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Last update: 04/23/14

ICBA Policy Resolutions for 2014
Track I: Legislation and Regulation

PUBLICLY HELD COMMUNITY BANKS AND THE SECURITIES AND EXCHANGE COMMISSION

Position

  • The SEC should use its authority to permanently exempt smaller public companies like community banks from the say-on-pay and the golden parachute requirements of the Dodd-Frank Act. ICBA also supports exemptions for community banks from pay-versus performance disclosure requirements and claw-back provisions of the Dodd-Frank Act.

  • Small publicly held banks and bank holding companies should be exempt from the internal control attestation and audit requirements of Section 404(b) of Sarbanes-Oxley Act as well as some of the reporting requirements of the Securities Exchange Act of 1934. The market capitalization threshold for exemption set by the Dodd-Frank Act should be raised to $350 million.

Background

SEC Registration Threshold. ICBA played a leading role in the passage of the JOBS Act, which raised the threshold for SEC registration from 500 to 2,000 shareholders for all companies and increased the deregistration threshold from 300 to 1,200 shareholders for banks and bank holding companies. This provision has been a long-standing ICBA priority and was a key component of the Communities First Act. Almost 100 community banks and bank holding companies have deregistered as a result of the passage of the JOBS Act. ICBA will continue the fight to extend the benefits of the Title VI of the JOBS Act to thrift holding companies.

Exemptions Under the Dodd-Frank Act. ICBA supports sound corporate governance practices for public companies, which are essential to maintaining investor confidence. However, the corporate governance provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act disproportionately burden community banks/holding companies and other small issuers. The SEC should use the authority expressly delegated to it by Congress to permanently exempt community banks. While the SEC’s final rules on “say-on-pay” delay for two years the effective date of the rule for small issuers, it does not provide a permanent exemption. The rule requires public companies to give their shareholders a "say-on-pay" by including a separate, non-binding proposal allowing shareholders to vote on the compensation of executive officers at least once every three years. It also requires that every proxy statement seeking a shareholder vote to approve an acquisition, merger, consolidation or proposed sale of all or substantially all of a reporting company's assets include a separate shareholder resolution approving golden parachute arrangements.

Requiring separate votes on say on pay and golden parachutes adds significantly to the already onerous disclosure burden that publicly-traded community banks and other small issuers face. Community banks are already having great difficulty in attracting and retaining qualified officers given the perceived hostile regulatory environment and the prospect of FDIC litigation and personal liability for officers and directors of failed banks. The Dodd-Frank Act requirements for executive compensation recovery or “clawback” provisions and new executive compensation disclosures also make it difficult to attract and retain qualified officers and directors.

SOX 404(b) Exemption. ICBA supports legislation that would increase the SOX 404(b) exemption to $350 million for banks and bank holding companies. The 2002 failures of Enron and WorldCom raised public and investor concern about corporate governance and executive compensation, resulting in the Sarbanes-Oxley Act of 2002. The most notable provision of the Act is the Section 404(b) which requires an outside auditor to attest to the internal controls of a publicly held company. ICBA has advocated for an exemption from this requirement for community banks because of the unwarranted burden and expense it creates. Implementation of Section 404(b) for small issuers was repeatedly deferred until the Dodd-Frank Act created a permanent exemption for issuers with market capitalization of less than $75 million. ICBA is pleased with this outcome but believes that the market capitalization threshold should be set at a higher amount—$350 million. Community banks are already subject to substantial supervision and regulation by the banking regulators and should not be subject to the internal attestation requirements of SOX 404(b).

Staff Contact: Chris Cole

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