ICBA - Advocacy - ICBA Policy Resolutions for 2014<br>ICBA Priorities for 2014

ICBA Policy Resolutions for 2014
ICBA Priorities for 2014

COMMUNITY BANK ACCESS TO CAPITAL

Position

  • Community banks need capital to make loans and provide essential banking services to the communities they serve. However, community bank access to capital has never been more difficult than it is today.

  • ICBA supports legislative and regulatory changes that would improve the ability of community banks to raise capital.

  • ICBA supports either amending the Bank Holding Company Act (BHCA) or replacing it with a new Community Bank Holding Company Act that would make it easier for community bank holding companies to issue debt and equity that could be used to support their banking subsidiaries.

  • Absent a change to the BHCA, ICBA supports increasing the qualifying threshold under the Federal Reserve’s Small Bank Holding Company Policy Statement from $500 million to $5 billion and allowing small savings and loan holding companies to be covered by the Policy Statement.

  • Subchapter S of the tax code should be updated to facilitate capital formation for community banks by increasing the shareholder limit for Subchapter S eligibility, allowing the issuance of preferred shares and permitting individual retirement account (IRA) shareholders.

  • The present exemption for publicly held community banks from the internal control attestation requirements of Section 404(b) of the Sarbanes Oxley Act should be increased from $75 million in market capitalization to $350 million.

  • Savings and loan holding companies should be able to take advantage of the increased shareholder registration threshold under the JOBS Act (as bank holding companies are now permitted to do) and deregister as an SEC reporting company.

  • SEC Regulation D should be revised so that the definition of an “accredited investor” would include individuals with a net worth of $1 million or more, including their primary residence, and the number of non-accredited investors that could be sold stock pursuant to a Rule 506 private offering would be increased from 35 to 50.

  • The SEC broker-dealer rules need to be amended so that community banks and holding companies can (1) more easily maintain lists of shareholders of the bank that want to either buy or sell shares and (2) match buyers of the bank’s shares with sellers, without having to qualify as a broker-dealer.

Background

Access to capital for community banks has never been more difficult than it is today. Since 2007, the public capital markets have been either unavailable or unattractive to many community banks and holding companies. Many community banks have had to rely more on existing shareholders, directors and insiders for capital raises and less on new investors, including institutions and private equity investors. Furthermore, many community banks will need to raise additional capital not only for business purposes but also to ensure compliance with f regulatory requirements including the new Basel III requirements. Those community banks that have not redeemed their Troubled Asset Relief Program (TARP) or Small Business Lending Fund (SBLF) securities, or that have been deferring dividends on their trust preferred securities, have additional reasons for needing capital.

ICBA supports amending the BHCA or replacing it with a new Community Bank Holding Company Act that would make it easier for community bank holding companies to issue debt and equity that could be used to support the capital needs of their banking subsidiaries. An amended BHCA or new Community Bank Holding Company Act should exempt bank holding companies under $10 billion in consolidated assets from the new Basel III requirements and allow community bank holding companies to issue debt on an unconsolidated basis, subject to a reasonable leverage debt to equity ratio. Additional changes to the BHCA or a new Community Bank Holding Company Act could facilitate greater institutional investment and treat bank holding companies and thrift holding companies consistently. In lieu of these changes, ICBA also supports increasing the qualifying threshold under the Federal Reserve’s Small Bank Holding Company Policy Statement from $500 million to $5 billion and allowing small savings and loan holding companies to be covered by the Policy Statement.

Various changes should be made to the tax code to facilitate capital formation for Subchapter S banks. 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).

Due to an inadvertent oversight in the recently-passed JOBS Act, savings and loan holding companies cannot take advantage of the increased shareholder threshold below which a bank or bank holding company may deregister with the SEC. ICBA supports legislation that would correct this oversight by allowing savings and loan holding companies to use the new 1,200 shareholder deregistration threshold.

The present exemption that small publicly held corporations have from the internal control attestation requirements of Section 404(b) should be increased from $75 million in market capitalization to $350 million for community banks. Because community 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.

Community banks often rely on the safe harbor of SEC’s Regulation D when raising capital. However, SEC Regulation D should be revised so that the definition of an “accredited investor” includes individuals with a net worth of $1 million or more, including their primary residence. The current definition requires individuals to exclude their primary residence when computing their net worth. The number of non-accredited investors that can be sold stock pursuant to a Rule 506 private offering should be increased from 35 to 50.

Finally, the SEC broker-dealer rules need to be amended so that community banks and holding companies can (1) more easily maintain lists of shareholders that want to either buy or sell shares and (2) match buyers of the institution’s shares with sellers without having to qualify as a broker-dealer.

Staff Contact: Chris Cole

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