Advocacy

Tiered Regulation for Community Banks

Credit unions and other nonbank institutions, such as industrial loan companies (ILCs) and fintech companies that perform “bank-like” functions and offer comparable products and services, are not subject to the same taxation, laws and regulations as community banks.

ICBA Policy Resolution

Tiered Regulation for Community Banks

Position

  • Community banks need regulatory relief to support the financial needs of their customers, serve their communities, and contribute to their local economies.
  • ICBA’s regulatory platform, “Community Focus 2020: The Community Bank Agenda for Expanding Economic Opportunity,” contains targeted measures that would build upon the success of 2018’s landmark legislation, S. 2155, by rolling back onerous rules and providing additional 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.

Background

Regulatory and paperwork requirements impose a disproportionate burden on community banks and diminish their ability to attract capital, support the financial needs of their customers, serve their communities, and contribute to their local economies.

Large banks have massive, dedicated legal and compliance staff and can more easily absorb regulatory costs. Credit unions and other nonbank institutions, such as industrial loan companies (ILCs) and fintech companies that perform “bank-like” functions and offer comparable products and services, are not subject to the same taxation, laws and regulations as community banks.

This uneven field places community banks at a competitive disadvantage and inhibits their ability to serve their customers. In addition, unreasonable regulatory requirements serve as a barrier to entry for investors who might otherwise contemplate the formation of de novo banks. Without the entry of a sufficient number of de novo banks to offset consolidation, the industry has become progressively more concentrated to the detriment of individuals, families, and small businesses.

In 2018, S. 2155, the “Economic Growth, Regulatory Relief, and Consumer Protection Act” was signed into law. The federal banking agencies have implemented nearly all of the community bank-related provisions of that law, most of which provide tiered relief based upon a bank’s size or transaction volume. These include provisions related to appraisal requirements, capital relief, reciprocal deposits, the Volcker Rule, short-form call reports, the Small Bank Holding Company Policy Statement, and the exam cycle for well-capitalized and well-managed community banks.

ICBA’s community bank agenda for the 116th Congress is known as “Community Focus 2020: The Community Bank Agenda for Expanding Economic Opportunity.” It encompasses regulatory relief priorities including reforms to the Bank Secrecy Act and Anti Money Laundering (BSA/AML) statutes and changes to Section 1071 of the Dodd-Frank Act which would impose HMDA-like reporting requirements for small business loan applications.

It also includes a range of proposals that would create a more competitive landscape, strengthen data security, preserve and strengthen community bank mortgage lending, and provide tax relief, among other priorities. Notably, BSA/AML modernization legislation passed the House of Representatives in October 2019 and has been introduced in the Senate by a bi-partisan group of eight Senate Banking Committee members.

Staff Contacts: Brian Cooney and Chris Cole