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Volcker Rule
Report: Feds Plan CDO TruPS Exemption from Volcker Rule
Federal regulators are working to release an interim final rule this week to make ICBA-advocated changes to Volcker Rule provisions affecting collateralized debt obligations backed by trust-preferred securities, American Banker reported. According to the report, regulators are considering exempting all existing CDO TruPS from compliance with the Volcker Rule.

Such a solution would allow regulators to preserve the rule’s treatment of future CDO TruPS while avoiding the market impact of changing the accounting treatment of existing securities. It would also be a favorable response to ICBA’s Dec. 21 letter to regulators, in which the association called for regulators to completely exempt community bank CDO TruPS.

Following receipt of ICBA’s letter and other direct discussions between ICBA and the agencies, regulators recently released a joint statement that said they are reconsidering treatment of CDO TruPS under the Volcker Rule and would seek a resolution of the matter by Jan. 15. The statement noted that Dec. 31 call reports should account for any changes to the final rule issued by regulators and is designed to defer any accounting decisions until after the agencies act on the rule this month.

The Volcker Rule bars depository institutions and their affiliates from engaging in short-term proprietary trading for their own account or owning, sponsoring or having certain relationships with hedge funds or private equity funds. While final rule issued last month includes some key community bank exemptions, it also indicates that CDOs backed by TruPS could be considered prohibited by the rule.

This would require all banks, including community banks, to divest their holdings of CDO TruPS by July 2015 and to immediately recognize the impairment, before year-end 2013, under “other than temporary impairment” accounting standards. If community banks are forced to write these investments down, they may have to do so at “fire sale” prices that would result in a permanent loss of capital, rather than holding these investments to maturity.

The regulators responded to community banker concerns with frequently asked questions community banks should consider in determining whether they will be forced to divest their CDO TruPS under the Volcker Rule. The document discusses whether TruPS CDOs are “covered funds” prohibited by the Volcker Rule or can be restructured to not be considered covered funds. It also discusses whether investment in a TruPS CDO constitutes an ownership interest in a covered fund.

However, ICBA said in a national news release that the FAQs do not offer a permanent solution for community banks potentially affected by the Volcker Rule. In a message to the regulatory agencies, ICBA President and CEO Cam Fine wrote that regulators’ misguided interpretation of this section of the rule would hurt community banks, their owners and investors, and their families and communities.

ICBA has repeatedly called for the banking agencies to address the implications of the CDO TruPS issue and has also called on Congress to seek a fix and, if necessary, to hold committee hearings on community bank concerns with the issue.

Grassroots Alert
Tell Senate To Support S. 1846 Delay in Flood Insurance Rate Hikes
ICBA is calling on the nation’s community bankers to urge their senators to support legislation to delay sharp increases in National Flood Insurance Program premiums.

The Homeowner Flood Insurance Affordability Act (S. 1846), introduced by Sens. Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.), would delay rate increases for up to four years by giving the Federal Emergency Management Agency time to develop a plan to help property owners who cannot afford higher premiums.

If Congress does not approve S. 1846, dramatic rate increases included in the 2012 Biggert-Waters flood insurance reforms would continue to be implemented. These increases would destabilize the still-recovering housing market in affected areas and negatively affect home values. Contact Your Senators Today!

FDIC Community Bank Study Update Finds Positive Outlook
The FDIC recently updated its 2012 Community Banking Study to reflect developments in the structure and performance of U.S. community banks through the end of 2012. The update found that while the community banking sector changed little structurally during the year, community banks showed continued improvement in financial performance following the disruptions associated with the recent financial crisis.

According to the update, which was announced in the latest FDIC Quarterly newsletter, problem loans and failures declined among community banks in 2012, while their pretax profitability was the highest since 2007. The update notes that FDIC-insured institutions have seen problem loans decline from the peak levels of 2009 and that net income has recently exceeded pre-crisis levels.

Further, community bank earnings improved substantially in 2012 primarily because of lower loss provisions and higher noninterest income, the report found. Higher earnings, in turn, led to greater capital formation through retained earnings, which has traditionally been the most consistent source of new capital for community banks, it found. Read Updates to FDIC Study. Read FDIC Quarterly.

Payments Association Warns of Fraudulent Target Emails
Financial institutions should inform their customers about monitoring accounts for fraudulent activity and taking advantage of fraud alerts offered by institutions following the recent Target payment card breach, according to the Mid-Atlantic Payments Association.

The association said that in addition to the breach, fraudsters are sending out phishing e-mails that appear to be from Target. These emails play on the fears of the public that they may have had their card compromised, according to MACHA.

The association encouraged financial institutions to make cardholders aware of this potential threat and to advise them to proceed with caution if they receive an e-mail from Target. They should not open any links in these emails, which could allow additional access to their personal information, the association said. Read the MACHA Alert.

ICBA NewsWatch Today is sponsored by CNA:
ICBA Member Milestones, brought to you by CNA, recognizes community bank anniversaries and milestones in the January issue of ICBA Independent Banker magazine. CNA understands it takes more than a strong balance sheet to run a successful bank. It takes commitment to the community, dedication to service and flexibility to meet the needs of clients. For more than 100 years, CNA's professionals have worked to build strong relationships and solid business insurance solutions that meet the needs of their clients. For more information on CNA’s programs, visit www.cna.com/communitybanks.

CFPB Releases Updated List of Rural and Underserved Counties
The Consumer Financial Protection Bureau released an additional list of rural and underserved counties exempt from the requirement that creditors create escrow accounts for at least five years for certain first-lien higher-priced mortgage loans.

A CFPB final rule issued in September 2013 broadened the exemption to include creditors that operated predominantly in rural or underserved counties in any of the previous three calendar years.

The change took effect on Jan. 1, which means that creditors will be able to qualify for the exemption in 2014 if they operated predominantly in rural or underserved counties in calendar years 2011, 2012 or 2013. View the List.

FDIC Releases Four Technical Assistance Videos
The FDIC released four technical-assistance videos for bank directors, officers and employees on regulatory issues and proposed regulatory changes. The new videos address municipal securities, the allowance for loan and lease losses, troubled debt restructuring and fair lending. Previously released videos, on issues such as flood insurance and fiduciary responsibilities, are also available. Read More from FDIC.

CFPB Mortgage Rule Compliance Deadline Is This Friday
This Friday, Jan. 10, is the compliance deadline for several Consumer Financial Protection Bureau mortgage rules, including regulations requiring banks to determine consumers’ ability to repay their loans.

ICBA recently posted new reference charts on the ability-to-repay and qualified mortgage rules and offers additional resources on its Mortgage Rules Resource Page.

Additional information and compliance resources on the new mortgage rules can be found on the CFPB’s Regulatory Implementation webpage.

Additionally, community bankers can submit questions to the CFPB at CFPB_reginquiries@cfpb.gov or 202-435-7700.

Upcoming Hearings Cover GAO Report, QM and Volcker Rule
The House and Senate return to Washington this week to kick off the second session of the 113th Congress. The Senate Banking Committee has scheduled a hearing for 10 a.m. (Eastern time) Wednesday on the Government Accountability Office report on government support for bank holding companies

At 10 a.m. (Eastern time) Thursday, the House Financial Services Committee’s Subcommittee on Monetary Policy and Trade is slated to hold a hearing on the effects of the Federal Reserve current quantitative easing program on the international financial system.

Next week, the House Financial Services Committee has scheduled a subcommittee hearing on the impact of the Consumer Financial Protection Bureau’s qualified mortgage rule and a full committee hearing on the potential unintended consequences of the Volcker Rule.

FHFA Reaches $8B in Settlements on Mortgage Securities
The Federal Housing Finance Agency announced that last year it recovered nearly $8 billion in settlements with financial institutions that sold private-label securities to Fannie Mae and Freddie Mac between 2005 and 2007. The FHFA sued 18 financial institutions in 2011 alleging securities law violations and settled last year with seven firms, including Ally Financial, Citigroup and General Electric.

Fed Director of Consumer and Community Affairs Retiring
Federal Reserve Director of Consumer and Community Affairs Sandra Braunstein will retire on April 1 after nearly 27 years of service with the Fed, the agency said. Braunstein joined the Fed staff in 1987 and has served as division director since April 2004. The Fed is seeking candidates to succeed Braunstein.

Take This Week’s Quick Poll
Take this week’s Quick Poll on the Target payment-card breach, and view results from the previous poll on arbitration clauses. View the Archive.

ICBA Compliance Institute Slated for Next Month
ICBA’s Compliance Institute, which is scheduled for next month, will offer compliance professionals the latest regulatory education. At the comprehensive seminar, scheduled for Feb. 9-14 in Dallas, attendees will examine the Consumer Financial Protection Bureau’s mortgage-servicing rules effective Jan. 10. In addition, attendees will receive the latest guidance on comprehensive compliance reforms in areas such as Regulations Z, X, B and E. Register Now.

Products and Services
Free Webinar: 10 Things to Know about Small-Biz Borrowers
WebEquity Solutions, an ICBA Preferred Service Provider, is hosting a webinar on Thursday, Jan. 16, on how community banks can build a credit rating framework to provide more guidance and objectivity to assigning asset-quality ratings. “Using Asset Quality Ratings to Monitor and Manage Portfolio Credit Risk” will feature how to address the distinct differences in rating C&I loans versus small-business, CRE, construction and ag loans. Register Online.

Have You Renewed Your 2014 ICBA Membership?
If you have any questions, comments or concerns regarding your annual ICBA membership renewal, contact the ICBA Member Relations Department at Jeanie.klasen@icba.org or 800-422-7285, ext. 7325.

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