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Inside Washington (09/14/2010)

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* WASHINGTON (9/15/10)--Nonbanks would be exempt from regulations proposed by the European Commission that would require financial institutions to route much of their trades through clearing houses, said Dow Jones (Sept. 14). The draft legislation, expected to be published today, would exempt the nonbanks if their trades do not pose systemic risk. The European Securities and Markets Authority and the European Commission will set the exemption’s threshold ... * WASHINGTON (9/15/10)--Arthur Lindo, chief accountant at the Federal Reserve, sought to relieve financial industry concerns that regulatory reform would lead to an excess of regulatory supervisors (Dow Jones Sept. 14). The Fed will attempt to coordinate activity with other agencies better than it has in the past, Lindo said at a conference in Washington, D.C. The Dodd-Frank Act would incorporate thrift holding companies into the Fed’s supervisory process. It also will supervise nonbank financial companies that are deemed systemically significant. Lindo said the Fed already has created a “cross disciplinary” team to monitor the institutions ...

Hyland urges due diligence diversity at CUs

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OXFORD, Ohio (9/15/10)--Speaking on Tuesday, National Credit Union Administration (NCUA) Board Member Gigi Hyland urged credit unions to continue their due diligence efforts and “actively monitor” their loan portfolios and collection efforts. Hyland, speaking before the seventh mid-sized credit union CEO conference, said that “the marketplace is still immensely challenging,” and credit unions need to keep their “proverbial ear to the ground” to assure that they are “responding to members' needs while executing sound, timely risk management practices.” Credit unions should also take a “fresh view” toward all of their business practices, including how member needs are addressed and how risk management is handled. Additionally, credit unions should examine their investments to ensure that the appropriate asset liability management triggers and controls are in place. Hyland noted that credit unions should be aware that the number of credit union members that declare bankruptcies in 2010 will likely exceed the prior year’s total, and credit union earnings have “reflected members’ struggles.” Hyland said that credit unions’ overall return on average assets (ROA) dropped to 0.41% during the second quarter, down from the 0.47% ROA recorded during the previous quarter. Still, credit unions’ aggregate net worth ratio “held steady” at 9.9%, she said. Hyland also called on credit unions to “explore new avenues to serve everyone within their field(s) of membership” and to assure that their “board, management and staff are as diverse, in age, gender and ethnicity,” as their membership. For the NCUA release, use the resource link.

CUNA strategists plot new course for MBLs

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WASHINGTON (9/15/10)--With the Senate on Tuesday failing to add legislation that would lift the member business lending (MBL) cap to a small business job creation package, Credit Union National Association (CUNA) President/CEO Bill Cheney said that credit unions “can and should continue to push” for lifting the cap in this and future legislative sessions. The small business job creation package, which, among other things, would create a $30 billion fund to encourage small banks to lend to businesses, will likely come up for a full Senate vote by the end of this week. Cheney said that CUNA will seek another legislative vehicle for an MBL amendment “or consider building support to move it as a stand-alone bill.” “In any event--we believe there may still be a chance for action, perhaps in a 'lame duck' session after the election,” Cheney added. Cheney and other CUNA representatives met with senior White House officials late last week to discuss the MBL issue. During that meeting, Cheney noted that America's 7,800 credit unions would “find it hard to understand" how the U.S. Congress could approve a $30 billion taxpayer expense to bolster flagging bank lending, but not let credit unions step in to help increase credit flow and job opportunities at no cost to the government. The Senate MBL legislation, which was introduced by Mark Udall (D-Colo.) earlier this year, would lift the current 12.25% cap on member business lending to 27.5% of a credit union’s assets. The MBL legislation, which has been supported by several in the House and Senate, as well as the Obama administration, would inject over $10 billion into the economy and create more than 100,000 new jobs in the first year following enactment.

FHFA compares credit quality at GSEs private entities

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WASHINGTON (9/15/10)--The Federal Housing Finance Agency (FHFA) released data on Fannie Mae and Freddie Mac that favorably compares the credit quality and performance of the loans they acquired to loans financed with “private-label” mortgage-backed securities (MBS). The data revealed that while 5% of fixed-rate and 10% of adjustable-rate mortgages acquired by Fannie and Freddie exceeded 90 days of delinquency, roughly 20% of fixed-rate mortgages and 30% of adjustable-rate mortgages financed by private labels were over 90-days delinquent. The FHFA found that 84% of the single-family mortgages acquired by Fannie and Freddie between 2001 and 2008 were made to borrowers with credit scores above 660, while 47% of loans made to MBSs were above that level. Loan-to-Value (LTV) ratios were 80% or lower for 82% of the loans acquired by Fannie and Freddie, while 66% of the loans financed by MBSs had ratios at or below that level. “A pattern of decreasing LTV ratios over time, most pronounced for loans financed with private-label MBSs, is consistent with the greater use of second liens to avoid mortgage insurance on low-down-payment mortgages, a practice that was increasingly common into 2007 and that contributed to the unusually poor performance of loans with low LTV ratios relative to past experience,” the FHFA added. For the full FHFA release, use the resource link.