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Inside Washington (07/27/2009)

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* WASHINGTON (7/28/09)--Federal Reserve Board Chairman Ben Bernanke defended the central bank’s actions during the economic crisis at a town hall meeting Sunday at the Federal Reserve Bank of Kansas City. Bernanke also expressed support for Congress to pass legislation that would create a bankruptcy process for big financial firms (American Banker July 27). He criticized the proposed consumer protection agency under President Barack Obama’s regulatory reform plan, saying that the Fed and other agencies would have their oversight powers taken away. Jim Lehrer of PBS, who moderated the town hall, asked Bernanke if he supported the agency. Bernanke said he neither favored nor opposed it. Bernanke’s term as Fed chief is set to expire in January, and it is not known if Obama will nominate him for a second term ... * WASHINGTON (7/28/09)--Treasury Secretary Timothy Geithner told the House Financial Services Committee Friday that he thinks the Obama administration “got it right” in creating the proposed regulatory reform plan. Under the plan, the Federal Reserve Board would receive systemic risk oversight, and banking regulators would be stripped of their consumer protection oversight in favor of a new agency. Those ideas have been heavily criticized by the financial industry. Several hearing participants, including Reps. Mel Watt (D-N.C.) and Carolyn Maloney (D-N.Y.) raised concerns about consumer protection examinations and stripping bank regulators of consumer protection powers, but Geither did not back down. Geithner said he understood the consumers that had been raised, but was confident that the plan had struck “the right balance” (American Banker July 27) ... * WASHINGTON (7/28/09)--The Federal Reserve Board has begun a study of household finances to update data collected at the outset of the economic downturn in late 2007. The 2009 Survey of Consumer Finances will attempt to re-interview 4,422 participants from the 2007 study. It aims to gather a detailed picture of the financial and economic problems of the past two years on households and their finances. The study will be conducted by the National Opinion Research Center. Data collection started Saturday and will continue through Dec. 31 ...

Frank is confident of reg reform in 2009

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WASHINGTON (7/28/09)—Rep. Barney Frank (D-Mass.) reiterated Monday
House Financial Services Committee Chairman Barney Frank (D-Mass), shown here addressing CUNA's 2009 Governmental Affairs Conference, says the goal of financial regulatory reform is to support innovation but curb abuses. (CUNA photo)
that he is confident the House will approve a financial regulatory reform bill and pass it on for Senate consideration by October, and President Obama will sign it by yearend. He said the goal of the reform package is to provide an environment in which financial innovations flourish, while eliminating excessive risk and consumer abuses. Frank was addressing a luncheon gathering at the National Press Club here. The Credit Union National Association was in attendance. He denied there is any validity to the arguments of those who question his projected time frame that other huge issues facing the U.S. Congress—such as health care reform, carbon emissions legislation and more—make it unlikely, if not impossible, to successfully tackle financial regulatory reform in 2009. “These are not in conflict,” Frank said both in his prepared remarks and in response to a later question. He is chairman of the House Financial Services Committee. Frank added that “nothing is retarding our efforts” to address the financial industry and he called the effort by legislators “essential.” Frank opined that the nation is experiencing now a cycle that has repeated in the country’s history where innovation outstripped regulatory structure and adjustment became necessary to restore a balance. “Rules provide a framework so this wonderful capitalist system can move forward,” Frank said. He said the goal of the congress’ current effort is to allow innovation yet curb abuses. Among his goals, Frank said a new regulatory regime should:
* Re-introduce a structure in which regulators cannot deflect their responsibilities as overseers; * Place limits on securitizations by requiring some retention of risk; * Set leveraging maximum; * Contain derivatives; and * Protect consumers.

CUNA shows real-world interchange impact to Hill staff

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WASHINGTON (7/28/09)--Cynthia Prestandrea of Prince George's Community FCU told representatives of congressional conservative “blue dog” Democrats that income from interchange fees is pivotal to the “survival” of her credit union. She was representing the Credit Union National Association at the briefing. Prestandrea, who currently serves as CEO, said that interchange fees represent 21% of the income collected by her $100-million-in-assets, Maryland-based credit union. Interchange income helps her credit union handle routine business expenses and allows her credit union to compete with the largest financial institutions, which have far greater resources, “on a daily basis,” Prestandrea added.
Click to view larger image Prince George's Community FCU CEO Cynthia Prestandrea (shown here with attorney Mike McEneny of the Electronic Payments Coalition) makes her case for continuing to allow the free market to set interchange fees. She told "Blue Dog" Democrats that interchange fees provide 21% of the income to Prestandrea's credit union, which holds $100 million in assets. (CUNA photo)
Eliminating or significantly reducing interchange fees, as discussed in some recent proposed legislation, would result in higher member fees for financial services and “would have a significant impact” on her credit union’s ability to offer members a debit card attached to their checking account. An inability to offer debit cards attached to checking accounts would essentially render her credit union obsolete, Prestandrea said. Attorney Mike McEneny, who spoke on behalf of the Electronic Payment Coalition, said that altering the structure of interchange fees could ultimately result in reduced credit availability and higher costs, two outcomes that would adversely impact both individual consumers and the economy at large. 7-Eleven is one merchandiser involved in the interchange fee debate, and it is looking to send a message about government limits on interchange fees to the credit card industry and legislators by using its 6,300 stores to attempt to collect 1 million customer signatures by August 10. Though the House and Senate legislation that would allow merchants to renegotiate interchange fees with financial institutions has not seen much action recently, the legislation has not been abandoned. H.R. 2695, the "Credit Card Fair Fee Act of 2009," offered by Reps. John Conyers, Jr. (D-Mich.) and Bill Shuster (R-Pa.), would permit merchants to negotiate interchange fees with financial institutions via an antitrust exemption. Sen. Richard Durbin (D-Ill.) in early June introduced S. 1212, The Credit Card Fair Fee Act, which would establish a panel of three Electronic Payment System Judges to intervene in disputes between card service providers and merchants regarding fees set for use of the electronic payments system. There was speculation that Durbin would attach the bill to the Financial Services Appropriations Act for fiscal year 2010, which was approved earlier this month, but that legislation was not included in the final appropriations bill. However, Durbin has consistently stated his intent to take action on the interchange issue. CUNA has recommended that legislators wait for the results of a Government Accountability Office review of interchange fees before they act.

Congress NCUA confirmation exec comp vote on calendar

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WASHINGTON (7/28/09)--The dominant issue on the Hill this week for credit unions is the ongoing confirmation of Deborah Matz as National Credit Union Administration (NCUA) board member and, perhaps, as Chair. Debate on the Matz nomination will begin again this morning, with the Senate Banking Committee meeting in executive session. Matz's nomination should move on to the full Senate for confirmation following this executive session. The first round of Matz’s nomination hearings took place last Wednesday. H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009, is one of many items on the House agenda for what is expected to be its final week before its summer recess. House Financial Services Committee chair Rep. Barney Frank (D-Mass.) has scheduled a committee markup of that legislation for today at 10 a.m., and the bill could be discussed by the full House on Friday. The Credit Union National Association (CUNA) recently communicated its desire for credit unions to be excluded from this legislation, which would seek to curb some compensation structures that promote risk-taking by financial executives, by touting the non-profit, cooperative operational motives of credit unions in a letter sent to Frank and Rep. Spencer Bachus (R-Ala.). The House later today is also expected to consider under suspension of the rules H.R. 3330, which was introduced late last week by Rep. Steve Dreihaus (D-Ohio). This legislation would provide for "more effective" reviews of losses in the Deposit Insurance Fund and the National Credit Union Share Insurance Fund by the Inspectors General of the several banking agencies and the NCUA Board. CUNA is evaluating this legislation.