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ICBA Calls on Policymakers to Support Withdrawal of Proposed Treasury/IRS Rule

Washington, D.C. (June 2, 2011)-The Independent Community Bankers of America (ICBA) today urged Congress to support the withdrawal of the Internal Revenue Service (IRS) proposed rule REG-146097-09, which would require all U.S. banks to report to the IRS interest paid on deposits held by nonresident aliens. In a letter to Congress and key policymakers, ICBA said that the proposed rule will cause significant economic harm.

"We urge that this extremely damaging proposed regulation be withdrawn," Camden R. Fine, ICBA president and CEO, said in the letter.  "The proposal further undermines the confidentiality that nonresident aliens have come to expect in our banking system and would likely result in the abrupt withdrawal of their deposits and deter future deposits.  This loss of deposits would immediately reduce banks' capital at the very time when banks need capital to sustain the economic recovery."

According to the Commerce Department, nonresident aliens hold nearly $4 trillion in U.S. banks.  These deposits, which are largely a function of the confidentiality, privacy and stability of our banking system, are a significant source of capital for many community banks. 

In the letter, Fine goes on to explain that the impact would be especially great in border states where the economy is most fragile.  Notably, California and Florida, with high concentrations of nonresident alien deposits, would see significant and economically damaging reductions in bank capital. 

"Bank safety and soundness would be jeopardized, and more banks would be put at risk of failure," Fine said.   "The Treasury-IRS proposal is directly at odds with the demands of bank regulators for higher capital levels."

The ICBA letter also points out that there is no compelling policy justification for this new IRS regulation and that Congress made a deliberate policy choice not to tax funds earned in the United States by nonresident aliens in order to encourage an inflow of capital that would benefit our economy.  This proposed rule was considered in 2001 and broadly rejected.  "Since that time, the need for strong bank capital to support economic growth has only become more urgent," Fine said.

For more information, and to view ICBA's letter to policymakers, visit www.icba.org.