Relief from Crushing Regulatory Burden

Position

  • Community banks need regulatory relief to support the credit needs of their customers, serve their communities, and contribute to their local economies.
  • ICBA’s “Plan for Prosperity” contains targeted measures that would roll back the Dodd-Frank Act specific provisions among other onerous rules, providing regulatory relief for community banks.
  • ICBA urges Congress and the regulatory agencies to continue to expand and refine a tiered regulatory and supervisory system that recognizes the significant differences between community banks and large, complex institutions in terms of the risks they pose to consumers and to the financial system.
  • To preserve their original purpose, thresholds for regulatory accommodations and exemptions based on asset size and transaction volume should be continually reviewed and adjusted upward as community banks consolidate and the average asset size of banks increases.
  • In carrying out the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) process, the regulatory agencies must honor their Congressional mandate and provide meaningful regulatory relief. To date, the EGRPRA proposals have been disappointing.

Background

Regulatory and paperwork requirements impose a disproportionate burden on community banks and diminish their ability to attract capital, support the credit needs of their customers, serve their communities, and contribute to their local economies. Large banks have larger, dedicated legal and compliance staff and can more easily absorb regulatory costs. Credit unions and other nonbank institutions that perform “bank-like” functions and offer comparable bank products and services are not subject to the same taxation, laws and regulations as community banks. This uneven playing field places community banks at a competitive disadvantage and inhibits their ability to serve their customers and their communities. In addition, unreasonable regulatory requirements serve as a barrier to entry for investors who might otherwise contemplate the formation of de novo banks. Without the entry of de novo banks to offset consolidation, the industry has become progressively more concentrated to the detriment of all borrowers.

Plan for Prosperity. ICBA’s Plan for Prosperity (“Plan”) for the 115th Congress is a “legislative platform” or set of community bank priorities positioned for advancement. In the last Congress, approximately 66 bills were introduced and reached various stages of progress in the House and Senate, including the CLEAR Relief Act which included several Plan provisions.

The bill that best represented ICBA’s regulatory relief priorities was H.R. 5983, the “Financial Choice Act” (“Choice Act”) introduced last year by House Financial Services Committee Chairman Jeb Hensarling (R-TX). The Choice Act contains over two dozen community bank regulatory relief provisions from ICBA’s Plan for Prosperity. These include relief from some of the most burdensome

Dodd-Frank provisions. The bill would fully repeal of the Durbin Amendment price controls on debit interchange, grant automatic “qualified mortgage” treatment for mortgage loans held in portfolio, provide short form call reports for well-capitalized community banks, repeal the Dodd-Frank small business data collection requirement, increase the threshold for Consumer Financial Protection Bureau examination and enforcement from $10 billion to $50 billion in assets, and convert the CFPB from a single Director to a bi-partisan commission. In addition, the legislation would create an “off ramp” from Basel III capital standards for any highly-rated bank that maintains a simple leverage ratio of at least 10%. With unified Republican control of the Executive Branch, House and Senate, the Choice Act is well positioned for action during the 115th Congress and will serve as a starting point for regulatory relief legislation.

Wells Fargo Risk. Due to bi-partisan outrage on Capitol Hill, Congress may also turn its attention to addressing many of the abuses perpetrated by Wells Fargo employees on its customers. Community bankers are concerned that legislative and regulatory responses to these abuses will fail to distinguish community banks from the too-big-to-manage megabanks. ICBA will continue to remind Washington policymakers of the significant differences between the community bank relationship-based business model and the transaction-based model of much larger institutions.

Tiered Regulation. ICBA strongly supports a system of tiered regulation—regulatory and supervisory policies that differentiate between community banks and other financial services providers. The Dodd- Frank Act provided for tiered regulation in several areas including an exemption for banks with assets of less than $10 billion from CFPB examination and enforcement, and indemnification of banks with assets of less than $10 billion from FDIC premium increases that will result from increasing the Deposit Insurance Fund minimum reserve ratio from 1.15 percent to 1.35 percent. In addition, the CFPB made special accommodations for certain community banks under the “ability-to-repay/qualified mortgage” rule and the mortgage servicing rule. While these provisions are significant, much more is needed. The basic framework of financial regulation should be based on the principle of tiering proportionate to size, business model, complexity, and risk.

EGRPRA. The regulatory agencies should take full advantage of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) process, a two-year review of financial regulations to identify outdated, unnecessary or unduly burdensome regulations. Under EGRPRA, the banking agencies (except for the CFPB) are required to conduct a review of their regulations every ten years. During the current EGRPRA review process, the agencies held six outreach meetings across the country with the participation of numerous community bankers. ICBA submitted four comment letters during the current EGRPRA review recommending a number of ways to reduce the regulatory burden on community banks including exempting community banks from Basel III, raising some of the asset and dollar thresholds under the Community Reinvestment Act and the Bank Secrecy Act, and streamlining Regulation O. So far, ICBA has been disappointed with the weak magnitude of some of the burden reduction measures that have been proposed by the regulators including the proposal for a streamlined call report for community banks.

Staff Contacts: Brian Cooney and Chris Cole