Finer Points Blog

    Standing Up to a Reckless Regulator

    Sep 20, 2016
    regulationEvery now and then we have the chance to stand up for what’s right against powerful forces. As the legacy of a group of colonists who stared down and defeated the world’s greatest empire, it’s virtually our birthright as Americans. So in some ways ICBA’s federal lawsuit against the National Credit Union Administration for its unlawful lending rule feels like the extension of a longstanding national tradition.

    ICBA’s suit challenges the NCUA’s rule allowing tax-exempt credit unions to exceed commercial lending limits set by Congress. In a nutshell, federal law defines credit union “member business loans” to include any and all commercial loans on a credit union’s balance sheet. But the NCUA’s final rule unlawfully allows nonmember commercial loans and purchased loan participations to be excluded from the statutory limits.

    Regulatory Rubber Stamp

    If this issue sounds familiar, that’s because credit unions have been trying to push it through Congress for more than a decade. But lawmakers have repeatedly declined to expand credit union lending loopholes. What is a tax-exempt industry to do?

    Well, if you’re the credit union industry, you simply wait for your captive federal regulator to rewrite the law for you. And that is precisely what the NCUA has done—unilaterally sidestep the legislative branch. You know, the branch of government those scrappy American provincials later enshrined in Article I of the U.S. Constitution.

    The only problem for the credit unions is that ICBA was watching. Indeed, we’ve seen more than enough. After years of evolving from a regulatory agency to a cheerleader for its tax-exempt industry, the NCUA has finally gone too far. In attempting to serve as the regulatory rubber stamp for a handful of growth-oriented credit unions seeking to expand at all costs, the NCUA has overstepped its legal bounds.

    Bad Faith, Bad Policy

    Quite simply, the NCUA’s business-lending rule contradicts federal law, which expressly limits the amount of member business loans that may be held on credit union balance sheets. The NCUA has absolutely no authority to concoct its own exceptions to the “member business loan” definition. Indeed, the agency itself has acknowledged that it “does not have authority to amend the MBL definition through regulation.”

    Not only is the NCUA rule unlawful, it’s also bad policy. The agency’s plan places undue risk on U.S. taxpayers, expands government-sponsored advantages for credit unions, and jeopardizes the safety and soundness of these institutions. Our tax dollars should not be used to promote reckless lending practices at these tax-exempt companies.

    So here we are—taking a stand. ICBA’s volunteer board of community bankers has elected to confront a heedless federal agency and hold it accountable. We might not be Washington, Jefferson and Adams, but the NCUA isn’t exactly the British Empire, either.

    So I encourage community bankers, our allies, and consumers everywhere to go to ICBA’s “Stop the CU Grab” website to learn more about the lawsuit and how to help through the ICBA Credit Union Litigation Fund. After all, we’re taking action not only because the law is on our side, but because it’s the right thing to do.

    Taking the Reins of Leadership

    Aug 04, 2016

    leadfwd“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”

    General Colin Powell

    Good leaders aren’t born, they’re forged. They are inspired, shaped and mentored. They are indebted to the individuals who have coached them through both obstacles and successes, and they are obliged to pay that debt forward to the next generation.

    During my more than 30 years in community banking, I’ve learned valuable lessons about preparation, perseverance and commitment from many leaders of this beloved industry. I have worked to repay that debt by fighting for the future of community banking through ICBA. And I highly encourage community bank executives across our nation to support the next generation by sending their future leaders to this year’s LEAD FWD Summit.

    This collaborative forum, set for Sept. 11-14 in Denver, offers numerous opportunities for tomorrow’s leaders to interact with industry veterans and gain insights on how to achieve long-term success. The interactive sessions and speakers were selected to inspire promising leaders to realize their potential and return to your bank with renewed drive and actionable strategies to meet the needs of customers for years to come.

    I’ll be there at the LEAD FWD Summit to offer my account of what it takes to thrive in today’s competitive market. And I hope community banks from coast to coast will be represented as well. At this year’s convention, ICBA Chairman Rebeca Romero Rainey spoke of the wisdom, strength and determination she gained from community bankers who came before her—those who thought big and weren’t afraid to take risks. Rebeca challenged all of us to think about our role as a mentor and what we can do to empower the next generation of community bank leaders.

    So I ask community bankers: what will you do to support tomorrow’s leaders and carry our industry forward? Providing the opportunity for them to learn from successful innovators and trailblazers is a great place to start.

    Community Bankers Achieve Vital Changes to Accounting Rules

    Jun 22, 2016
    accounting It took years of hard work, but community bankers once again showed they can make a positive impact on new regulations through engaged grassroots advocacy. The latest industry success came with the release of the Financial Accounting Standards Board’s final updated standard on credit losses.

    This Current Expected Credit Loss standard is by no means perfect, requiring all banks to account for credit losses at the point of origination. But community bankers and ICBA have singlehandedly achieved numerous and important revisions to the standard that will make it more workable for Main Street institutions and avoid potentially disastrous consequences for our industry.

    Key Concessions

    Compared with what was originally proposed, FASB has completely departed from a standard that would have required complex modeling systems for institutions large and small. Instead, it now explicitly allows community banks to continue using their personal understanding of local markets to determine loan-loss reserves. That means community banks will be able to continue using qualitative factors, historical losses and spreadsheets to calculate their loan-loss reserves when the standard is implemented in 2020-21.

    Federal regulators showed they are on board with this approach, announcing in formal guidance that community banks will be able to meet the new standards without complex models or third-party service providers. This is complete reversal from a year ago, when a regulator-led webinar suggested banks should consider investing in third-party modeling systems.

    Years of Outreach

    Why the change of heart? It’s due entirely to the tenacity of community bankers, our affiliated state associations, and ICBA, the only national trade association that stood up exclusively for our industry. ICBA led grassroots outreach on the standard since it was introduced nearly six years ago—including a 2011 petition signed by roughly 5,000 bankers. Meanwhile, ICBA community bankers have worked directly with FASB to explain the unique community bank business model, resulting in these important changes.

    ICBA community bankers Greg Ohlendorf, Lucas White and Tim Zimmerman deserve special congratulations and thanks for their efforts. All three volunteered hundreds of hours of their precious time to work with FASB and communicate community banker concerns. Most recently, Zimmerman, ICBA’s vice chairman, has served as the sole community bank representative on FASB’s Transition Resource Group. The TRG will continue to play a key role in assuring the standard is implemented as intended, with the much-needed industry-advocated improvements.

    Real-World Impact

    The impact of these changes cannot be overstated. As originally proposed, FASB’s impairment proposal would have crippled community banks and their ability to serve local communities across the nation. Now, community banks will be able to continue accounting for loan losses in a more scalable manner, using their own systems and first-hand knowledge of their local customers and communities.

    Indeed, the evolution of the CECL standard warrants congratulations all around. These changes simply could not have been achieved without the input of an entire industry of community bankers. Hats off to my community bank colleagues from coast to coast for fighting this important battle and accomplishing so much.

    A Voice That Must Be Heard

    Apr 15, 2016
    “You say it again, and you say it again, and you say it again, and you say it again, and you say it again, and then again and again and again and again, and about the time that you’re absolutely sick of saying it is about the time that your target audience has heard it for the first time.”

    Frank Luntz, political strategist

    Community bankers aren’t the type to hold back an opinion, whether it’s offering advice to a small-business customer or weighing in on how to promote local economic activity. But in this age of short news cycles and even shorter attention spans, community bankers have to be willing to tell their story time and time again to connect with policymakers and the broader public.

    The future of the industry depends on our ability to speak out passionately and directly. And with ICBA Community Banking Month and the countdown to the ICBA Washington Policy Summit underway, now is the time for community bankers to make their voice heard loud and clear. That’s why ICBA is offering a variety of resources to help community bankers spread the industry’s message.

    The ICBA Community Banking Month website offers resources that community bankerscheckoutinfographic can use to espouse the benefits of community banking, including a custom news release and op-ed, sample social media updates, and an infographic. It also offers a custom letter to Congress that community bank customers can use to advocate on behalf of the industry to their lawmakers.

    Meanwhile, community bankers can continue the industry’s push for regulatory relief and other important policy goals at this month’s ICBA Washington Policy Summit. Scheduled for April 24-27 in the nation’s capital, the summit allows community bankers to meet directly with their members of Congress and regulators to advance smarter banking policies.

    As ICBA Chairman Rebeca Romero Rainey said at last month’s ICBA Community Banking LIVE convention, each community bank has a unique story of how they serve their local communities and make an individualized impact on their customers. Our industry’s success depends on our ability to share that story—to the people in our communities, to the news media, to the policymakers who establish the laws we live by, and to the next generation of community bankers.

    So let’s tap into that and tell the community banking story—again and again. While you might get tired of repeating the benefits of banking locally and the need for policymakers to allow this system to thrive, we owe it to our communities, our economy and the future of our industry to make sure our voices are truly heard.

    Study Affirms Community Banks’ Small-Biz Leadership

    Mar 30, 2016
    It’s something ICBA and the community banking industry say all the time: community banks are the nation’s leading small-business lenders. And the numbers back it up. While community banks make up less than 20 percent of the banking system’s assets, they dole out more than half of its small-business loans.

    Still, some small businesses continue to test their alternatives: megabanks, credit unions, and now online lenders. The latest set of numbers shows that these businesses should stick with a community bank.

    According to a new study from seven Federal Reserve Banks, small businesses that apply for loans with community banks are the most successful and most satisfied.

    Here’s what the study found:

    • Community banks were the most likely to make a loan, extending financing to 76 percent of loan applicants while large banks approved just 58 percent.
    • Community banks also had the highest satisfaction scores, with 75 percent reporting that they were satisfied with their overall experience, compared with scores of 56 percent for credit unions and 51 percent for large banks.
    • While online lenders had the second-highest rate of approval at 71 percent, just 15 percent of borrowers said they were satisfied with the experience.
    • Of the firms that were dissatisfied with their experience with online lenders, 70 percent cited high interest rates and 51 percent reported unfavorable repayment terms.
    With the amount of blood, sweat and tears that goes into launching a startup or expanding a small business, entrepreneurs should know that they have a partner in their local community bank. That is more important now than ever before, as demonstrated in a 2014 ICBA study that found that 41 percent of Millennials say they are very interested in starting up their own business.

    So community bankers, let’s continue to spread the word about the importance of our industry in getting small businesses off the ground and taking our economy along with them. It’s an important message that everyone needs to hear, and now we have even more data to back it up.

    Mortgage Relief Recognizes Community Banks’ Unique Role

    Mar 28, 2016
    It was a long time coming, but persistence paid off when the Consumer Financial Protection Bureau recently updated its mortgage regulations to ease unnecessary restrictions on many community banks. Under an interim final rule, the CFPB expanded Qualified Mortgage eligibility for balloon loans held in portfolio and exempted more rural lenders from escrow mandates.

    That might sound a little complicated to the layman. But all it really means is that Washington regulators will allow many community bankers to keep doing what they’ve done for years—making mortgage loans that meet the unique needs of their customers and communities.

    And that’s really the heart of the matter here. This isn’t an example of ICBA, our affiliated state associations and community bankers achieving some abstract policy goal. No, this is a case of policymakers acknowledging the benefit of a service that community bankers have offered for generations.

    The case for reform has been overwhelming. According to the ICBA Community Bank Lending Survey released last year, three-quarters of respondents said regulatory burdens are keeping them from making more residential mortgage loans. Half of all rural banks said they did not qualify for the QM rule’s “rural” exception. That report followed the release of ICBA’s 2013 Community Bank Qualified Mortgage Survey, which found that less than half of those offering balloon loans would qualify for the QM rule’s balloon mortgage exception.

    Ultimately, it was this hard evidence combined with dogged initiative that saw crucial reforms all the way through—from winning portfolio QM treatment for small creditors in the original rule, to achieving the CFPB’s expanded definition of “rural area,” to the additional relief that advanced last December in the FAST Act. In fact, we still want to take this even further and implement QM safe harbor treatment and escrow relief for all community bank loans originated and held in portfolio.

    I’m thrilled that our persistence has paid off—that the concerns of ICBA have been heard and that thousands of community banks and the customers they serve will regain access to mortgage credit. And I’m thankful for all the hard work that community bankers and the state associations have put into their advocacy. But more than anything, I’m hopeful that this development reminds policymakers that community banks are and always have been in the business of serving local communities—something that Washington should be looking to promote, not regulate out of business.

    The Story I Heard in New Orleans

    Mar 14, 2016
    cblphoto2 It’s a funny thing. The buildup to the ICBA Community Banking LIVE® national convention is a massive undertaking, one that uses up every ounce of energy from ICBA bankers and staff. But rather than coming home exhausted, once again I’ve come home feeling more energized than before.

    How does that happen? Am I delirious with exhaustion after a year of painstaking groundwork? Was I hypnotized by the menagerie of workshops, events and Expo demonstrations? I mostly steered clear of the raw oysters and hurricanes, so it’s not something I ate.

    No, I’m energized by what I saw and heard from thousands of community bankers at the convention. It was the more than 3,000 members of our industry taking pride in our accomplishments, our public service, and our local, personal, community banking model.

    It was ICBA Immediate Past Chairman Jack Hartings calling on every one of us to stand up, speak up and step up. It was new ICBA Chairman Rebeca Romero Rainey reminding community bankers that what we do matters. Reminding us to tell our story—to our customers, to our communities, and to the policymakers who set the rules we live by.

    Witnessing that story being told is what energizes me. While every community banker tells it a little bit differently, the message of integrity, accountability and local involvement is always there. And the beauty of the community banking story is that it’s 100 percent genuine—no spin, no tricks, no double-dealing.

    So don’t be shy—tell our story loud and clear. Whether it’s celebrating Community Banking Month in April, coming to the nation’s capital for the ICBA Washington Policy Summit, or simply spreading the word about what community banking means in your hometown—speak up for all to hear!

    By sharing our story, we can support stronger communities, promote a more resilient economy, and protect our nation from the ills of excessive financial concentration. And after years of hard work and commitment, we can replenish in ourselves the energy and the true grit it takes to bring that story to life every day.

    Thank you, community bankers, for doing what you do and for putting on another powerful and fulfilling convention.

    Responsiveness Is Key to Another Productive Year

    Jan 06, 2016
    800px-us_capitol_dome Welcome to 2016, community bankers! We had a prolific year of advocacy in 2015, and I want to thank all of you for doing your part. ICBA is again primed and ready to hit the ground running in Washington on a number of fronts. But we can’t forget that diligence alone will not ensure another successful year. We must also be flexible and quick to respond to the constantly churning and evolving political realities of the nation’s capital.

    That means not only actively working to advance long-standing ICBA initiatives, such as building on the common-sense regulatory relief we achieved last year, but also defending against new and dangerous threats to relationship banking and Main Street economies as they arise.

    Take last year, for example. Sure enough, ICBA and community bankers achieved numerous significant victories by actively supporting pro-community bank policies. That means the Plan for Prosperity provisions eliminating redundant privacy notice requirements, extending the 18-month exam cycle, and allowing more banks to qualify as “rural” mortgage lenders under CFPB rules. It means mandated community bank representation on the Fed, call report reform, the cybersecurity information-sharing law, stricter capital standards on the riskiest megabanks, and tax relief for Subchapter S corporations. None of this could have been achieved without active community bank advocacy on behalf of established industry goals.

    However, just as important is a forceful defense against the misguided policies that continue to crop up in Washington and elsewhere. Some of these we can anticipate year after year, including the persistent and oft-frustrated attempts by credit unions and the Farm Credit System to expand into commercial banking without facing the same regulatory and tax obligations. And some we’ve worked for years to moderate, including Basel III capital guidelines and the Financial Accounting Standards Board’s costly and burdensome standards update. But some bad ideas seem to come out of nowhere, such as last year’s Senate-passed plan to cut dividends on Federal Reserve Bank stock. Following vociferous ICBA opposition, Congress exempted community banks under $10 billion in assets, saving them an estimated $200 million per year. And lawmakers softened the blow on banks over $10 billion by providing a variable rate on Fed stock tied to the 10-year Treasury.

    Sometimes the policies that didn’t pass are as important as those that are signed into law. Let’s not forget that our job as community bank advocates—whether by supporting pro-community bank measures or neutralizing hostile policies—is to promote an environment where community banks flourish. That is our mission. And after a busy and productive year, I am confident we can continue advancing that mission in 2016 and beyond.

    FASB Fabrications Show Genuine Disconnect with Reality

    Dec 18, 2015
    historybookhistory Some might be surprised to learn that I’ve encountered circumstances so unbelievable I’ve been left speechless (hard to believe, I know), but last Thursday was one of those times. After years of meeting with the Financial Accounting Standards Board (FASB) to raise concerns about the harmful impact of its proposed accounting reforms on community banks, I was astonished to find that no one at FASB has listened to a single word we’ve said. In a recent speech, FASB Chairman Russell Golden had the gall to not only dismiss community bank concerns with the proposal, but also to implicate Main Street banks in the Wall Street financial crisis!

    In addition to misrepresenting his organization’s proposal and what it will mean for local lenders (more on that later), Golden said that bank failures following the crisis show that community banks were a “major part of the problem.” I was so struck by this outright fabrication—this slander against the hardworking Americans who pulled our economy out of Wall Street’s toilet—that I was at a complete loss for words, for about a minute. Then it came time to respond and call these remarks out for what they are: a cynical and ahistorical justification of shoddy policies by an organization that refuses to acknowledge its own mistakes.

    As ICBA noted this week in a letter from our entire Executive Committee, the truth is that the vast majority of community banks fared extremely well during the Wall Street crisis because of their personalized, relationship-based business model—the very model that FASB accounting reforms completely contradict. While too-big-to-fail banks developed irresponsible financial instruments that incentivized disastrous risk-taking and then survived on taxpayer assistance after wrecking the economy, community banks continued their business of meeting face-to-face with their customers and providing badly needed credit. Blaming community banks for the crisis is like blaming Poland for World War II. It shows either a misunderstanding of our financial system, a disdain for local financial institutions, or a selective historical view that one might expect at a lower Manhattan cocktail lounge—not the nation’s financial accounting standards-setter.

    Adding insult to injury, Golden also flatly disavows the cost and complexity inherent in FASB’s proposed Current Expected Credit Loss model (CECL). In fact, the CECL plan requires banks of all sizes to record a provision for credit losses the moment they make a loan, mandating expensive credit modeling systems that will crush the localized financial decision-making that is fundamental to community bank lending. Further, Golden downplayed the strict regulatory requirements the new standards will necessitate, showing a clear disconnect with regulators that have already launched webinars on the plan and have predicted a resulting 30 to 50 percent hike in loan-loss reserves.

    This financial accounting doublespeak demonstrates a callous disregard for ICBA’s repeated attempts to make FASB’s plan work for community banks—including numerous meetings, our alternative proposal based on historical losses, and the nearly 5,000 community bankers who signed ICBA’s petition advocating the alternative model. If FASB continues to ignore the community banking industry’s calls for reform, the damage to our industry, the American consumer, and local economies will be irreparable. Golden’s temerity might have left me momentarily speechless, but it’s only going to turn up the volume of our opposition to this costly, burdensome and economically catastrophic plan.

    Community Bank Persistence Pays Dividends

    Dec 07, 2015
    800px-us_capitol_domeIt wasn’t exactly what ICBA was advocating; nevertheless, nearly all community banks scored a major victory with the industry’s hard-fought exemption from a backdoor tax hike on most members of the Federal Reserve System.

    Following passionate industry advocacy to scrap a Senate-passed plan that would have required all Fed-member banks to pay for federal highways via cuts to Fed dividend payments, lawmakers agreed to exempt community banks under $10 billion in assets. Larger banks will receive a floating dividend not to exceed 6 percent (which in itself is far superior to the flat 1.5 percent rate that was contained in the original bill).

    While ICBA and community bankers have pushed to completely drop the dividend cut ever since the ill-conceived proposal advanced last July, this community bank exemption will save our industry an estimated $200 million each year. That’s roughly $150,000 in annual savings for a $500 million bank, $300,000 for a $1 billion bank, and so on. With more than 1,800 members of the Federal Reserve at less than $10 billion in assets, the benefits will be felt in communities nationwide.

    We were also able to push through some beneficial regulatory relief policies from ICBA’s Plan for Prosperity. The bill eliminates redundant privacy notice requirements, expands the 18-month exam cycle, eases restrictions on rural mortgage lenders, enhances TruPS CDO relief for small bank holding companies, and allows thrift holding companies to take advantage of new SEC registration thresholds. Further, the final law restores funds cut from the federal crop insurance program and drops an ICBA-opposed plan to raise Fannie Mae and Freddie Mac guarantee fees.

    Together, these successes show what ICBA and the community banking industry can accomplish by working together on all fronts. No, we didn’t get everything we wanted—a complete withdrawal of this bad public policy—but by being the first to identify this issue and then bird-dogging it and never giving up on it, we made a meaningful difference for our industry. Thank you, community bankers, for all of your hard work. And congratulations on this outstanding success, which will provide lasting benefit to your customers and communities across the nation.

    Loan-Loss Plan Is Direct Hit on Community Bank Lending

    Nov 30, 2015
    accounting The following op-ed originally appeared Nov. 9 on American Banker’s BankThink blog.

    It is no wonder that the banking industry strongly opposes the Financial Accounting Standards Board’s proposed reforms to loan-loan loss reserve calculations. The proposal would force community banks, in particular, to completely overhaul their approach to lending. Even some FASB members and more than half of the board's own Investor Advisory Committee oppose it as well.

    The proposal would revamp how banks recognize credit losses on all types of loans. Because community banks follow generally accepted accounting principles — known as GAAP — they normally record a provision for credit losses when they actually have evidence they'll incur a default. But under the FASB plan, known as the Current Expected Credit Loss model, banks of all sizes would instead take a hit the moment they make a loan. Banks would be required to estimate expected credit losses for the life of a financial instrument and recognize the net present value of those losses at the moment of origination.

    This is flawed accounting and antithetical to the community banking model itself. Requiring local institutions to institute and maintain complex and expensive credit modeling systems removes their discretion to make localized financial decisions. Pushing up loan losses in the credit-loss cycle to the point of origination also effectively penalizes community banks for investing in loans, which are made predominantly to individuals and small businesses in their local communities.

    This will restrict the flow of credit from banks of all kinds. Tying up more capital in loan-loss allowances will mean lower regulatory capital, fewer loans to consumers and even tighter economic growth. The Office of the Comptroller of the Currency estimates that the proposal will increase loan-loss reserves by an average of 30 to 50 percent, which translates into a decline in bank capital to support local lending.

    So, the FASB proposal has problems. What can we do about it? Can we address concerns over recognizing credit losses without damaging the community bank business model? Fortunately, community banks are still in the business of finding solutions. To borrow from John Adams, we want to have a better hand at building up than pulling down, which is why we've come up with an alternative proposal.

    The ICBA's alternative plan for institutions with less than $10 billion would base loan-loss provisions on historical losses for similar assets. Expected losses on financial assets that have not incurred losses would be based on the entity's own historical loss experience for identical or similar assets. If the institution does not have historical data, it could base expected losses on the experience of a representative peer group. If a loan or security became impaired and a loss was probable, institutions would be allowed to increase the reserve based on a specific measurement of impairment.

    This plan would build necessary allowances for potential losses and match each loan's credit risk with its earning potential. It also would recognize reserves sooner in the credit cycle, which meets FASB's objective of reforming the shortfalls exposed during the recent credit crisis. Most important, the alternative removes the principle of recognizing losses on day one, reflecting the fact that losses generally occur later in the life of the loan. This would limit the negative impact on community bank lending.

    Nearly 5,000 community bankers have signed a petition advocating this simpler approach to financial accounting. The FASB should heed the concerns of community bankers, the rest of the banking industry, and its own board and committee members. Fortunately, we can address concerns with our system of loan-loss provisioning without disrupting community bank lenders and those who depend on them for access to capital.

    Digging Deep and Making a Difference This Holiday Season

    Nov 23, 2015
    While many Americans are gearing up for the holiday season, ICBA and community bankers are gearing up for a bustling couple of weeks in Washington. Three top-priority industry initiatives are coming to a head in roughly as many weeks: blocking a backdoor tax hike on Federal Reserve members, modifying a dangerous rewrite of accounting standards, and advancing community bank regulatory relief. We need community bankers nationwide to make their voices heard loud and clear above the din on Capitol Hill.

    First off, ICBA is working to ensure that community banks aren’t forced to pay for a federal highway bill that House and Senate lawmakers are in the middle of finalizing. An ICBA-advocated amendment that passed in the House would remove a Senate-passed cut to dividends paid on Federal Reserve Bank stock. The amendment not only drops the $17 billion backdoor charge on community banks, but also removes a provision to extend higher guarantee fees on mortgages sold to Fannie Mae and Freddie Mac. We also want to ensure a separate House-passed amendment that advances several ICBA regulatory relief provisions is included in the final version of the bill.

    Meanwhile, ICBA is calling on community bankers to continue leading the charge against a costly accounting revamp that is expected to be finalized by the Financial Accounting Standards Board as soon as next week. The Current Expected Credit Loss model would require banks of all sizes to set aside reserves the day they make a loan or investment, resulting in an increase in loan-loss reserves of up to 50 percent, according to the Office of the Comptroller of the Currency. We’re calling on community bankers nationwide to contact FASB and advocate ICBA’s alternative plan, which would base community bank loan-loss provisions on historical losses. Meanwhile, I encourage community bankers to attend ICBA’s complimentary audio conference on the FASB proposal on Monday, Nov. 30.

    Last but not least, ICBA is making a major push to advance our Plan for Prosperity regulatory relief priorities all the way through Congress before lawmakers break in December. Because the House has already passed numerous ICBA-advocated measures, such as relief from new mortgage rules and Basel III, the Senate is the key to getting them over the finish line. Whether it’s using the appropriations process ahead of the Dec. 11 budget deadline or old-fashioned regular order, now is the time for us to pull out all the stops.

    The rest of the country might be cleaning out their ovens to cook Thanksgiving dinner, but it’s time for ICBA and community bankers to strike while the iron is hot. Community bankers have sent 15,000 letters to Capitol Hill against the Fed dividend cut and for our regulatory relief proposals, and nearly 5,000 signed ICBA’s petition on FASB’s accounting plan—clearly demonstrating our industry’s ability to rally when it matters most. So while we’re making room for turkey and stuffing, let’s all dig deep and redouble our advocacy efforts. With strong collective action, we can ensure a lasting holiday gift to Main Street communities.

    Retailers Fishing for Distractions Amid Data Security Push

    Oct 26, 2015
    800px-us_capitol_domeCongress is an intentionally deliberative body. It was structured by our founders to ensure collective participation in shaping government policy, and sometimes that allows certain factions to disrupt the legislative process purely for their own self-interest. Such is the case with the retail industry sidelining the debate over data security by resuscitating tired and largely settled complaints over the transition to EMV chip technology.

    As ICBA recently testified before the House Small Business Committee, community banks are in a good position to help small businesses make the switch to EMV technology. The transition itself has been underway since 2011. And the Oct. 1 liability shift has come and gone with banks and merchants diligently moving toward implementing EMV.

    But rather than entering into a substantive dialogue about the limitations of chip technology and collaborating on further improving consumer security in an era of data breaches and cyber-threats, retail industry lobbyists have instead fixated on EMV quibbles and attempted to re-litigate the failed Durbin Amendment debit interchange price controls. To avoid the public spotlight on their own costly security lapses, retailers are serving red herring.

    Don’t bite. Here are the facts: EMV is a positive step for consumers, but it is simply not a panacea for payment card fraud. While counterfeit card fraud will be successfully mitigated when a critical mass of card issuers and merchants migrate to EMV, fraudsters will shift to other fraud, such as online card fraud. The financial industry is, however, pioneering multiple layers of security technologies, such as end-to-end encryption and tokenization, to protect cardholder information in transit and online transactions. Meanwhile, Congress can take action now—I mean right now—to address the scourge of massive retailer data breaches affecting consumers and the broader economy.

    The Data Security Act (H.R. 2205), introduced by Reps. Randy Neugebauer (R-Texas) and John Carney (D-Del.), would implement uniform national data-security standards in place of the current patchwork of state laws. This national standard for all entities that handle sensitive financial data—including merchants—would require robust data-security processes while at the same time being scalable and flexible to the size and risk profile of covered entities. In other words, the corner mom-and-pop deli won’t have the same level of scrutiny as multichannel retailers with massive databases of consumer information, like Wal-Mart, Target or Home Depot. But consumers themselves will be better protected than ever before.

    Lawmaking is a justly deliberative process, but it should not be diverted by misleading and disingenuous arguments. If merchants do not want to meet the same kinds of security standards that have worked well for financial institutions, they should explain why they should not have to. But let’s not stall Congress with red herring distractions when, faced with rampant cyber-crime and data breaches, we have much bigger fish to fry.

    Staying True to Our Mission

    Oct 06, 2015
    In an era of seemingly perpetual political gridlock, it’s important to pause on occasion to consider why we community bankers put so much effort into political advocacy. From our continuous and relentless regulatory relief efforts to our persistent support for fair and equitable oversight of credit unions and the Farm Credit System, community bankers certainly have a lot of irons in the fire.

    That’s why, when the Washington two-step starts to make my head spin, I go back to the basics. I look to ICBA’s mission to remind myself why we do what we do. Our mission statement is short and sweet, to “create and promote an environment where community banks flourish.”

    It’s a brief but powerful statement. In fact, it’s posted on the wall of our Washington office lobby, so ICBA staff can see it when they walk in every morning and walk out at night. To me, the key word is “flourish.” ICBA is here to help community banks grow, thrive, be healthy and vigorous. We combine the strength of each community bank to create an atmosphere that benefits all of them. In turn, community bankers can better serve their local customers and communities, establishing a stronger economy at the ground level.

    This system goes to the heart of what we believe as an organization of community bankers. In fact, this philosophy is at the foundation of what we believe as a nation: that we are stronger from the bottom up than from the top down. That we are more powerful collectively when we are empowered individually.

    At ICBA we really do have one mission: community banks. It isn’t a slogan. It’s why we’ll keep fighting for additional reforms to the Qualified Mortgage rule and why we’ll hold regulators to their promise of a streamlined call report. It’s why we are not holding anything back from a Congress that has uttered countless words of support for community banks but has yet to deliver tangible regulatory relief this year.

    Yes, with so much partisan paralysis, there is a lot of unfinished business as the nights get longer and cooler here in Washington. But by maintaining our focus on a simple statement—to create and promote an environment where community banks flourish—we can clearly see how all of these moving parts fit together in a single, important mission.

    Banks: An Eponym of Epic Proportions

    Sep 22, 2015
    When most people want a tissue, they say they need a Kleenex. When you cut your finger, you don’t say you need an adhesive bandage—you need a Band-Aid! When you need to make a photocopy, regardless of the brand of the machine, you make a Xerox copy. Many marketers would consider this a compliment, especially if you work for the company that’s in the common lexicon as both product and brand. But what happens when you are a unique brand that makes superior products that compete with Kleenex, Band-Aid or Xerox? Are you doomed to spend countless marketing dollars simply trying to be recognized?

    Similarly, not all banks are created equal, but some in Washington would love for people to believe that all banks are the same, just as some marketers want everyone to believe that all tissues are Kleenex. For example, whether for cover or clout, some would argue there are benefits to blurring the lines between too-big-to-fail Wall Street banks and the nation’s community banks. It’s a brilliant PR move, so thinly veiled it almost sounds genuine. Let’s convince everyone that all banks suffer the same maladies of bad reputations from ill-gotten gains. Perhaps if we say it often enough, and in a convincing, empathetic tone, everyone will simply believe it’s true. After all, a bank IS a bank—a purposefully created, well-disguised eponym. How would your community bank fare as a victim of brand-washing?

    This raises a challenge for our industry—the community banking industry. We must not allow the biggest and riskiest financial firms to drag our reputations down with them. We must not allow them to compromise the positive image that community banks have earned. We cannot allow them to dilute our brand.

    I’m troubled when some members of the banking industry say banks have a reputation problem. Yes, the mega-banks do have a reputation problem. The too-big-to-fail Wall Street institutions that wrecked our financial system and economy have a reputation problem. But community banks are held in high regard among policymakers and the general public alike. Community banking offers positive associations, such as small-business loans to Main Street businesses, financial literacy lessons for neighborhood schools, and mortgages that help first-time homebuyers experience the American Dream.

    My point is that community banks have worked hard to establish our unique position in the financial services industry, and we should not allow our brand to be taken away from us. When someone asks if you’re a banker, stand proud and say, “I’m a community banker.” If someone asks if you work for a bank, proudly say, “I work for a community bank.”

    We cannot and should not be lumped together with those mega-banks whose past and continuing actions sully the good name of banking. We must defend and promote the community bank brand proudly because nobody else will do it for us—certainly not Wall Street. At ICBA we give voice to and work for community banks every day, and we will keep doing everything we can possibly do to prevent our brand from being tarnished or taken away from us. We are different; we are unique; we are community banks.

    Guest Blog: Giving Credit Where It’s Due—with Community Bankers

    Sep 10, 2015
    terry-jorde-photo-2012By Terry J. Jorde

    Congratulations, community bankers! This week we saw once again that our industry’s hard work and determination on behalf of regulatory relief can achieve tangible results in Washington.

    Following passionate advocacy from ICBA and community bankers, regulators issued a proposed rule to simplify community bank call reports and laid out their plan for considering additional reporting relief in the coming months. While there is still a long way to go to get the relief we’ve advocated, this announcement is an important first step in one of our top-priority regulatory relief initiatives. And it is due exclusively to the community bankers who have stood up and demanded change.

    The Federal Financial Institutions Examination Council (FFIEC), which is made up of all of the bank regulatory agencies, this week issued the first part of their plan, which would delete certain data items and revise reporting thresholds. More important, however, is the council’s pledge to evaluate the creation of a streamlined quarterly call report for community banks and to continue its dialogue with our industry. This promise is a big win for community banks because it could ultimately lead to our goal—a shorter, less burdensome and more sensible call report, which is a key element in ICBA’s overall regulatory relief strategy.

    Lest you think the regulators came up with this idea out of thin air, it is important to understand that getting to this point has required education, patience and diplomacy. And our work is far from over. But make no mistake about it, any success we achieve on this front has a very specific source—community bankers and their ICBA team in Washington!

    The announcement comes one year—almost to the day—after ICBA leadership met with the FFIEC in our offices and delivered a petition with nearly 15,000 signatures representing almost 2,500 community banks urging call report relief. The ICBA petition, which we spent a month collecting signatures on last year, was inspired by a broad industry survey, in which we found the annual cost of preparing the call report has increased for 86 percent of respondents over the past 10 years. Further, 98 percent of respondents said a short-form call report would reduce their regulatory burden, and 72 percent said the reduction would be “substantial.” Banks under $500 million told us they spent on average 122 hours per year on the call report, while preparation time for banks greater than $500 million jumped to an average of 274 hours per year!

    Having real community bankers on ICBA’s staff—those who have actually prepared the quarterly call report—helps the association understand first-hand the burden it poses to Main Street institutions. ICBA’s experienced team of dedicated staff has heard the industry’s calls for reform loud and clear and has taken that message directly to the regulators. And to their credit, the regulators are listening and have acted upon the industry’s call to action. But the real credit for this crucial step forward goes to the thousands of community bankers who answered surveys, signed petitions, wrote letters, spoke up at EGRPRA meetings and hosted regulators in their banks to personally show them the burden of call report preparation.

    ICBA is in this for the duration and will continue working with regulators to maximize call report relief for community banks. But for now, I say kudos to community bankers. Thank you for your efforts to achieve positive results in the face of arduous regulatory hurdles. And never forget that you are capable of making real change in Washington through your hard work, determination and dedication to doing what’s right for communities across this great nation.

    Let’s Put a Stop to Credit Union End Run Around Congress

    Aug 18, 2015
    The United States has three branches of government to prevent any one from having too much power. The tax-exempt credit union industry apparently skipped this civics lesson because it obviously doesn’t believe it should have to listen to Congress.

    The National Credit Union Administration has proposed dramatically revising business-lending rules for these tax-subsidized institutions. Current law allows any credit union to make business loans worth up to 12.25 percent of its total assets. While lawmakers have repeatedly declined to advance controversial legislation to raise this cap, the NCUA has unilaterally done so on behalf of the industry it is supposed to regulate.

    It is up to community bankers to call out the NCUA for sidestepping the cap established by Congress and attempting to extend the industry’s government-funded competitive advantage. ICBA offers community bankers a customizable letter to Congress and the NCUA to express opposition to this misguided plan.

    The NCUA’s proposal blatantly skirts the statutory cap by exempting more loans from it, removing explicit loan-to-value limits and increasing the population cap for community charters by 400 percent. By piling on additional exemptions, the plan increases risks to the financial system. According to the Capital Policy Analytics Group, credit unions with the highest levels of business loans represent a disproportionate share of credit union failures, showing the risks of blanketing these institutions with new business-lending authorities.

    The NCUA wants to assuage public concerns over these risks by requiring credit unions to create credit policies and risk-rate their loans. Rather than offering reassurance, this suggestion is an alarming admission of the weak oversight and regulatory standards now in place for credit unions. Credit policies and risk-rating systems have been standard community bank practices for decades—where have the credit unions been?

    The truth is that aggressive and fast-growing credit unions are seeking to leverage their tax-exempt status to siphon top-performing small-business loans away from community banks, which actually pay taxes to their federal, state and local governments. Nearly 99 percent of credit unions below the federally mandated cap can already expand their lending if they choose to do so, with no change to federal law or regulation. And there are already plenty of ways to circumvent the limit because loans under $50,000 and Small Business Administration loans as large as $5.5 million don’t count toward it. Continuing to relax these congressionally mandated restrictions will only serve the interests of the riskiest, growth-oriented credit unions, while putting the broader financial sector at greater peril.

    Credit union business-lending caps were established by Congress because these tax-subsidized institutions are designed to serve people of modest means with a common bond. These days, multi-billion-dollar credit unions are allowed to have virtually no common bond among members, yet they continue to operate tax-free. Meanwhile, they remain unique among lenders due to their exemption from regulations such as the Community Reinvestment Act.

    Community bankers, tell Congress and the NCUA that the regulator should focus on implementing and enforcing credit union laws as they are written. If credit unions want to operate like banks, they should be taxed and required to meet the same set of regulatory standards. They can’t have it both ways.

    This Month, There’s No Place Like Home

    Aug 07, 2015
    It’s hard to believe that the August congressional recess is already upon us, but in many ways the community banking industry is well-positioned to take advantage of this pause in the legislative session. While ICBA and community bankers have once again advanced a variety of regulatory relief measures through aggressive advocacy, we’re going to need a real show of force to finish the job.

    And what’s true for Dorothy and Toto is true for grassroots advocacy—there’s no place like home. With party politics frustrating the advance of regulatory reforms that enjoy widespread bipartisan support in Congress, ICBA is calling on community bankers to make their voices heard while lawmakers are back home in their districts this month.

    ICBA’s Main Street Matters online resource center helps community bankers invite their members of Congress to be community bankers for a day. By showing Congress firsthand the impact of the overwhelming burden facing community banks and their customers, we can really demonstrate to lawmakers what relief means for the constituents and communities they represent.

    Look, I know how much work it is being a community banker—it doesn’t leave a whole lot of time to meet with policymakers and advocate on a bunch of complex regulations. But as community bankers know all too well, Congress just isn’t going to act on the excessive regulatory burdens we face day in and day out unless we get in their faces and demand change. That’s why ICBA has designed Main Street Matters and our other grassroots resources to help community bankers make their voices heard in the halls of Congress at the same time they’re doing their jobs and supporting local economies.

    As I said, when it comes to grassroots advocacy, there really is no place like home. So call out your members of Congress, invite them to your community bank, show them what overregulation is doing to their constituents, and remind them that they’re not in Washington anymore!

    Regulatory Burden Is Capturing Big Headlines

    Aug 03, 2015
    icba_wt_15-08-03 While ICBA continues our full-court press toward advancing community bank regulatory relief all the way through Congress and to the president’s desk, we are also making noticeable headway in raising public awareness of the problem via the national news media. The Washington Times recently ran a special section featuring a series of articles, editorials and ICBA op-eds on community bank overregulation and the association’s proposals to address the issue.

    Titled “How Excessive Regulation is Crushing Main Street: The Inside Story on the Squeeze Facing the Nation’s Community Banks,” the special section includes comprehensive coverage of the dangers of a one-size-fits-all approach to regulation and the resulting impact on consumers and local communities. It also spotlights specific areas of concern for our industry, such as Operation Choke Point, the call report, credit union oversight, barriers to de novo charters and cybersecurity rules.

    The Washington Times feature complements ICBA’s ongoing, aggressive strategies to raise awareness in Washington and nationwide of the regulatory challenges facing community banks and what it means for our Main Street economy. I strongly recommend that community bankers—and anyone else concerned about the impact of red tape on American jobs and communities—read this important series and share it with your lawmakers to demonstrate the critical need for congressional action on which Main Street is depending.

    Accounting Standards Next in Long Line of Cookie-Cutter Regulations

    Jul 20, 2015
    You’ve heard the old line that an elephant is a mouse built to government specifications? We’re all familiar with how government spending tends to grow rather than shrink. An equally troubling tendency perhaps even more familiar to community banks is the way governments often apply a cookie-cutter approach to their policies.

    Regulations are inherently rigid and often fail to account for the unique circumstances of individuals and businesses. That often means a one-size-fits-all approach to a community banking model based on individual relationships and one-on-one service. Think Basel III—a capital framework designed for global financial institutions that nevertheless applies uniform standards on Main Street community banks.

    While ICBA and community bankers have given everything they’ve got on Capitol Hill and at the regulatory agencies to institute a system of tiered regulation based on size and risk, a radical change to financial accounting due out as soon as this year threatens to deal yet another blow to locally based banking.

    The Financial Accounting Standards Board is expected to release its updated accounting standards on credit losses in the fourth quarter. These new standards would require complex modeling and compel banks to recognize losses much earlier than necessary in the credit-loss cycle, penalizing community banks for investing in loans and securities.

    What does this mean for community banks and their customers? For one, it will mean fewer loans. Currently, community banks don’t make an allowance for loan losses unless they have evidence that they’ll incur a default. Under the FASB’s “expected loss” model, banks would instead take a hit the moment they make a loan. Not only would banks have to recognize a loss on day one, but the proposal requires complex and expensive modeling tools that will inhibit the ability of local banks to make localized financial decisions. The Office of the Comptroller of the Currency estimates that the proposal will increase loan-loss reserves by an average of 30 to 50 percent.

    Further, this plan will only add to the regulatory burdens overwhelming the community banking industry. Forecasting inputs used to predict potential loan losses will never be strong enough to satisfy the scrutiny of bank examiners. There will always be another rock to look under as examiners try to ensure a more precise model. So what we have is an approach to loan losses that is at once expensive, burdensome, time consuming—and yet never enough to satisfy examiners. Bottom line, this proposal is a double whammy of decreased lending and increased regulatory scrutiny for community banks and the customers they serve.

    But there is one other saying that this whole deal brings to mind, which is that you should never try to out-stubborn a cat.

    Community bankers are a stubborn lot and aren’t about to back down from this radical policy change. It’s why we’ve come up with an alternative proposal for institutions with less than $10 billion in assets that bases loan-loss provisions on historical losses for similar assets. It’s why we’ve met repeatedly with the FASB, including several times at the board’s headquarters in Norwalk, Conn. And it’s why nearly 5,000 community bankers signed a petition advocating ICBA’s simpler approach.

    Our nation’s hometown banks have fought and clawed so they can continue serving their communities amid a raft of new regulatory burdens. We’re not about to let yet another cookie-cutter government regulation take hold without a fight.