the fund is operated and funded.

The task force will meet with NCUA officials in the coming weeks and will report any recommendations to the CUNA Governmental Affairs Committee which reports to the CUNA Board.

For the full CUNA letter, use the resource link.