Credit Unions Building Relationships with Congress

Hike at Home, ScottOn Thursday, August 11th credit union advocates sat down with Congressman Austin Scott (R-8), the freshman Congressman from the middle Georgia area, at a Hike at Home meeting. This meeting provided a perfect opportunity to discuss credit union issues at his district office in Warner Robins during the August recess, and an ideal time to share the credit union message with the new elected official. The group demonstrated the unique facets of credit unions, their not-for-profit cooperative structure, and the benefits that the industry provides to 1.87 million Georgians.

The group utilized this opportunity to push for increased member business lending authority, sharing the history of the 12.25 percent of assets cap, and how the increase to 27.5 percent could benefit consumers across the country providing up to $13 billion to small businesses and 140,000 new jobs. Credit unions nationwide are meeting with legislators during this recess to urge Congress to move the MBL bills forward (S. 509 and H.R. 1418). To share this message with your Congressman, please click here.

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Washington, D.C. News

Credit Unions Building Relationships with Congress
Future of Fannie & Freddie? Proposal in Works
Sen. Rubio Introduces Bill to Block Nonresident Alien Reporting Proposal
CFPB Asked to Minimize Credit Union Reg Burden
Senate to Consider Patent Reform Bill After Recess
Congress' Disapproval Rating Hits Record 82 Percent
Joint Deficit Super-Committee Formed
S&P Downgrades Fannie, Freddie Ratings, NGNs to AA+

State News

Special Session Tackles Redistricting
Credit Unions Meet with House Banking Leader

Industry News

MasterCard Shares with CUs Interchange Structure Plans
Agencies Explain Impact of S&P Action on Risk-Based Capital
How Stock Market Woes May Impact CUs

Public Influence News

Invest in America Wins Award for Outstanding Program
Banks Not Doing Enough Small-Biz Loans
State Winners of Industry Awards
CUNA Analysis in The Street: No Housing Turnaround Soon

News of the Competition

Banks in Georgia Get a Congressional Hearing; Some Say Tough Rules Hinder Recovery
Wells Fargo Tests $3 Debit Card Fee in GA
Bank Stocks Plunge
A.I.G. to Sue BoA Over Mortgage Bonds
BoA & Wells Economists: Another Recession Possible
Banks Increase Lending

August 19, 2011

 
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Georgia Credit Union Affiliates

AMERICA'S CREDT UNIONS

Extend the Reach of Creating Influence

Stay on top of what's happening with credit union advocacy by reading Creating Influence, the Georgia Credit Union Affiliates' advocacy e-newsletter! If you’d like to be added to the distribution list, email Advocacy@gcua.org or call an Advocacy Team member – Cindy Connelly, Mike Culbertson, Anita Paul or Brandee Bickle – at 800-768-4282.

 Washington, D.C. News
 
Hike at Home, Scott
From left: Eric Bobo, MidSouth Community FCU; Christina O’Brien, Robins FCU; Cheryl Spires, Combined Employees CU; Jerry Jordan, CGR CU; Dee Dee Côté, Robins FCU; Brad Hamlin, HEA FCU; Cindy Connelly, GCUA; Martha Burke, HEA FCU; Chad Layfield, MidSouth Community FCU, and Congressman Austin Scott.
Credit Unions Building Relationships with Congress

On Thursday, August 11th credit union advocates sat down with Congressman Austin Scott (R-8), the freshman Congressman from the middle Georgia area, at a Hike at Home meeting. This meeting provided a perfect opportunity to discuss credit union issues at his district office in Warner Robins during the August recess, and an ideal time to share the credit union message with the new elected official. The group demonstrated the unique facets of credit unions, their not-for-profit cooperative structure, and the benefits that the industry provides to 1.87 million Georgians.

The group utilized this opportunity to push for increased member business lending authority, sharing the history of the 12.25 percent of assets cap, and how the increase to 27.5 percent could benefit consumers across the country providing up to $13 billion to small businesses and 140,000 new jobs. Credit unions nationwide are meeting with legislators during this recess to urge Congress to move the MBL bills forward (S. 509 and H.R. 1418). Call to actionTo share this message with your Congressman, please click here.

For those whose Congressmen have already signed on to the bill, the message will automatically change as one of thanks for their support of MBL, a message that is equally important as the one they are hearing from those against the bill. Those Georgia Congressmen who have signed on to support the credit union industry’s efforts to increase MBL are: Reps. Sanford Bishop (D-2), Hank Johnson (D-4), John Lewis (D-5), and Rob Woodall (R-7). Reach out to your Congressman today, and share this message with your fellow advocates at your credit union!

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Fannie and Freddie logosFuture of Fannie & Freddie? Proposal in Works

On August 15th, The Washington Post reported that President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers. The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government’s role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions.

A decision to preserve a major government role would mark a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled. The proposal is likely to draw criticism, and many economists consider the federal role harmful to the free market. But if this approach became law, it probably would keep in place the kind of popular home loans that have been around for decades – 30-year fixed-rate mortgages with relatively low interest rates. The government could maintain a substantial role in various ways:

  • These include restructuring Fannie and Freddie as public utilities overseen by a government regulator. The government would no longer guarantee their financial health, as in the past, but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.

  • Or the two companies could be shut down and replaced with several successors that, likewise, would have their mortgage-backed securities guaranteed by the government in exchange for a fee. A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates.

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Sen. Rubio Introduces Bill to Block Nonresident Alien Reporting Proposal

On Tuesday, August 2nd, Sen. Marco Rubio (R-Fla.) introduced a bill (S. 1506) that would prevent the Internal Revenue Service from expanding financial institution reporting obligations by issuing a proposed rule requiring financial institutions to report annually deposit interest paid to any nonresident alien individual. Sens. John Cornyn (R-Texas) and Kay Bailey Hutchison (R-Texas) are original co-sponsors of the legislation. Rep. Bill Posey (R-Fla.) in July introduced a similar bill (H.R. 2568) in the House.

In a follow-up to this legislation, credit union and bank trade groups issued a joint letter urging senators to support the legislation. The letter mentioned that the proposal would provide no financial benefit, since such interest paid to nonresident aliens is not subject to tax here, but that it could drive away deposits that support economic growth. The groups also noted that deposit interest data is already available to other countries on an as-requested basis, and that the IRS proposal, which provides for automatic exchange of the data, “goes further than needed for the purposes of international cooperation.” The groups signing the letter were CUNA, American Bankers Association, Financial Services Roundtable, Independent Community Bankers of America, and National Association of Federal Credit Unions.

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CFPB Asked to Minimize Credit Union Reg Burden

RulesAs Richard Cordray prepares for his Sept. 6 nomination hearing before the Senate Banking Committee, CUNA President/CEO Bill Cheney urged the candidate for Consumer Financial Protection Bureau (CFPB) director to "consider ways in which the Bureau can help minimize regulatory requirements for credit unions and other financial institutions." Cordray, who has been serving as the CFPB's assistant director for enforcement and has also served as the attorney general of Ohio and that state's treasurer, was announced as President Barack Obama's nominee for CFPB director last month.

CFPB architect Elizabeth Warren recommended Cordray for the post, noting last month that he "has a proven track record of fighting for families during his time as head of the CFPB enforcement division, as attorney general of Ohio, and throughout his career" and will be "a strong leader" for the CFPB. Cheney in the letter also encouraged the CFPB to establish an Office of Regulatory Burden Monitoring to help the agency "track, consider, and help mitigate the cumulative regulatory burden under which credit unions and others must operate."

The CFPB's process for revising and combining Truth-in-Lending-Act and Real Estate Settlement Procedures Act forms in to a single mortgage disclosure reflects a "positive, useful approach" to working with stakeholders, and Cheney said that the CFPB should use similar processes in its future rulemaking projects. The CFPB last week completed the third of five separate mortgage disclosure comment rounds. The agency is planning to release a final version of its single draft disclosure later in the year.

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Senate to Consider Patent Reform Bill After Recess

The Senate will begin consideration of the House-passed patent reform bill (H.R. 1249) immediately after it returns from August recess, Senate Majority Leader Harry Reid (D-Nev.) said on August 2nd. The legislation includes credit union-supported provisions – known as Section 18 – that would establish a process to review the validity of overly broad business-method patents as an alternative to costly litigation.

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RatingsCongress' Disapproval Rating Hits Record 82 Percent

A record 82 percent of Americans disapprove of the way Congress is handling its job following the debt- ceiling debate, according to a New York Times/CBS poll. It was the highest disapproval rating since the poll began asking the question about congressional job performance in 1977. Eighty-two percent of people surveyed said the debt-ceiling debate was more about gaining political advantage than about doing what is best for the country. Seventy-one percent said the debate harmed the image of the United States in the world. Read more.

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Joint Deficit Super-Committee Formed

On August 11th, the final three slots on the joint deficit committee were filled, and none of the Georgia delegation is included among them. This 12-member panel must turn in its recommendations for $1.5 trillion in additional spending cuts by Thanksgiving or risk pulling an automatic trigger for deep reductions to federal agencies and defense programs. To learn more about the 12 members who are tasked with this role, please click here for the August 12th Washington Post article.

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S&P Downgrades Fannie, Freddie Ratings, NGNs to AA+

The S&P downgraded the credit rating for government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac on August 8th, as well as the ratings applied to NCUA’s Guaranteed Notes (NGN), to AA+ from AAA. The NGN downgrade impacts all NGNs issued by the agency. NGN sales netted a total of $50.5 billion to fund the resolution of troubled corporate credit unions. These investments received a zero risk weight due to their federal government backing. This follows the S&P cut to the U.S. government's credit rating to AA+ on August 5th, saying that the recently approved deficit reduction plan didn't do enough to re-insert stability in the country's debt situation. Government debts and securities were downgraded. S&P said that the GSE downgrade was tied to Fannie and Freddie's "direct reliance" on the U.S. government. The GSEs have been held under U.S. government conservatorship since 2008.

Capitol with dark cloudsAnother credit rating agency, Fitch Inc., late last month said that Fannie Mae and Freddie Mac will require continued capital injections from the Treasury Department to avoid being unwound. CUNA Chief Economist Bill Hampel said that the downgrade on U.S. Treasury securities has had no impact on Treasury interest rates, "and as long as that is the case, there would appear to be little if any impact on Fannie, Freddie or other agency debt." Finance industry representatives recently urged the government to transition away from Fannie Mae and Freddie Mac during a Senate subcommittee hearing, but legislation to create a new mortgage finance system is unlikely.

However, legislation that would require the director of the Federal Housing Finance Agency to determine which valuable assets held by the GSEs are critical to their mission and to force them to sell or dispose of non-critical assets, has been discussed. That bill, known as the Market Transparency and Taxpayer Protection Act (H.R. 2440), was introduced by Rep. Robert Hurt (R-Va.) and passed out of the House Financial Services subcommittee on capital markets and government GSEs via a voice vote early last month. The subcommittee during that hearing also voted to approve the Fannie Mae and Freddie Mac Transparency Act (H.R. 463); The Fannie Mae and Freddie Mac Taxpayer Payback Act (H.R. 2436); The Housing Trust Fund Elimination Act (H.R. 2441); Cap the GSE Bailout Act (H.R. 2462); Eliminate the GSE Charter During Receivership (H.R. 2439); and the GSE Legal Fee Reduction Act (H.R. 2428). Fannie Mae reported $2.9 billion in losses during the recently ended second quarter of 2011.

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State News
 

Georgia HouseSpecial Session Tackles Redistricting

What has been hovering over the elected officials like a cloud since the session ended in April commenced on August 15th for redistricting, when the state legislature reconvened in the special session to redraw the Congressional and state Senate and House district maps. Lawmakers have been in debate throughout the summer on what communities they should represent, and this topic is contentious as several of the incumbents would be “drawn out” of a district and would run against another incumbent based on the first draft of the maps. The state House and Senate district maps moved ahead quickly, passing out of committee as of August 16th and out of the House and Senate on August 18th. The next task at hand will be drawing the 14 Congressional seats, which will be even more contentious as multiple factions weigh in with their opinions on how the maps should be drawn. Stay tuned!

Redistricting happens at least once every 10 years after the release of data from the U.S. Census Bureau, and is hugely important to elected officials as the slightest change in district lines has the potential to sway an election. The agenda for the session otherwise is under strict control by Governor Nathan Deal, who has on his agenda to change the date of regional transportation referendums and to suspend an increase in the Georgia gas tax. Otherwise, only local legislation of “an urgent nature” would be considered, and no floor votes can be taken on any bill that is not a part of the announced agenda.

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Hike at Home, Morris
From left: Brandee Bickle, GCUA; Louis Kennedy, Fulton Teachers’ CU; State Rep. Greg Morris, and Julianna McConnell, GEMC FCU
Credit Unions Meet with House Banking Leader

On August 18th House Banks and Banking Chairman Greg Morris met with credit union advocates at a Hike at Home meeting during the Special Session. Rep. Morris has a direct impact on what state legislation is moved forward from the committee. This meeting was utilized to strengthen the relationship and broaden his understanding of the credit union industry.

Financial issues are of interest to Rep. Morris, as he is a current bank director. However, he hails from a district without a large credit union presence, with only 3,100 members in his district from credit unions nationwide, and no branches in his area. This group strengthened his understanding of all the benefits and services that credit unions provide to members across the state. Our thanks go out to these individuals, as well as all of the previous Hike participants who have shared their time at these Hike meetings for the entire industry. More Hikes are pending throughout the year. When one comes to your area we encourage you to participate!

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Industry News
 

MasterCard Shares with CUs Interchange Structure Plans

MasterCard plans to implement a two-tiered debit interchange fee structure, and currently plans to keep its existing market-based rate structure in place for credit unions and other financial institutions with under $10 billion in assets, MasterCard Global Head of Public Policy Shawn Miles said during an August 18th conference call. Miles added, however, the rates are subject to change based on market forces and will be finalized in a few weeks and announced prior to October 1st. The call was presented by MasterCard and CUNA.

The Fed's final debit interchange rule caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents, and allows an additional five basis points of the value of the transaction to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with Fed-established fraud prevention standards. Credit unions and other institutions with under $10 billion in assets are exempt from the rule. Highlights from the call:

  • MasterCard plans to establish its own online debit interchange registration system for its member institutions to denote whether they are above or below the $10 billion-asset threshold, and is planning to include in the registry the ability for institutions above $10 billion in assets to certify that they qualify to receive the extra penny for complying with fraud prevention standards.

  • MasterCard and CUNA will both monitor merchants for any signs that they are steering consumers away from using debit cards issued by institutions that are not subject to the cap.

  • A mechanism is being developed by CUNA for credit unions to report illegal merchant steering behavior.

The MasterCard representative thanked credit unions for their efforts to delay and change the debit interchange fee cap legislation, and said that the final rule was significantly improved due to this work.

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Agencies Explain Impact of S&P Action on Risk-Based Capital

After Standard & Poor's (S&P) rating agency lowered the long-term rating of the U.S. government and federal agencies to AA+ from AAA, the federal credit union, bank, and thrift agencies issued guidance to their regulated financial institutions. NCUA, Federal Reserve Board, FDIC, and Office of the Comptroller of the Currency said:

“For risk-based capital purposes, the risk weights for U.S. Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board's Regulation W, will also be unaffected.”

The joint-agency announcement was spurred by the widely reported action by S&P, which cut the long-term U.S. credit rating by one rank. The agency said it made the cut because the recently approved deficit reduction plan didn't do enough to re-insert stability in the country's debt situation. MSNBC reported that while U.S. Treasury securities were once regarded as the safest investment in the world, they now will be rated lower than bonds issued by such countries as the United Kingdom, Germany, France and Canada. The deflated rating also could increase borrowing costs across the spectrum – for the U.S. government, for companies and for consumers.

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Market woesHow Stock Market Woes May Impact CUs

The recent stock market woes, the worst decline in nearly two years, could affect credit unions and their members. The Standard & Poor's 500 Index fell to 1,199.38, down 7.2 percent from the previous Friday's close, its worst week since November of 2008 (MarketWatch Aug. 5). Many analysts said the dive was due to the failure of policymakers to stabilize financial markets and investors crumpling under the strain of a worldwide economic slowdown (The Wall Street Journal Aug. 5). From a credit union perspective, the volatility in the stock market is highlighted in the below three questions:

  • What is the consumer-confidence effect of the market plunge on credit union members?
    "A little bit more than half of U.S. households have a direct or indirect interest in the stock market," Mike Schenk, vice president of research and statistics for CUNA. "The stock market going down affects net worth, consumer sentiment and the willingness and ability to spend money." Historical data indicate that in situations similar to what happened last week people react with a lag and basically sell on the bottom – precisely when they shouldn't be selling. "Usually the consequence is you see flight-to-safety flows, and that should cause demand for savings balances to go up at credit unions, and also banks," Schenk said.

  • Will a declining stock market impact credit unions' pricing on loans and deposits?
    Deposit pricing keys off the Fed Funds rate, which was near zero on Friday to begin with, Schenk said. "At least one bank is charging customers for deposits – that basically is a negative interest rate in which customers are paying banks to take their money," he explained. "No credit unions are doing this that we know of. However, it is conceivable that credit unions that have seen really fast deposit growth may try to limit deposit growth in the current environment," Schenk added. "Some credit unions that have already experienced fast deposit growth have seen net-worth ratios decline, and they may drop pricing even closer to zero." Although Schenk doesn't expect drastic changes in loan pricing by credit unions, mortgage loan pricing is determined by the secondary market and is near historic lows. Therefore, credit unions involved in mortgage lending will drop their rates, or ignore rate declines and basically originate mortgages for a short period of time or else significantly curtail mortgages, he said.

  • Should credit unions do anything right now in response to a large stock market tumble?
    "It's unwise to assume that this is the new normal," Schenk said. "There's a lot of uncertainty in the marketplace, but a lot of it has declined recently – more stability in the Middle East, fewer weather-related disasters, and the Japanese manufacturing supply disruptions have worked themselves out. "Our [CUNA's] baseline view is that this is likely to be an extended soft patch – a slowdown in the middle of a sustainable economic recovery."

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Public Influence News
 
Invest in America Wins Award for Outstanding Program

In just a few years, Invest in America (IIA) has made a notable impact on the credit union industry. In recognition of this innovation and its positive effects on the credit union industry, the National Credit Union Foundation (NCUF) recently announced Invest in America as the winner of the 2012 Herb Wegner Memorial Award for Outstanding Program. This will be one of three Herb Wegner Memorial Awards presented at a special dinner hosted by the National Credit Union Foundation (NCUF) at the Grand Hyatt Washington during the Credit Union National Association’s 2012 Governmental Affairs Conference.

Invest in America logoBy participating in Invest in America, members save money on everyday purchases and credit unions increase loans, income and member loyalty, while credit unions and their members simultaneously support American companies. Through IIA, credit unions can band together to promote and support not only their own products and services, but also those offered by collaborative American-based companies, such as General Motors (GM) or Sprint. Credit union members are given discounts by the companies, which in turn drives DRIVES membership growth and loyalty. Invest in America has since grown to also become an enhancement program helping credit unions to add vehicle loans, increase debit/credit card transactions/balances and provide non-interest income opportunities. Nearly 3,000 credit unions nationwide, representing more than 70 percent of credit union members, now support Invest in America.

To learn more about how your credit union can participate in Invest in America, visit www.gcua.org and click the Invest in America icon, or contact Liz Lewis.

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Banks Not Doing Enough Small-Biz Loans

CUNA says that small-business lending statistics indicate banks are not doing enough lending to help small-business owners, according to an August 11th article in The Wall Street Journal. "Banks have requested less than $12 billion of the $30 billion made available by the last year's Small Business Jobs Act, the Treasury Department has said," wrote Emily Maltby in the article. "The government program offered low-interest funds to community banks so that they could boost small-business lending."

Wall Street Journal mastheadThe amount banks are lending is not sufficient, CUNA says. "Congress last year gave the banks $30 billion to make small business loans, but the banks' response has been tepid at best," Bill Cheney, CUNA president/CEO, told the Journal. "Credit unions don't need $30 billion in government assistance. We're just trying to raise a lending cap in the law that's arbitrary and outdated."

Credit unions are pressing Congress to increase credit unions' member business lending (MBL) cap to 27.5 percent of assets from 12.25 percent. Doing so would open up more opportunity to offer MBLs, inject $13 billion in loans into the economy and create as many as 140,000 new jobs, with no cost to taxpayers, CUNA said. The article mentioned that Lister Hill CU in Muscle Shoals, Ala., and Provo (Utah) Postal CU had to turn down loans to small businesses because they were too close to the federally mandated MBL cap.

CUNA shared the article with House and Senate congressional offices, accompanied by a message from Cheney, noting "how credit unions can help small businesses create new jobs at no cost to taxpayers. Sen. Mark Udall (D-Colo.) and Rep. Ed Royce (R-Calif.) have introduced legislation, S. 509 and H.R. 1418, to help small businesses, and we encourage your member to show support by co-sponsoring this legislation."

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State Winners of Industry Awards

Social responsibility and financial education are tenets of the credit union philosophy. Each year, credit unions throughout the state and across the country compete in the annual industry awards to acknowledge efforts to impact communities in a positive way. This year, the Georgia Credit Union League is pleased to congratulate the following credit unions for their outstanding work to further the mission of credit unions – to become the premier financial services providers in the state.

Dora Maxwell Award logoDora Maxwell Social Responsibility Community Service
This contest recognizes model credit union efforts to strengthen local institutions and materially improve the lives of nonmembers through community outreach. Congratulations to the following winning credit unions in the state:
1st Choice Credit Union (Atlanta) – $20 - $50 million, First Place
Health Center Credit Union (Augusta) – $20 - $50 million, Second Place
Credit Union of Atlanta – $50 - $100 million, First Place
United 1st Federal Credit Union (St. Marys) – $100 - $200 million, First Place

Desjardins Award logoDesjardins Youth and Adult Financial Education
The Desjardins awards recognize model credit union efforts to teach personal finance concepts and skills to members and nonmembers. Credit unions are mostly familiar with the Desjardins Youth Financial Education award, focused on programs for children. This year, a category was added for Adult Financial Education for programs targeting members and nonmembers age 18 and older. The adult award complements the well-established youth award, and brings all personal finance education activities under the Desjardins umbrella. Congratulations to the following winning credit unions in the state:

Youth Financial Education:
DOCO Regional Federal Credit Union (Albany) – $50 - $150 million, First Place
United 1st Federal Credit Union (St. Marys) – $50 - $150 million, Second Place

Adult Financial Education:
Credit Union of Atlanta – $50 - $150 million, First Place

The programs that these credit unions implement are a testament to the outstanding work that credit unions across Georgia perform. State winners have progressed to the national competition, where entries will compete among those of credit unions from other states in the same asset class. State winners will be acknowledged at the 2012 GCUA Annual Convention and national winners will receive recognition at the 2012 CUNA Governmental Affairs Conference (GAC).

Congratulations to all Georgia credit unions that submitted entries this year.

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CUNA Analysis in The Street: No Housing Turnaround Soon

With potential home buyers remaining cautious, home inventories staying high and building activity still sluggish, the housing market won't recover anytime soon, according to analysis provided by CUNA's senior economist for The Street.com.

Mike Schenk, CUNA's vice president of economics and statistics, told the publication the current homebuilding level is "severely depressed." According to data released Tuesday, July housing starts were at a seasonally adjusted annual rate of 604,000. He that as far back as the 1960s, annualized historical housing starts have averaged about 1.5 million. July's rate was around 10 percent higher than levels from a year ago. "Unfortunately none of the data we see suggest that there will be a significant turnaround anytime soon," he told the publication.

"While mortgage interest rates are near all-time lows and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected" and permit activity "suggests very little new construction on the horizon," Schenk said. He expects softness in the housing market to persist. He attributed the housing market weakness to "extreme and prolonged weakness in labor markets." The true unemployment rate, which includes the underemployed and part-time workers looking for full-time work – is near 16 percent, he said. The glut of empty homes on the market totals about two million homes, while "shadow inventory," or homes kept off the market because they likely won't sell, adds another two million to 2.5 million vacant homes. Significant foreclosure activity also is working through the system, "all of which bodes ill for the notion of a quick housing market recovery."

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News of the Competition
 

Banks in Georgia Get a Congressional Hearing; Some Say Tough Rules Hinder Recovery

The House Subcommittee on Financial Institutions and Consumer Credit met on August 16th in Newnan to discuss the high rate of bank failures in Georgia and across the country and how the policies and practices of the FDIC and other federal regulators may have affected those failures. Congressman Lynn Westmoreland (GA R-3) hosted the hearing, and was joined by Committee Chairman Spencer Bachus (AL-06), Subcommittee Chairwoman Shelley Moore Capito (WV-02), and Congressman David Scott (GA D-13).

Testimony was offered by two panels. The first comprised federal regulators from the FDIC, the Office of the Comptroller of the Currency (OCC), and the Federal Reserve. The second panel was composed of bankers from across Georgia. The federal lawmakers noted they brought the hearing to Georgia because they felt it was the epicenter of the banking crisis, where 67 banks have failed since 2008 and nine other states have had more than 10 bank failures over the same time. The legislators questioned whether lax banking regulations before the housing crisis and now regulator crackdown has unfairly punished community banks and slowed the industry’s recovery. Most of Georgia’s failed banks are small community institutions that lent to developers in a white-hot real estate market.

More than 100 people – mostly bankers, homebuilders or regulators – attended the hearing. Bankers, spoke of “mixed messages” from regulators, especially when it comes to helping distressed borrowers. Regulators, however, said their practices are designed to return the industry to health so that banks can help fund an economic rebound. Westmoreland and Scott are co-sponsoring a bill (H.R. 2056) to require the inspector general of the FDIC and the nonpartisan Government Accountability Office to examine enforcement practices and sales of failed banks to healthy rivals. The bill has passed the House and is awaiting action in the Senate. To read more about the hearing, click here.

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Wells Fargo Tests $3 Debit Card Fee in GA

On August 16th, the Atlanta Business Chronicle reported that Wells Fargo customers in Georgia will pay $3 a month for debit card usage. Georgia is one of four states where the bank is testing this policy, one that was prompted by the new interchange cap. To read more please click here. Interestingly, 11Alive’s Facebook page asked consumers their opinion on the recent Wells Fargo move, and many of the posts are promoting switching to a credit union due to the fee.

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Bank Stocks Plunge

Bank stocks plunged 11 percent on August 8th in their biggest one-day drop since April 2009, as investors questioned how well giant financial firms will weather a slowing economy and tumultuous markets after an unprecedented downgrade of U.S. debt. Hardest hit was Bank of America Corp, which saw its stock tumble 20 percent and the cost of insuring its bonds against default surge 50 percent. To read more, please click here for the August 9th Wall Street Journal article (log in required).

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AIG, BoA logosA.I.G. to Sue BoA Over Mortgage Bonds

The August 8th edition of The New York Times reported that the American International Group is planning to sue Bank of America over hundreds of mortgage-backed securities, adding to the surge of investors seeking compensation for the troubled mortgages that led to the financial crisis. The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor. It claims that Bank of America and its Merrill Lynch and Countrywide Financial units misrepresented the quality of the mortgages placed in securities and sold to investors, according to three people with knowledge of the complaint.

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BoA & Wells Economists: Another Recession Possible

The Atlanta Business Chronicle reported on August 8th that economists for Bank of America and Wells Fargo see an up to 40 percent chance a double-dip recession could take place in the United States. Wells Fargo, metro Atlanta's second-largest bank with $22 billion in local deposits, held a conference call with investors this morning to discuss the state of the economy following S&P's downgrade of U.S. debt to AA+ from AAA. Wells economist Jay Bryson on the call said the chance of a second recession is about 40 percent. "Recession is not our call," he said. "But the probability is clearly not insignificant."

BoA, the third-largest metro Atlanta bank with about $18 billion in local deposits, also held a conference call with investors to discuss the state of the economy. BoA economist Ethan Harris said the odds of another recession within the next 12 months stand at 1 in 3, according to CNBC. Harris said the lack of a solid debt-slashing plan in Washington could lead to more downgrades later this year.

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FaucetBanks Increase Lending

The Wall Street Journal reported on August 16th that banks have relaxed their lending standards during recent months as competition intensified among financial institutions, and demand for loans has increased (according to a Federal Reserve survey). Findings from the Fed’s poll of banks’ senior loan officers indicate continued improvement in lending conditions heading into the third quarter, particularly among business customers. But in some areas, such as residential real estate, remain weak in demand. To read more please click here (login required).

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