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House exec comp bill would exempt some CUs

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WASHINGTON (7/29/09)--The House Financial Services Committee on Tuesday added an amendment that would take most credit unions out from under part of its executive compensation bill by exempting financial institutions with less than $1 billion in total assets from portions aimed at curbing some incentive-based compensation structures. This amendment, which was offered by Rep. Jeb Hensarling (R-Texas) early on Tuesday, was added to H.R. 3629, the Corporate and Financial Institution Compensation Fairness Act of 2009, which passed into the full House via a 40-28 committee vote. Sections of the bill which addressed incentive-based compensation would require financial institutions to disclose compensation structures that include any incentive-based elements. Portions of the legislation grant regulatory powers over any compensation structure or incentive-based payment arrangement that is determined to encourage inappropriate risks by financial institutions that could threaten the safety and soundness of a given institution or, more broadly, harm the economy as a whole. The National Credit Union Administration (NCUA) already has compensation regulations in place that are designed to prevent many risky compensation structures, and the Credit Union National Association (CUNA) has recently communicated this message to legislators. While an anticpated amendment that specifically would have exempted credit unions from portions of H.R. 3629 was not offered, credit unions would be shielded from the executive compensation legislation by the aforementioned exemption. Rep. Joe Baca (D-Calif.) did not offer his amendment because other amendments with similar protections for credit unions were added to the bill. After the committee vote, Baca said in a release that his amendment would have exempted credit unions because "I was concerned the legislation would force an unfair burden on innocent parties that had nothing to do with our current financial crisis." He added that he withdrew his amendment believing the Hensarling language was a "responsible compromise that would exempt smaller credit unions and financial institutions.” However, CUNA continues to work with legislators to try to secure a credit union-specific exemption added to the bill. Rep. Barney Frank (D-Mass.), who chairs the committee, offered a manager's amendment that excluded both entities that do not pay their employees through incentive-based compensation and so-called “smaller” financial institutions from some of the regulatory scrutiny proposed under the bill. According to Frank’s amendment, the Securities and Exchange Commission would have the freedom to determine what constitutes a small financial institution. The bill will now be considered by the full House, and it could be brought up for discussion as soon as this Friday.

Inside Washington (07/28/2009)

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* WASHINGTON (7/29/09)--The Federal Deposit Insurance Corp. (FDIC) has demonstrated that it is using some alternatives to resolve bank failures. Last week, the FDIC let a Georgia bank use the $300 million it raised from non-private investors to acquire six subsidies of Security Bank Corp. in Macon, Ga. All six subsidies had failed Friday. Over the weekend, a management team took control of 86% of Security’s assets and began operating all of the branches of the banks. The FDIC deserves credit for being innovative in a tough environment, according to Robert Hartheimer, a former FDIC director of resolutions (American Banker July 28). Private equity remains important for acquiring failed institutions, but FDIC officials appear hesitant to allow wealthy investors with little banking experience take over institutions. The FDIC has proposed restrictions on private-equity buyers, but the restrictions were criticized for being too tough. However, in the case of Security, financial observers anticipate that the bank may not be required to face the restrictions ... * WASHINGTON (7/29/09)--As the Treasury Department secures details for a plan to use Troubled Asset Relief Program (TARP) funds to buy Small Business Administration (SBA) loans, SBA lenders are trying to determine the best way to spend the $15 billion in funds (American Banker July 28). The money could be used to extend fee reductions, increase the guarantee limit, or guarantee increases in SBA’s 7(a) and 504 lending program, some lenders said. Another industry representative has proposed using the funds in a new program that could aid small businesses. The program would act as a “credit restart” and offer new loans to businesses behind on their payments. The loans could help the businesses become profitable again. The loans would carry a higher interest rate, and the Treasury could divide interest payments with the lender ... * WASHINGTON (7/29/09)--The Securities and Exchange Commission (SEC) Monday announced several actions to prevent abusive short sales. First, the SEC finalized an interim temporary rule that would reduce the potential for abusive, “naked” short-selling in the securities market by requiring broker-dealers to purchase or borrow securities to deliver on a short sale. Second, the SEC is working to make short sale volume and transaction data available through self-regulatory organizations’ website. Third, the SEC is planning a roundtable Sept. 30 to discuss securities lending, pre-borrowing and additional short-sale disclosures. The roundtable will consider the impact of a program requiring short-sellers to pre-borrower their securities, and adding a short sale indicator to the tapes to which transactions are reported for exchange-list securities. Naked short sales occur when an investor sells shares “short” without first having borrowed them. The sales are permitted because there is no legal requirements that a short seller borrow the shares before effecting a short sale, but such sales can be used to manipulate the market, SEC said ...

Aug. 24 comment deadline for premium 1 deposit rule

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WASHINGTON (7/29/09)—Comments must be submitted to the National Credit Union Administration (NCUA) by August 24 on a proposed clarification addressing the National Credit Union Share Insurance Fund (NCUSIF) premium and a one percent deposit. At its July 16 open board meeting, the NCUA proposed a rule to define how insurance premiums and deposit recapitalizations are calculated for only a portion of a year when a credit union either enters or departs the NCUSIF. The rule would cover such instances as when a credit union converts to or from private insurance in a year there is an NCUSIF assessment. It includes specific calculations for the assessments. The proposal amends the definition of insured shares to include shares that would have been insured by the NCUSIF if the institution had been federally insured on the date of measurement. There are also additional clarifications to distinguish premium assessments and assessments to replenish the one percent deposit. The Credit Union National Association (CUNA) will be seeking credit union comment on the NCUA plan. CUNA will issue a Comment Call later this week, with comments due August 16. Use the resource link below to read more about the NCUA plan in the Federal Register.

GAO Nonprime foreclosure pipeline still congested

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WASHINGTON (7/29/09)— About 1.6 million of the 14.4 million nonprime loans written from 2000 to 2007 completed the foreclosure process by March 31 of this year, according to a Government Accountability Office (GAO) study released Tuesday. The study, titled “Home Mortgages: Recent Performance of Nonprime Loans
Click to view larger image Source: GAO
Highlights the Potential for Additional Foreclosures,” also disclosed that of the 5.2 million of those 14.4 million nonprime loans that are still “active,” meaning they have not been prepaid or foreclosed, nearly 25% are seriously delinquent. The GAO defined “seriously delinquent” as either 90 or more days behind in payments or already in the foreclosure process. “As a result, hundreds of thousands of additional nonprime borrowers are at risk of losing their homes in the near future,” the report noted. The study reported that, within the subprime market segment, close to 28% of active loans were seriously delinquent, and within the active Alt-A segment, the serious delinquency rate was about 17%. GAO used the following general definitions: Subprime loans feature higher interest rates and fees and are generally made to borrowers who have tarnished credit histories; Alt-A loans are generally for borrowers whose credit histories are close to prime, but the loans have one or more high-risk features such as limited documentation of income or assets. In both those categories, those with adjustable rates were in the worst shape, the GAO reported, and acknowledged that California, Florida, Illinois, Massachusetts, Nevada, and New Jersey had the highest problem rates as of March 31. Use the resource link below to access the full GAO report.

Matz vote postponed for now

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WASHINGTON (7/29/09)--The confirmation of presumptive National Credit Union Administration (NCUA) agency head Deborah Matz on Tuesday was temporarily postponed after the Senate Banking Committee could not assemble the number of members needed to form a quorum. The committee had scheduled a discussion of Matz’s nomination to the NCUA board for Tuesday morning’s executive session, but the committee chairman, Sen. Chris Dodd (D-Conn.), put off the discussion after his committee did not have the number of senators needed to begin a vote. Sources close to the issue have told News Now that the delay is related to scheduling conflicts and that her expected confirmation is still on track. If confirmed, Matz will serve on the NCUA board for a second time. Matz gave an indication of how the board would function under her leadership in a nomination hearing held last week, telling legislators that she would maintain the "critical arms-length relationship" between a regulator and the regulated while ensuring that credit unions remained conscious of their commitment to consumer protection, member outreach, and financial education. It is not known when the committee will next discuss the nomination. However, while members of the House will likely leave for summer recess at the end of this week, the Senate is scheduled to remain in Washington through next week. Senate Banking Committee members could also vote on the Matz nomination if the chairman calls for a quorum and vote while the members are gathered in the Senate chambers for other official business. Matz's nomination, if approved by the committee, would move on to the full Senate for confirmation.