By 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
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
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
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
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.
Common Sense Prevails on Capitol Hill
Sometimes common sense really can prevail in Washington. It’s been known to happen before, but the latest example was the House’s recent removal of an onerous amendment that would have drastically increased IRS reporting requirements.
This particular amendment would have required banks to send a 1099-INT form to any depositor who earned any amount of interest in a calendar year, removing the current $10 interest-earned threshold. It also would have required banks to report to the IRS information on all non-interest-bearing accounts. So not only would this amendment set off a tidal wave of new 1099s for even the paltriest of savings account earnings, it would even expand reporting for accounts that earn no interest whatsoever.
Not only that, but this paperwork burden appeared out of nowhere in a piece of legislation primarily focused on supporting economic growth in Haiti and sub-Saharan Africa. No one has claimed credit for including it in the Trade Preferences Extension Act (H.R. 1295).
The good news is that following strong opposition from ICBA and others in the financial industry, the House overwhelmingly passed H.R. 1295 without this amendment. Responding in full force just as quickly as this amendment appeared out of thin air, we were able to get the House to leave it on the cutting room floor. I did say common sense prevailed, didn’t I?
Of course, ICBA remains on high alert. This legislation is expected to come before the Senate as it is currently written, without the 1099 provision. But we’ll continue monitoring the bill and working with lawmakers to ensure the provision does not sneak into H.R. 1295 like it did a couple weeks ago.
That said, I’m confident we’ve put out this fire for the time being. Now we can return to actively working to roll back excessive community bank regulation, rather than warding off new regulatory threats as they crop up. It’s clear by this recent success that logic and reason can indeed win out in Washington. So let’s keep the pressure on and see if we can get our nation’s capital to turn this flash of common sense into a trend.
Record-Setting Fines Still Megabank Pocket Change
The recent guilty pleas and fines against five of the world’s largest financial institutions demonstrate not that regulators are finally cracking down on megabank crime, but that it’s still business as usual on Wall Street.
Five global banks pled guilty to conspiring to manipulate interest rates and foreign currency exchange markets and have to pay nearly $6 billion in fines. But compared with the fines and lawsuits awaiting individual community bankers who exercise poor judgment in running their institutions, these megabank penalties are small potatoes.
While JPMorgan Chase, Citigroup and others pled guilty to market manipulation, no single individual from these institutions was called to account. A lengthy digital trail of chat room conversations from traders who called themselves “The Cartel” shows that plenty of individuals knowingly broke the law to line their pockets. Yet, not one of these individuals was held legally responsible for their illegal, anticompetitive and costly activities. Meanwhile, the institutions themselves have been granted waivers from regulators that allow them to continue operating and engaging in securities activities despite their violations.
For community bankers, this just doesn’t compute. In our neck of the financial industry, no one is above the law. Even boards of directors not directly involved in the daily operation of community banks can be hauled into court, publicly humiliated and held liable for poor judgment at their institutions. As I wrote in a recent letter to banking regulators
, violations of this magnitude at a community bank would have promulgated the resignations of senior management and possibly the outright closure of the bank.
It’s incomprehensible to this former community banker that not a single Wall Street senior executive or director has been held culpable for violations that brought on the greatest financial crisis since the Great Depression. But Wall Street executives can break the law and suffer no personal consequences at all.
Even the nearly $6 billion in fines don’t register much of a blip on the balance sheets of institutions with a combined $7.9 trillion in assets. The fines represent just 7.3 basis points for these five banks. As Warwick Business School Dean Mark Taylor recently wrote
, the $545 million fine on UBS would represent a whopping 15 percent ding on the megabank’s annual bonuses. Oh, the humanity! In fact, the financial markets reacted so positively to news of the fines that the share prices for several of the penalized banks increased
. Like I said: just another day on Wall Street.
When you crunch the numbers, it’s obvious that even headline-grabbing guilty pleas and billon-dollar settlements don’t eliminate banking industry inequities. The United States has always held steadfastly to the ancient principle that all are equal before the law. And while that long-held value has applied even to U.S. presidents, it apparently does not apply to Wall Street executives.
If we truly want to rein in market manipulation, policymakers must adopt a fair and consistent enforcement policy that treats community banks and megabanks alike. There should not be one set of enforcement procedures for the largest institutions and another for everyone else.
Community Bankers to Washington: Let’s Work Together To Get the Job Done
Last week’s ICBA Washington Policy Summit showed once again that community bankers are not only willing to go the extra mile—they’re even grateful for the privilege. With nearly 1,000 community bankers and industry advocates in the nation’s capital to advocate positive reform in more than 300 meetings with policymakers, there was a feeling of enthusiasm and optimism unique among community bankers.
They rolled up their sleeves to solve problems, support local communities and expand access to credit like it’s their job. (That’s probably because it is.) And just like the hard work that community bankers put into their local communities, their efforts in Washington are already paying off.
As I wrote in Morning Consult
before the summit, the industry focused its meetings with Congress and federal regulators on right-sizing regulation, instituting uniform data-security standards, and ending taxpayer subsidies for credit unions and the Farm Credit System.
First, community bankers urged congressional support for the CLEAR Relief Act (H.R. 1233/S. 812) and the Community Bank Access to Capital Act (H.R. 1523) to ease excessive regulation and promote access to capital on Main Street. Second, attendees called on policymakers to impose Gramm-Leach-Bliley Act-like standards on other players in the payments system, including retailers, to ensure meaningful consumer protection. Finally, the industry took on unwarranted tax subsidies for credit unions and the Farm Credit System to ensure a more consistent and less costly approach to taxing financial institutions.
In other words, community bankers came to Washington to support common sense and consistency—an appropriate regulatory structure, a level playing field. By rolling up their sleeves and digging in, community bankers have shown a readiness to put in the work that is needed to advance positive reform. And as I noted—we’re seeing results. H.R. 1233 has added 22 cosponsors since last week to bring its total to 40 in the House, and S. 812 has tacked on eight for 29 total Senate cosponsors.
But we need to continue applying pressure on Congress to ensure passage of these critical reforms. The Washington Policy Summit might be over, but community bankers everywhere can stay in touch with their policymakers via ICBA’s Be Heard grassroots website
. Follow up with your congressional delegation and hold their feet to the fire. By advocating positive reforms in letters to Congress, we can all go the extra mile to ensure community banks can continue to support local customers and communities one loan at a time.
April is a Flurry of Community Banking Activity
Wow. I don’t think there’s much more you can say with the flurry of activity going on at ICBA and throughout the community banking industry right now. Coinciding with last week’s kickoff of Community Banking Month and the final countdown to the ICBA Washington Policy Summit, ICBA also launched Community Banker University.
So at the same time that we’re celebrating community banking in April and gearing up for our annual grassroots advocacy event in Washington, we’ve also transformed and modernized our educational model. No wonder everyone around here has been so busy.
Of course, the beneficiaries are community bankers and the customers they serve. ICBA offers a Community Banking Month toolkit
to help members spread the word about community banks, and our Washington Policy Summit
allows community bankers to take the industry’s advocacy message directly to policymakers on Capitol Hill. Now with Community Banker University
and our new partnership with the Barret School of Banking, community bankers can access a fresh, modern approach to continuing education and professional development.
These initiatives go straight to the heart of the ICBA mission, which is creating and promoting an environment where community banks flourish. That means advocacy and public policy, it means marketing and communication, and it means education and development.
Just like community banks and other small businesses, ICBA is never content with the status quo. We’re going to keep innovating, keep pushing, to ensure we’re doing everything we possibly can to support our beloved industry. So I encourage every community banker out there to check out everything ICBA has to offer this April. It’s enough to make you say “wow.”
Regulatory Relief Push in Full Swing with Committee Markup
The House Financial Services Committee last week advanced five ICBA-advocated bills to provide regulatory relief to community banks. The bills, which are inspired by ICBA’s Plan for Prosperity
platform, would rein in community bank overregulation on several fronts.
The package of bills—the first in what we expect to be a series of volleys against regulatory burden—would exempt community bank portfolio loans from CFPB escrow requirements, delay and study Basel III rules on mortgage-servicing assets and eliminate redundant privacy notice requirements. Other ICBA-backed measures would allow individuals to challenge the CFPB’s rural designations and would write into statute the CFPB’s community bank and small business advisory boards.
Clearly, Congress is listening to community bankers, who have repeatedly warned about the damaging impact of excessive regulation. Centennial Bank Chairman David Williams recently testified
to the committee that community bank regulations have reached the level of overkill because they are harming the consumers they’re supposed to protect.
This is something every community banker knows firsthand. The regulatory environment that is supposed to protect consumers is actually hurting them by cutting off their access to credit. Thanks to community bankers, Congress is getting the message.
But this committee markup is just one small step in a very long legislative process. That is why community bankers must remain vigilant in pursuit of regulatory relief. And let me tell you, there’s no better way to do it than coming to Washington and beating the bushes on Capitol Hill. That’s why I’m calling on community bankers from coast to coast to register for next month’s ICBA Washington Policy Summit
. This grassroots advocacy summit, which kicks off in less than 30 days, allows community bankers to meet firsthand with members of Congress and federal banking regulators to push for relief.
As community bankers know, we have a long road to reining in excessive regulation to help our local communities thrive. But even the longest journeys begin with a single step. Let’s keep this journey going and see it all the way to the end, because our customers and communities are counting on us.