Washington Watch

Register now

NCUA'S INTEREST RATE PLAN SEEN AS RISKY BUSINESS

ALEXANDRIA, Va.-CU executives are panning NCUA's proposal requiring all adoption of an "effective" policy on interest rate risk, saying a one-size-fits-all policy could have unintended consequences and monitoring of interest rate risk can better be accomplished through the flexibility of the examination process.

"As proposed, we are confident the regulation has the potential to negatively impact credit unions and the share insurance fund through a false sense of confidence in measures without true value," Michelle Tygart, staff attorney for Public Service CU of Denver, told NCUA in a comment letter on the proposal.

"We believe that the assessment of interest rate risk is unique to every institution and must be evaluated based on their own complexity, capital and operations," commented Bill Urik, CFO for Minnesota's Affinity Plus FCU.

"Not only would this place undue burden on the credit union industry, it also forces credit unions to monitor the risk based on the required standards rather than the parameters appropriate for each individual credit union," wrote Kathy Guderian, Missoula FCU CFO.

"The proposed regulation appears to be a solution in search of a problem," commented Terrance Borreson, CFO at Arkansas FCU. "The NCUA does not have a very good track record, as demonstrated by the bailouts of the various corporate credit unions, and why would the implementation of a new regulation, administered by relatively inexperienced examiners, produce the results that should be expected from this regulation."

"A primary concern for us," wrote Clay Morgan, CFO for Shefield, Ala.'s Listerhill FCU, "is the unilateral authority inherent within the proposed rule making the field examiner the sole arbiter of what is 'effective' management of interest rate risk. We have previously received conflicting opinions from two separate examiners (both were Capital Markets Specialist) in our annual examination process from year to year about what makes up an appropriate and 'effective' program to manage interest rate risk."

"The determination of what constitutes an 'effective interest rate program' requires much subjectivity, and will, without a doubt, produce irreconcilable differences in opinion between credit unions and NCUA representatives," wrote Ricky McCormick, VP-finance for DuPont Fibers FCU, Chesterfield, Va.

Michael Daugherty, president of Community Plus FCU in Rantoul, Ill., warned of unintended consequences of the interest rate risk rule. "We fear that examiners will work from a checklist, and rather than determining if the credit union's program is adequate for its needs the examiners will instead just look to make sure they are addressing everything is on the list," he wrote.

 

GOP SENATORS NIX RECESS TO BLOCK CFPB APPOINTMENT

WASHINGTON-In an extraordinary gambit Senate Republicans held the Senate in session last week in order to prevent an expected appointment of consumer advocate Elizabeth Warren as director for the fledgling Consumer Financial protection Bureau.

By refusing to leave the Capitol for the Senate's annual Memorial Day recess the Senate minority was able to block a presidential recess appointment which would have enabled Warren to head the new agency without the necessary approval by the Senate. This week's special pro forma Senate session will consist of one or two senators gaveling open the Senate with no legislative work being conducted.

The GOP in both the Senate and House, with the backing of bank and CU groups, has waged a withering lobby against the new agency and Warren herself, who led a 10-year campaign against the banks and CUs over bankruptcy reform. The CUs and banks have also championed the GOP's legislative efforts to water down the new consumer agency.

Recess appointments are widely used by Presidents either as an emergency appointment to fill government positions or to bypass opposition in the Senate, which can block an appointment with just 41 votes. Nixing recess to avoid those appointments was a new gambit.

 

REGULATOR: 'EMPTY RETURNS,' SUNK GAMBLING-BACKED CU

WASHINGTON-Quoting a federal judge's own words, lawyers for NCUA said that once the Department of Justice seized the main account at Vensure FCU the CU had no assets to cover its only line of business, processing billions of dollars in online poker bets.

"Accordingly, the NCUA Board acted appropriately in placing Vensure into conservatorship once the Trinity account was seized and frozen pursuant to a civil action in the United States District Court for the Southern District of New York," lawyers for the Justice Department, who are representing NCUA, told the federal court.

The lawyers rebutted arguments by Vensure lawyers that the $4.7-million Mesa, Ariz., credit union was planning to supplement the millions of dollars in income from its gambling business with loans, deposits and other traditional CU activities, saying credit union officials had made those promises many times before but had never carried through.

But the most damning evidence submitted by the NCUA lawyers were statements made by U.S. Judge Rosemary Colleyer in the May 11 show cause hearing when the judge questioned whether the CU can support its claim that NCUA's April 15 conservatorship was arbitrary and capricious and thus, illegal.

At the hearing Judge Collyer said she believes NCUA gave Vensure ample notice of its concerns surrounding the gambling business and lack of a traditional loan plan and that Vensure did not take precautions for the possibility of losing access to its main account."It didn't happen because of NCUA," said Judge Colleyer. "It happened because of criminal enforcement of investigation."

A ruling in the case is expected soon.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER