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Creating Opportunities: The Communities First Act Does Just That

Opportunities are created, not given. Napoleon Bonaparte was once asked about his ability to exploit circumstances on the battlefield. Bemused, the French general responded, “Circumstances—what are circumstances? I make circumstances.”

Together, ICBA, its members and affiliated state associations are working to make our own circumstances in Washington, D.C.

The Communities First Act, sponsored by House Financial Services Committee member Blaine Luetkemeyer (R-Mo.) and Senate Banking Committee member Jerry Moran (R-Kan.), promises to bring sensible, much-needed regulatory and tax relief to community banks—the economic spark plugs of Main Street America. Most importantly, the House and Senate versions of the multi-solution legislation (H.R. 1697/S. 1600) would encourage more Americans to save and promote economic growth in thousands of small towns and cities across America.

Offering an array of constructive options and a flexible framework, the Communities First Act has drawn more than 60 bipartisan cosponsors, including support from key lawmakers. House Financial Services Committee Chairman Spencer Bachus (R-Ala.) has endorsed the legislation, as have Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services Capital Markets and General Sponsored Enterprise Subcommittee, and Rep. Emanuel Cleaver (D-Mo.), a member of the House Financial Services Committee and chairman of the Congressional Black Caucus. Rep. Collin Peterson (D-Minn.), a senior Democrat and chairman of the House Agriculture Committee, has also endorsed the legislation.

Also significant, in November two House Financial Services subcommittees held a joint hearing on the legislation. As ICBA Chairman Sal Marranca explained at the hearing, “ICBA strongly supports the Communities First Act because, put simply, it will help community banks better serve their communities by providing carefully crafted regulatory relief without jeopardizing consumer protection or safety and soundness. Rather than a top-down program crafted by academics, the CFA was crafted from the bottom up with input from community bankers who know what will work on Main Street.”

On the regulatory-relief side, the Communities First Act would:

  • require bank regulators to develop a short-form call report that is “significantly and materially less burdensome” to prepare. Highly rated, well‐capitalized banks with assets of $10 billion or less would be able to file the shorter call report twice a year;
  • require the Securities and Exchange Commission to increase the threshold number of bank shareholders that trigger SEC registration from 500 to 2,000;
  • require annual privacy notices only to customers unless a bank changes its information-sharing policies;
  • require the federal government to reimburse costs for banks with $10 billion in assets or less that produce documents for law enforcement or investigative purposes;
  • create a five-year rolling average of real estate loan appraisals for classifying loans during a downturn;
  • raise the qualifying threshold to $1 billion under the small bank holding company policy statement—to ease and simplify Federal Reserve capital requirements on small bank holding companies without nonbanking activities; 
  • raise the debt-to-equity ratio test from 1:1 to 3:1 for paying corporate dividends and for qualifying for expedited processing of Federal Reserve small bank holding company capital requirements;
  • increase the Sarbanes-Oxley internal-attestation-level exemption for depository institutions from $75 million to $1 billion in market capitalization;
  • exempt community banks with less than $1 billion in assets from new Wall Street Reform Act data-collection requirements for women- and minority-owned business loans, including responses to loan applications for these borrowers;
  • require the SEC to ensure that accounting information, documents and reports accurately and appropriately reflect the business model of the issuer and the scale and complexity of its financial dealings, which would help ensure the Financial Accounting Standards Board and banking regulators recognize that community banks hold assets and liabilities for the long term and that frequent asset revaluations distort their balance sheets and confuse investors; and
  • prohibit the SEC from approving any new or amended GAAP standard unless the agency determined that the standard’s benefits would significantly outweigh its costs, and require the agency to ensure that a new standard would not have a negative economic impact on banks with assets of $10 billion or less.

On the tax-relief side, the Communities First Act would:

  • allow Subchapter C corporation community banks a 20-percent tax credit up to $250,000, and allow Subchapter S corporations to exclude 20 percent of their distributable income from up to $1.25 million;
  • double the shareholder limit for Subchapter S corporations to 200; allow the use of preferred stock for Subchapter S corporation banks and allow IRA shareholders to invest in S corporation banks;
  • extend the five-year net-operating-loss carryback provision, which would help community banks that suffered losses during the economic downturn;
  • permit banks and bank holding companies under $10 billion in assets to elect a limited liability corporation tax status, without a transition cost;
  • triple the $10 million annual issuance limitation for the widely purchased tax-exempt “bank-qualified” municipal-bond obligations to $30 million;
  • create a 50-percent tax credit for community banks with up to $5 billion in assets that are operating in distressed communities or qualifying New Market Tax Credit Census tracts, up to a $500,000 cap; and
  • allow community bank customers to defer recognition of interest income earned on certificates of deposit of more than 12 months until maturity.

Every provision in the Communities First Act was carefully designed to provide the greatest number of community banks with the most relief. Enacting the legislation’s provisions would represent an important step toward creating competitive parity among community banks, credit unions, nonbanks and farm credit associations.

No legislation sprouts overnight in Congress. For many months ICBA has worked closely with many of its state association affiliates along with our congressional allies, such as Chairman Bachus, Sen. Moran, Rep. Luetkemeyer and many others, to carefully assemble a balanced, meaningful legislative package that will have bipartisan support. The resulting Communities First Act has been endorsed by more than 30 state independent banking associations and represents a unified proposal for the entire community banking industry to stand behind and build upon.

We’re off to a great start. Now let’s all seize the opportunity our industry’s teamwork created and follow through together. So please contact your members of Congress and ask them to support the Communities First Act as a way to keep Main Street America strong. Check out the advocacy resources available on the Communities First Act on ICBA's grassroots website, CBConnect.org.

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