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Community Bankers Launch 'Plan for Prosperity' 
Legislative Platform for New Congress


Pro-growth plan would eliminate onerous regulatory burden that stifles lending

See "Plan for Prosperity"....


ACB & ICBA Top Priorities for 2016 

Basel III Amendments: Restoring the Original Intent of the Rule. Basel III was originally intended to apply only to large, internationally active banks. ACB/ICBA support a full exemption from Basel III for non-systemically important financial institutions (non-SIFIs). If a full exemption is not possible, ACB/ICBA propose the following amendments:

  • Exemption from the capital conservation buffer. The new buffer provisions impose dividend restrictions that have a chilling effect on potential investors. This is particularly true for Subchapter S banks whose investors rely on dividends to pay their pro-rata share of the bank's tax. Exempting non-SIFIs from the capital conservation buffer would make it easier for them to raise capital.
  • Full capital recognition of allowance for credit losses. Provide that the allowance for credit losses is included in tier 1 capital up to 1.25 percent of risk weighted assets with the remaining amount reported in tier 2 capital. This change would reverse the punitive treatment of the allowance under Basel III. The allowance should be captured in the regulatory capital framework since it is the first line of defense in protecting against future credit losses.
  • Amend risk weighting to promote economic development. Provide 100 percent risk weighting for acquisition, development, and construction loans. Under Basel III, these loans are classified as high volatility commercial real estate loans and risk weighted at 150 percent. ICBA's proposed change would treat these loans the same as other commercial real estate loans and would be consistent with Basel I.


More Accurate Identification of "Systemic Risk."
 The current threshold of $50 billion for the identification of "systemically risky financial institutions" (SIFIs) under Title I of the Dodd-Frank Act is too low. It sweeps in too many banks that pose no systemic risk and should not be subject to higher prudential standards. A higher threshold and a more flexible "SIFI" definition under Title I would more accurately identify those institutions that impose systemic risk to our banking system.

Relief from Securities and Exchange Commission Rules. ACB/ICBA recommend the following changes to SEC rules which would allow community banks to commit more resources to their communities without putting investors at risk:

  • Provide an exemption from internal control attestation requirements for banks with assets of less than $1 billion. The current exemption applies to any company with market capitalization of $75 million or less. Because smaller bank internal control systems are monitored continually by bank examiners, they should not have to sustain the unnecessary annual expense of paying an outside audit firm for attestation work. This provision will substantially lower the regulatory burden and expense for small, publicly traded banks without creating more risk for investors.
  • Regulation D should be reformed so that anyone with a net worth of more than $1 million,including the value of their primary residence, would qualify as an "accredited investor." The number of non-accredited investors that could purchase stock under a private offering should be increased from 35 to 70.

TARGETED REGULATORY RELIEF

Supporting a Robust Housing Market: Mortgage Reform for Community Banks. Provide more community banks relief from certain mortgage regulations, especially for loans held in portfolio. When a community bank holds a loan in portfolio, it has a direct stake in the loan's performance and every incentive to ensure it is properly underwritten, affordable, and responsibly serviced. Relief would include:

  • Providing "qualified mortgage" safe harbor status for loans originated and held in portfolio by banks with less than $10 billion in assets, including balloon mortgages.
  • Exempting banks with assets below $10 billion from escrow requirements for loans held in portfolio.
  • An exemption from the higher risk mortgage appraisal requirements for loans of $250,000 or less provided they are held in portfolio by the originator for a period of at least three years.
  • Information reporting requirements under the Home Mortgage Disclosure Act (HMDA) should not apply to banks that originate a modest volume of mortgages. A new HMDA rule exempts lenders that originate fewer than 25 closed-end loans or fewer than 100 open-end lines in each of the preceding calendar years. These exemption thresholds should be significantly increased.

Preserve Community Bank Mortgage Servicing. The provisions described below would help preserve the important role of community banks in servicing mortgages and deter further industry consolidation, which is harmful to borrowers:

  • Increase the "small servicer" exemption threshold to 20,000 loans (up from 5,000). To put this proposed threshold in perspective, the average number of loans serviced by the five largest servicers subject to the national mortgage settlement is 6.8 million. An exemption threshold of 20,000 would demarcate small servicers from both large and mid-sized servicers.
  • For banks with assets of $50 billion or less, reverse the punitive Basel III capital treatment of mortgage servicing rights (MSRs) and allow 100 percent of MSRs to be included as common equity tier 1 capital.

Strengthening Accountability in Bank Exams: A Workable Appeals Process. The trend toward oppressive, micromanaged regulatory exams is a concern to community bankers nationwide. An independent body would be created to receive, investigate, and resolve material complaints from banks in a timely and confidential manner. The goal is to hold examiners accountable and to prevent retribution against banks that file complaints. 

Reforming Bank Oversight and Examination to Better Target Risk. ACB/ICBA offer the following recommendations to allow bank examiners to better target their resources at true sources of systemic risk:

  • A two-year exam cycle for well-rated banks with up to $2 billion in assets would allow examiners to better target their limited resources toward banks that pose systemic risk. It would also provide needed relief to bank management for whom exams are a significant distraction from serving their customers and communities.
  • Non-systemically important financial institutions (non-SIFIs) should be exempt from stress test requirements.
  • Community banks should be allowed to file a short form call report in the first and third quarters of each year. The current, long form call report would be filed in the second and fourth quarters. The quarterly call report now comprises some 80 pages supported by almost 700 pages of instructions. It represents a growing burden on community banks without being an effective supervisory tool.
  • The Community Reinvestment Act (CRA) asset thresholds should be modernized. The "small bank" threshold should be raised from $305 million to 1.5 billion, and the "intermediate small bank" should be raised from $1.221 billion to $5 billion. While no bank is exempt from CRA, asset thresholds are used to determine how a bank is assessed. Established in 1977 when CRA was adopted, the asset thresholds were indexed for inflation but do not reflect consolidation in the community banking industry. In addition, the threshold for determining how often a bank is assessed should be increased. Banks with assets up to $1 billion (up from $250 million) and an overall CRA rating of "outstanding" should be evaluated every five years, and those with an overall rating of "satisfactory" should be evaluated every four years. Community banks prosper by reinvesting local deposits and serving all customers in their communities. Too frequent or intrusive CRA exams unnecessarily expend resources that could otherwise be dedicated to serving customers.

Risk Targeting The Volcker Rule. Exempt non-systemically important financial institutions (non-SIFIs) from the Volcker Rule. The Volcker Rule should apply only to the largest, most systemically risky banks. Proposals to apply the rule to non-SIFIs carry unintended consequences that threaten to destabilize segments of the banking industry.

Balanced Consumer Regulation: More Inclusive and Accountable CFPB Governance. The following changes would strength CFPB accountability, improve the quality of the agency's rulemaking, and make more effective use of its examination resources:
  • All banks with assets of $50 billion or less should be exempt from examination and enforcement by the CFPB and instead be examined and supervised by their prudential regulators for compliance with consumer protection regulation; and CFPB backup (or "ride along") authority for compliance exams performed by a bank's primary regulator should be eliminated.
  • Change the governance structure of the CFPB to a five-member commission rather than a single Director. Commissioners would be confirmed by the Senate to staggered five-year terms with no more than three commissioners affiliated with any one political party. This change will strengthen accountability and bring a diversity of views and professional backgrounds to decision-making at the CFPB.
  • The Financial Stability Oversight Council's review of CFPB rules should be strengthened by changing the vote required to veto a rule from an unreasonably high two-thirds vote to a simple majority, excluding the CFPB Director.

Eliminate Arbitrary "Disparate Impact" Fair Lending Suits. Amend the Equal Credit Opportunity Act and the fair Housing Act to bar "disparate impact" causes of action. Disparate impact describes differential results that arise despite the use of practices that are facially neutral in their treatment of different groups. In June 2015, the U.S. Supreme Court limited the application of disparate impact theory under the Fair Housing Act so that statistical data alone is not sufficient to establish liability: a plaintiff must also cite a specific practice that results in disparate impact. Despite this limitation, lenders still have to consider factors such as race and national origin in individual credit decisions to protect themselves from fair lending regulatory enforcement actions and lawsuits. Moreover, the Supreme Court's decision does not extend to the Equal Credit Opportunity Act. Legislation is needed to eliminate disparate impact and ensure lenders that uniformly apply neutral lending standards are not be subject to unnecessary regulatory enforcement actions or frivolous and abusive lawsuits under the Equal Credit Opportunity Act or the Fair Housing Act.

Rigorous and Quantitative Justification of New Rules: Cost-Benefit Analysis. Provide that financial regulatory agencies cannot issue notices of proposed rulemakings unless they first determine that quantified costs are less than benefits. The analysis must take into account the impact on the smallest banks which are disproportionately burdened by regulation because they lack the scale and the resources to absorb the associated compliance costs. In addition, the agencies would be required to identify and assess available alternatives including modifications to existing regulations. They would also be required to ensure that proposed regulations are consistent with existing regulations, written in plain English, and easy to interpret.


Cutting the Red Tape in Small Business Lending: Eliminate Burdensome Data Collection. Exclude banks with assets below $10 billion from new small business data collection requirements. This provision, which will likely require the reporting of information regarding every small business loan application, will fall disproportionately upon smaller banks that lack scale and compliance resources.

Incentivising Credit for Low and Moderate Income Customers and American Agriculture. ACB/ICBA supports the creation of new tax credits or deductions for community bank lending to low and moderate income individuals, businesses, and farmers and ranchers in order to offset the competitive advantage enjoyed by tax-exempt credit unions and Farm Credit System (FCS) lenders. Credit unions were initially created and granted a generous exemption from federal, state, and local tax for the specific purpose of serving people of modest means with a common bond. However, independent studies show that community banks do a better job of serving low and moderate income customers than credit unions. The tax subsidies granted to FCS lenders - often large, multi-billion dollar institutions serving the same customers served by much smaller community banks - distort the marketplace. The revenue loss associated with the credit union and FCS tax exemptions serves no public purpose. The creation of targeted tax credits or deductions for community banks would help to sustain and strengthen lending to low and moderate income customers and America's farmers and ranchers.


Modernize Subchapter S Constraints.
Subchapter S of the tax code should be updated to facilitate capital formation for community banks, particularly in light of higher capital requirements under the proposed Basel III capital standards. The limit on Subchapter S shareholders should be increased from 100 to 200; Subchapter S corporations should be allowed to issue preferred shares; and Subchapter S shares, both common and preferred, should be permitted to be held in individual retirement accounts (IRAs). These changes would better allow the nation's 2,200 Subchapter S banks to raise capital and increase the flow of credit.
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