CONGRESS FOCUSES ON CORPORATE CU BAILOUT
WASHINGTON-The Senate Banking Committee, reflecting heightened congressional interest in the corporate credit union bailout, has set an unusual oversight hearing focusing solely on NCUA for this week.
The lone witness at the hearing will be NCUA Chairman Debbie Matz who has been asked to provide the Senate panel with details about the corporate bailout, currently estimated to cost CUs $16 billion. The hearing is unusual because it is rare for the head of a single agency, let alone NCUA, to appear solo before the Banking Committee, according to CU lobbyists.
Matz is expected to discuss the conservatorship of the five big corporates, the NCUA Guaranteed Notes program, the projected cost of the bailout, and NCUA's newly passed corporate regulations.
Still, Matz is expected to be greeted by a friendly panel which will be chaired by Tim Johnson, the South Dakota Democrat who sponsored Matz's nomination to the NCUA Board and is a long-time friend of the NCUA Chairman. Johnson is expected to take the chair next week as the current chairman Christopher Dodd of Connecticut, is making the rounds at retirement speeches.
NCUA HAS NEW OFFERING OF CORPORATE BAILOUT BONDS
WALL STREET-NCUA went to market recently followed by another $3.5 billion of corporate credit union bailout bonds last week, making a total of $16.5 billion to be sold over the past six weeks.
The bonds, known as NCUA Guaranteed Notes, will be a mix of floating-rate and fixed-rate issues and carried the guarantee of the federal government, like the other offerings.
The notes represent the cash flows, that is the interest and principal payments, of troubled mortgage securities held in the portfolios of the five corporate failures, U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. The actual mortgage securities will be continued to be held in trust by NCUA, meaning NCUA will continue to accrue losses on further deterioration of the collateral of the original securities.
Barclays Capital is the lead underwriter and co-underwriters are Citi, FTN, Sandler O'Neill and WFC. The notes are also available for credit unions through the U.S. Central-owned ISI Securities. This is the fourth offering of the corporate notes, following sales of $3.85 billion, $3.76 billion and $5.48 billion.
NAFCU: CU TAX EXEMPTION NOT PANACEA FOR FED BUDGET
WASHINGTON-President Obama's deficit reduction task force, better known as the National Commission on Fiscal Responsibility and Reform, formally unveiled its recommendations last week, and as was the case in the preliminary release of recommendations, the repeal of various tax exemptions, including those of credit unions, are included as a means of raising revenue for the federal government.
NAFCU President Fred Becker issued a statement in response urging the CU tax exemption remain. "We recognize the importance of the commission's objective to address the country's fiscal challenges by identifying cuts or modifications to federal programs, as well as revisions to the tax code," said Becker. "However, we take exception with the commission including the credit union tax exemption with other tax expenditures that could be eliminated. Since the adoption of the Federal Credit Union Act in 1934, Congress has recognized the unique role of credit unions in serving the needs of Americans who would not otherwise have access to low-cost financial services. Credit unions now serve 92 million members and employ thousands throughout our country, all of whom would suffer greatly if credit unions lost their tax exemption. In particular, America's military families depend on credit union products and services for their financial well-being. As Congress considers the commission's recommendations, we urge each lawmaker to ensure that the credit union tax exemption will not be altered in any way."
FDIC FOLLOWS THROUGH ON NEW OVERDRAFT GUIDELINES
WASHINGTON-Over strong opposition from community banks, the Federal Deposit Insurance Corp. has followed through on a new set of guidelines aimed at curbing abuse of automated overdraft programs. The new guidance, which was first issued in an August proposal that the agency left largely unchanged, calls on FDIC-supervised institutions to aggressively monitor use of overdraft programs to address situations of overuse. Institutions should take proactive steps to inform customers who overdraw their account six or more times in a year that they have less costly alternatives.
According to American Banker, an affiliate of CU Journal, the FDIC said it also expects institutions to cap daily overdraft use, and said banks should allow customers to opt out of overdraft transactions involving paper checks or automated clearing house transfers. Earlier rules from the Federal Reserve Board restrict overdraft programs for automated teller machines and point-of-sale transactions.
"While many community banks already prudently manage their overdraft programs, some banks operate automated programs that lead to excessive use of these high-cost, short-term credit products," FDIC Chairman Sheila Bair said in a press release. "When banks spot a pattern of excessive use of an automated overdraft program, they should contact their customers about a more appropriate and lower-cost alternative that better suits their needs."
But the community bank sector panned the earlier proposal, and industry representatives said the guidance could do more harm than good. They argued that monitoring will prove too costly, and consumers may ultimately get put off if their bank intervenes with their choice to use overdraft.