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2012 TCCUSF assessment is 9.5 bp

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ALEXANDRIA, Va. (7/25/12)—Credit unions will be charged a 2012 Temporary Corporate Credit Union Stabilization Fund (TCCUSF) assessment of 9.5 basis points (bp) of their insured shares as of June 30, the National Credit Union Administration (NCUA) announced at Tuesday's July open board meeting.

"The assessment is just about what we expected, falling right in the middle of the forecasted eight to 11 bp range," Credit Union National Association (CUNA) President/CEO Bill Cheney said. 'The good news--to the extent there is some for credit unions--is that this year's assessment is much smaller than last year's 25 bp charge," he added.

Click to view larger image CUNA Chief Economist Bill Hampel has projected a range of possibilites for future TCCUSF assessments.


The TCCUSF assessment is expected to bring in $790.5 million in funds to help cover the costs of corporate credit union stabilization. Invoices for the assessment will be mailed to credit unions in September, and payment will be due by Oct. 9, the NCUA said. Credit unions should record the TCCUSF assessment as an expense on their August financial reports.

The assessment will reduce the aggregate net worth ratio of all credit unions from 10.01% to 9.96%, with an average 6 bp decline, according to the NCUA. A total of 335 credit unions will not post net income this year as a result of the assessment costs, the NCUA added.

"The primary determinant of the size of this year's assessment is the cash flow needs of the stabilization fund, rather than any change in expected losses over the life of the fund," CUNA Chief Economist Bill Hampel said. The NCUA said the funds generated by the assessment, combined with borrowed U.S. Treasury funds, will pay $2.66 billion in net obligations that are due in 2012. The obligations are mainly principal and interest on maturing medium term notes issued by corporate credit unions and guaranteed by the TCCUSF, the agency added.

Federally insured credit unions will have paid $4.1 billion in corporate resolution expenses once this round of assessments has been collected, according to the NCUA. Credit unions can expect between $1.9 billion and $5.2 billion in remaining assessments, and this total would be paid off between 2013 and 2021, the agency said.

"Future TCCUSF assessments should be based more on spreading out the remaining losses on the legacy assets held by the fund, rather than on cash flow concerns," Hampel said.

"Since the legacy assets are primarily private-label, mortgage-backed securities, the actual losses will depend on the future of the economy in general and the housing market in particular," he added.

Assuming the $3.6 billion mid-point of NCUA's published remaining assessment range, Hampel said credit unions would pay off the remaining costs in about four years at assessment rates similar to this year's. Three years of ten bp assessments, and an eight bp assessment in the fourth year, would cover the remaining corporate stabilization costs, he added.

NCUA sees improvement in CAMEL Code CUs

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WASHINGTON (7/25/12)--The National Credit Union Administration (NCUA) cited an improvement--small though it may be--in the percentage of credit union assets now being held by institutions with lower CAMEL ratings.

In its most recent report on the status of credit union industry insurance funds, the NCUA reported CAMEL code 3, 4, or 5 institutions represented 16.1% of credit union assets as of June 30,  down from the previous quarter's total of 16.3%.

A total of 1,679 credit unions were classified as CAMEL Code 3 in the most recent quarter, eclipsing the previous quarter's total by 17. CAMEL 3 credit unions held 14.7% of insured shares in the quarter ended June 30, and those shares represented $123 billion in funds. CAMEL 3 credit unions held $138 billion in assets during the quarter, the NCUA reported.

The number of CAMEL 4/5 credit unions also increased by three in the most recent quarter, bringing the total to 399 as of June 30. Camel 4/5 credit unions held nearly $57 billion in total assets, and 3.2% of insured shares, according to the NCUA.

NCUA Chief Financial Officer Mary Ann Woodson reported that the National Credit Union Share Insurance Fund (NCUSIF) and the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) both remained steady during the second quarter of 2012. The NCUSIF's equity ratio was 1.3%, within the NCUA's normal operating level. NCUA staff released the 2012 TCCUSF assessment during Tuesday's meeting. (See related News Now story: 2012 TCCUSF assessment is 9.5 bp)

The NCUSIF lost $13.4 million during the quarter. However, the NCUSIF recorded $5.5 million in net income during the first half of 2012. Twelve consumer credit unions have failed so far in 2012, and these failures have created $94.6 million in costs, the NCUA said.

For more on the NCUA meeting, use the resource link.

Troubled CU liquidity rules unnecessary CUNA

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ALEXANDRIA, Va. (7/25/12)--A pair of proposed rules that would allow the National Credit Union Administration (NCUA) to determine when a state chartered credit union is in "troubled condition," and alter emergency liquidity requirements for natural person credit unions, are unnecessary, Credit Union National Association (CUNA) President/CEO Bill Cheney said following Tuesday's NCUA open board meeting.

Under the "troubled condition" proposed rule, the NCUA would be added to the list of regulators that may determine whether a state-chartered federally insured credit union's (FICU) financial issues are enough to label the credit union as "troubled." The NCUA would also be permitted to assign a CAMEL Code 4 or 5 rating to those credit unions.

Currently, the CAMEL rating assigned by a state supervisor alone determines if a state-chartered FICU is in "troubled condition."

The NCUA in a release noted that it has seen an increased number of credit unions with assets between $250 million and $500 million experiencing some degree of financial stress, and has increased the number of joint examinations it participates in as a result. The NCUA and state credit union regulators have, at times, issued different CAMEL scores following these examinations. "While the actual number of examinations where this has happened is relatively small, it is nonetheless significant from a supervisory perspective, particularly given the rise in credit unions experiencing stress," the NCUA said in a release.

Expanding the definition of "troubled condition," as proposed, would strengthen the oversight abilities of the NCUA and state regulators, and better protect the National Credit Union Share Insurance Fund from future losses, the NCUA said.

However, Cheney said the proposed changed to the Federal Credit Union Act's "troubled condition" definition "raises concerns about the possible impact it would have on expanding NCUA's authority and on dual chartering."

The proposed "troubled condition" definition changes will be released for a 60-day public comment period. CUNA will review the NCUA proposal with its Examination and Supervision Subcommittee, the National Association of State Credit Union Supervisors, the American Association of Credit Union Leagues and others.

The NCUA's proposed rule regarding access to emergency liquidity, which was unveiled on Tuesday, will also be released for a 60-day comment period.

Many credit unions are able to access emergency liquidity through corporate credit unions that are agents of U.S. Central Bridge Corporate FCU. U.S. Central holds stock in the NCUA's Central Liquidity Facility (CLF). However, credit unions will need to find alternate sources of emergency liquidity once U.S. Central closes, the NCUA noted.

Under the new proposal, credit unions with less than $10 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action.

All FICUs with assets of $10 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations.

FICUs with assets of $100 million or more would be required to have access to a backup federal liquidity source for emergency situations. 

The NCUA said these credit unions can ensure access to backup liquidity by:

  • becoming a member of the CLF;
  • becoming a CLF member through a CLF agent; or
  • establishing direct borrowing access to the Federal Reserve's Discount Window.
Some credit unions with more than $100 million in assets currently do not have transaction accounts, and would not be eligible to access the Fed discount window. However, NCUA staff said Fed officials have indicated these credit unions may be able to set up a de minimis amount of transaction accounts to access the Fed discount window.

NCUA Chairman Debbie Matz said the approach outlined in the agency's proposal "provides flexibility for credit unions to reset and put in place a reliable and stable source of backup liquidity." Matz during the NCUA meeting said she is concerned about how portions of the proposal could impact small credit unions, and encouraged them to comment.

Cheney said CUNA has serious concerns about any new rule for credit unions, including in the area of liquidity. The CUNA CEO urged the agency to focus on the guidance the federal financial agencies have already produced on liquidity issues, rather than release new rules.

CUNA's System Liquidity Task Force, chaired by VyStar CU, Jacksonville, Fla., CEO Terry West, will review the liquidity proposal in detail, and will consider recommendations regarding the future of the CLF.

The agency will soon release a document detailing background information on the CLF for credit unions that may not be familiar with the fund. An NCUA webinar on the status of the CLF is being planned for Aug. 14, and another on the impact of U.S. Central's closing is being planned for October, the agency said.

For more on the NCUA meeting, use the resource link.

Budget FCU interest rate addressed at NCUA meeting

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ALEXANDRIA, Va. (7/25/12)--The National Credit Union Administration's (NCUA) decision to reduce its projected 2012 budget by $2 million, as announced on Tuesday, is a step in the right direction, according to the Credit Union National Association (CUNA), but CUNA also encouraged the agency to make greater budget cuts.

The budget reduction, the setting of the interest rate cap for federal credit unions, and a briefing on an interagency Truth in Lending Act (TILA) proposal were three of the many items on Tuesday's busy July NCUA open board meeting agenda.

NCUA Chairman Debbie Matz, center, and board members Gigi Hyland, right, and Michael Fryzel discuss one of many agenda items at Tuesday's NCUA open board meeting. (CUNA Photo)


Under the NCUA's adjusted 2012 budget, employee pay and benefits were reduced by $3.6 million. However, the agency said this reduction was offset somewhat by increases in travel expenses, rent, administrative costs and contractor support.

The budget decrease, which amounts to a reduction of less than 1%, brings the total 2012 budget to $235 million. This is the third mid-year budget decrease the agency has approved. NCUA staff said that the decrease will be deducted from the amount credit unions would otherwise owe to fund the 2013 agency budget.

The NCUA board during the meeting also voted unanimously to maintain the current 18% interest rate ceiling for federal credit union loans through March 10, 2014. The agency is required by the Federal Credit Union Act to set the ceiling, at least every 18 months, if the rate ceiling is to exceed the 15% maximum rate established by law.

The agency will notify federal credit unions of the unchanged interest rate ceiling in an upcoming letter.

The NCUA board members were also briefed on plans regarding an upcoming interagency proposed rule on appraisal requirements for "higher-risk" mortgages under TILA. The rule, which is required by the Dodd-Frank Wall Street Reform Act, would change some home appraisal requirements, require lenders to provide free home appraisal reports to borrowers, and introduce new requirements for short-term sales. NCUA staff noted that federal financial agencies are currently working through their own approval processes, and a proposed rule is expected to be released in August.

For more on the NCUA meeting, use the resource link.

Inside Washington (07/24/2012)

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  • WASHINGTON (7/25/12)--The Federal Housing Finance Agency in May signed a contract with New York-based PricewaterhouseCoopers to create contingency plans to avoid taking into receivership Fannie Mae, Freddie Mac and the Federal Home Loan Banks (American Banker July 25). FHFA does not intend to take the companies or the banks into receivership, said agency spokeswoman Denise Dunckel, who described the planning activity as "routine" and not an indication of the condition of Fannie Mae, Freddie Mac or the Federal Home Loan Banks. Fannie Mae and Freddie Mac have been operating under U.S. conservatorship since September 2008, when risky loans threatened the government-sponsored enterprises …
  • WASHINGTON (7/25/12)--In a conference call with reporters Monday, Consumer Financial Protection Bureau Director Richard Cordray touted a new form designed to make it easier for students to compare financial aid offers. The Financial Aid Shopping Sheet was designed in partnership with the U.S. Department of Education. The form describes scholarships and loans and lays out the total cost of attendance including tuition, fees, other expenses and options for federal aid. The form can help students understand how much debt they may have after graduation and what their monthly payment could look like. "This form, which presents a model of what all financial aid award letters should be, would provide a uniform way to inform potential students of their true college costs--before they commit to a school," Cordray said …
  • WASHINGTON (7/25/12)--Federal Reserve Board Chairman Ben Bernanke, addressing the Children's Defense Fund National Conference, Cincinnati, Ohio, via a prerecorded video, discussed the relationship between the education of the nation's children and the success of its economy. "When individuals are denied opportunities to reach their maximum potential, it harms not only those individuals, of course, but also the larger economy, which depends vitally on having a skilled, productive work force. As a result, we all have a stake in the essential work that you are doing for our children," the Fed chairman told the advocacy group audience. Bernanke said that programs to enrich experiences for children, especially those that also involve parents, benefit children from all backgrounds, but have the strongest influence on children from disadvantaged environments. He noted that the Fed system sponsors financial literacy and economic education programs for school-age children, with a special outreach effort for lower-income children …
  • WASHINGTON (7/25/12)--Federal Reserve Board Governor Sarah Bloom Raskin, addressing the Graduate School of Banking at Colorado, Boulder, Colo., on July 23, reiterated her concerns that the Volcker Rule needs to be strengthened to ensure it works to prohibit proprietary trading by federally insured banks and their affiliates, such as broker-dealers. She noted that she dissented when it came time for the Fed to vote for approval of the proposed implementation of the Volcker Rule. "One reason for my vote was my sense that the proposed regulation''s guard rails were insufficient. I was concerned that, as proposed, the guard rails were too broad and would allow banks to be able to go too far off the road. Further, I was concerned that the guard rails as crafted could be subject to significant abuse--abuse that would be very hard for even the best supervisors to catch," Bloom Raskin said …

Compliance dollars better spent on members CUNA testifies

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WASHINGTON (7/25/12)--At a House subcommittee hearing investigating whether the actions of the Consumer Financial Protection Bureau (CFPB) are, in effect, restricting consumer access to credit,
CUNA witness Doug Fecher is greeted by House subcommittee chairman Patrick McHenry (R-N.C.) before testifying on the problems credit unions face under increasinig regulatory burden. (CUNA photo)
credit union witness Doug Fecher warned that every dollar a credit union must spend complying with regulatory changes is a dollar it cannot spend to benefit its members.

Fecher is president/CEO of Wright-Patt CU, of Fairborn, Ohio, and represented the Credit Union National Association (CUNA) at the House Oversight and Government Reform Committee financial services subcommittee hearing Tuesday.

Fecher noted in his testimony that the 2010 Dodd-Frank Wall Street Reform Act charged the CFPB with reviewing all statutes and regulations that were placed by that law under the CFPB's jurisdiction, which Fecher said could result in hundreds of additional rule changes that credit unions could be required to address.

"This is why credit unions have a significant amount of anxiety with respect to the potential impact the bureau will have on their ability to serve and lend to their members," the CUNA witness told the House panel of lawmakers.

With due respect to the CFPB, Fecher added at one point, the regulator just "doesn't get it" regarding the burden and cost borne by credit unions due to increasing regulations.

He also noted that there is a significant amount of frustration within the credit union system with respect to further rules from the CFPB in response to the financial crisis because credit unions did not cause the financial crisis.

"(Credit unions) did not seek or receive any taxpayer bailout, and they did not engage in the type of activity that prompted the creation" of a bureau to protect consumers from abusive practices in the financial services arena, said the CUNA witness in his testimony.

Noting the CFPB's statutory authority to extend relief to credit unions and others from certain compliance responsibilities, Fecher said CUNA believes the bureau has more exemption authority than it has yet exercised.

"We are very concerned that the bureau seems to be picking and choosing when to use the statutory flexibility…The bureau's failure to use this authority as Congress intended may ultimately drive good actors out of markets, forcing consumers to do business with those entities that remain."

Fecher asked lawmakers to "aggressively urge" the CFPB to use its exemption clause so the weight of compounding rules "that are intended for abusers and the largest financial institutions" does not overburden credit unions and other smaller financial institutions.

Members of the subcommittee, including its chairman, Rep. Patrick McHenry (R-N.C.), repeatedly voiced concern during the hearing regarding the ability of credit unions and community banks to shoulder the ongoing and growing regulatory burden.

For example, Rep. Frank Guinta (R-N.H.), in an unusual move, drew attention to the plight of small financial institutions by quoting directly from CUNA testimony even before Fecher delivered his
The ranking member of the House Oversight subcommittee on financial services, Rep. Mike Quigley (D-Ill.), second from right, welcomes CUNA witness Doug Fecher while another witness--CFPB Director Richard Cordray, second from left,--looks on. (CUNA photo)
remarks.

CFPB Director Richard Cordray was the first witness at the hearing and he testified and answered lawmakers' questions for slightly more than two hours. Cordray noted a number times that credit unions and other smaller financial institutions merit a different regulatory approach than do big institutions.

Cordray said credit unions' knowledge of their members, or what he called a "high-touch" approach to credit allotments, distinguishes them and other small lenders from "volume-driven" lenders whose credit decisions are based more fully on straight statistics. The "high-touch" business approach may mean credit unions and other smaller institutions do not have to be subject to the same rules as "volume-driven" lenders, Cordray acknowledged.

Cordray noted a number of times that the bureau strives to work with small institution stakeholders and announced in response to a question that a CFPB credit union and community bank working group should be operative within a month.

Also testifying at the CFPB hearing were:  Mark A. Calabria, director of Financial Regulation Studies at the Cato Institute;  Steven I. Zeisel, executive vice president and general counsel of the Consumer Bankers Association; and,  Michael D. Calhoun, president of the Center for Responsible Lending.

CUNA's testimony also addressed regulatory issues such as the CFPB current efforts to integrate redundant mortgage disclosure requirements into a simpler disclosure form for consumers, remittance rules and a pending definition revisions for "Qualified Mortgages" that will determine proper underwriting standards for borrowers.

Use the resource link to read CUNA's complete written testimony.