RELIEF FROM CRUSHING REGULATORY BURDEN
- Community banks need regulatory relief to support the credit needs of their customers, serve their communities, and contribute to their local economies.
- ICBA has developed its “Plan for Prosperity” which contains a number of targeted provisions that would provide regulatory relief for community banks.
- ICBA urges Congress and the regulatory agencies to continue to expand and refine a tiered regulatory and supervisory system that recognizes the significant differences between community banks and large, complex institutions in terms of the risks they pose to consumers and to the financial system.
- To preserve their original purpose, thresholds for regulatory accommodations and exemptions based on asset size and transaction volume should be continually reviewed and adjusted upward as community banks consolidate and the average asset size of banks increases.
- In carrying out the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) process, the regulatory agencies must honor their Congressional mandate and provide meaningful regulatory relief.
Regulatory and paperwork requirements impose a disproportionate burden on community banks and diminish their ability to attract capital, support the credit needs of their customers, serve their communities, and contribute to their local economies. Large banks have larger, dedicated legal and compliance staff and can more easily absorb regulatory costs. Credit unions and other nonbank institutions that perform “bank-like” functions and offer comparable bank products and services are not subject to the same taxation, laws and regulations as community banks. This uneven playing field places community banks at a competitive disadvantage and inhibits their ability to serve their customers and their communities.
ICBA’s Plan for Prosperity (“Plan”) for the 114th Congress is a “legislative platform” or set of community bank priorities positioned for advancement. In legislation, the Plan is best represented by the House and Senate versions of the CLEAR Relief Act (H.R. 1233 and S. 812), and the Community Bank Access to Capital Act (H.R. 1523 and S. 1816). H.R. 1233 has over 100 bipartisan cosponsors, and S. 812 has 37 bipartisan cosponsors. The Financial Regulatory Improvement Act, S. 1484, which passed the Senate Banking Committee on May 21, 2015 includes a number of robust regulatory relief provisions. Three PFP provisions were signed into law in 2015: (i) an 18-month exam cycle for CAMELS 1 and 2 banks with assets of less than $1 billion: (ii) easier qualification for “rural lender” status under CFPB mortgage rules by elimination of the requirement that such lenders operate “predominantly” in rural areas; and (iii) elimination of annual privacy notice mailings when a bank has not changed its privacy policies. Nine PFP bills have passed the House, and approximately 50 PFP bills have been introduced in the House and Senate. ICBA will press for the enactment of additional PFP bills in 2016.
ICBA strongly supports a system of tiered regulation—regulatory and supervisory policies that differentiate between community banks and other financial services providers. The Dodd-Frank Act provided for tiered regulation in several areas including an exemption for banks with assets of less than $10 billion from Consumer Financial Protection Bureau examination and enforcement, and indemnification of banks with assets of less than $10 billion from FDIC premium increases that will result from increasing the Deposit Insurance Fund minimum reserve ratio from 1.15 percent to 1.35 percent. Other examples of tiered regulation can be found in the final Basel III rule including allowing banks under $250 billion to continue to use the Basel I mortgage risk weights, the exclusion of accumulated other comprehensive income (AOCI) from the definition of regulatory capital, and the grandfathering of tier one treatment of trust preferred securities (TruPS) for banks with assets under $15 billion. In addition, the CFPB made some special accommodations for certain community banks under the “ability-to-repay/qualified mortgage” rule and the mortgage servicing rule. While these provisions are significant, much more is needed. The basic framework of financial regulation should be based on the principle of tiering proportionate to size, business model, complexity, and risk.
The regulatory agencies should take full advantage of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) process, a two-year review of financial regulations to identify outdated, unnecessary or unduly burdensome regulations. ICBA has developed a set of recommendations intended to ensure that the process results in meaningful regulatory relief for community banks, as intended by Congress. For more information, see the separate resolution on EGRPRA.
ICBA will continue to advocate for meaningful regulatory reforms including tiered regulation for community banks, their customers, and their communities.