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ICBA Urges Lawmakers to Increase SEC Shareholder Registration Threshold & SOX 404(b) Exemption

Washington, D.C. (September 21, 2011)—The Independent Community Bankers of America (ICBA) sent a statement to Congress today, prior to the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises’ hearing on legislative proposals to facilitate small business capital formation and job creation.  On behalf of the association’s nearly 5,000 community bank members, ICBA urged lawmakers to increase the Securities and Exchange Commission (SEC) shareholder registration threshold (H.R. 1965 and H.R. 2167) to help community banks raise the capital they need to continue to lend to local small businesses, which drive economic stability and prosperity in cities, towns, and rural areas throughout the nation. 

In the statement, ICBA wrote that community banks are prolific lenders to small businesses, funding nearly 60 percent of all small business loan balances as of the first quarter 2011.  The association also said that recent Federal Reserve Bank research shows that while overall small business lending contracted during the recent recession, lending by a majority of community banks actually increased.

“Community banks must have access to equity markets without tripping the SEC registration requirement that brings with it very expensive regulatory compliance costs including legal and accounting fees,” ICBA wrote in the statement.  “As bank regulators demand higher capital levels, community banks must be able to raise capital from more shareholders without SEC registration.”

ICBA said that H.R. 1965, introduced by Reps. Jim Himes (D-Conn.) and Steve Womack (R-Ariz.), would provide relief from the registration requirement by raising the threshold that triggers registration from 500 shareholders to 2,000.   H.R. 1965 would also raise the SEC deregistration threshold from 300 to 1200, making it easier for registered community banks to deregister following a stock buyback or consolidation of shareholders.

ICBA also wrote that Rep. David Schweikert’s (R-Ariz.) Private Company Flexibility and Growth Act (H.R. 2167) would raise the threshold to 1,000 for all companies and would not count “accredited investors” (as defined by the SEC) or individuals who received shares as part of an employee compensation plan against the threshold.  ICBA appreciates H.R. 2167 as a significant improvement over current law.  “If we offer one suggestion to add to H.R. 2167, in addition to raising the registration threshold, we would support increasing the deregistration threshold for the reasons discussed above,” ICBA wrote.  “H.R. 2167 currently makes no change to the deregistration threshold.”

Another burden faced by community banks is the internal control attestation requirement of Sarbanes-Oxley 404(b).  “Because community banks have their internal control systems monitored continually by bank examiners, they should not have to sustain the unnecessary annual expense of paying an outside audit firm to prepare these reports,” ICBA wrote.   “ICBA strongly supports Rep. Fincher’s draft legislation, to be considered at today’s hearing, which would expand the Section 404(b) exemption.”

Rep. Stephen Fincher’s (R-Tenn.) draft bill would exempt all companies with a market capitalization of $500 million or less, a significant increase over the current threshold of $75 million.  Companies with market capitalization between $500 million and $1 billion would be permitted to opt-out of Section 404(b) compliance by a majority vote of shareholders.  A company within this capitalization range that has complied with Section 404(b) before enactment would be able to conduct a shareholder vote and potentially opt-out immediately, while a company that registers with the SEC after enactment would be allowed to defer compliance for five years and then conduct a shareholder vote on opting out. 

“The current exemption threshold of $75 million is far too low to provide meaningful relief for public companies,” ICBA wrote. “Rep. Fincher’s draft bill would relieve more community banks and other public companies of a regulatory burden and expense without creating more risk for investors.”

For more information and to read ICBA’s full statement, please contact Aleis Stokes at (202) 821-4457 or visit www.icba.org