ICBA Policy Resolution: Relief from Crushing Regulatory Burden

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 “Plan for Prosperity” contains targeted measures that would roll back Dodd-Frank Act provisions among other onerous rules, providing 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 larger, dedicated legal and compliance staff and can more easily absorb regulatory costs. Credit unions and other nonbank institutions, such as industrial loan companies and fintech companies, 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. 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 all borrowers.

While ICBA was disappointed by the EGRPRA report since it incorporated only a few of the substantive recommendations made by community bankers in comment letters and at the outreach meetings, ICBA welcomed the June 2017 Treasury Report concerning the financial system as well as bank regulators’ recent proposal to simplify the capital treatment of mortgage servicing assets, deferred tax assets, and investments in other financial institutions. ICBA looks forward to working with the new administration and with new leadership at the regulatory agencies to advance pro-growth regulatory relief for community banks. Once Trump appointees assume control of the CFPB and the banking regulatory agencies, we expect the regulatory environment to improve.

Plan for Prosperity and Legislation. ICBA’s Plan for Prosperity (“Plan”) for the 115th Congress is a “legislative platform” or set of community bank priorities positioned for advancement. The bill that best represents ICBA’s regulatory relief priorities is H.R. 10, the “Financial Choice Act” (“Choice Act”) introduced by House Financial Services Committee Chairman Jeb Hensarling (R-TX). The Choice Act contains over two dozen community bank regulatory relief provisions from ICBA’s Plan for Prosperity.

Because the Choice Act contains both relief for megabanks and provisions aimed at limiting the CFPB’s authority, it passed the House without any support from Democrats. To demonstrate bi-partisan support for individual Choice Act provisions and Plan for Prosperity provisions, the House Financial Services Committee has also passed several standalone bills with support from Democrats. In addition, Financial Institutions Subcommittee Chairman Blaine Luetkemeyer (R-MO) has re-introduced H.R. 2133, the CLEAR Relief Act, in the House, and Senator Jerry Moran (R-KS) has re-introduced S. 1002, The CLEAR Relief Act in the Senate. Both bills contain several Plan for Prosperity provisions.

Also in the Senate, in December 2017, the Banking Committee passed a bi-partisan regulatory relief bill (S. 2155) that has the support of several Republicans as well as 11 Democrats and one independent Senator, more than enough to overcome a potential filibuster on the Senate floor. Community bank-related provisions in the package include: expanded exemptions from Home Mortgage Disclosure Act reporting and escrow requirements, “qualified mortgage” status for mortgage loans held in portfolio by institutions with assets of less than $10 billion, simplified community bank capital rules, a short-form call report and increased eligibility for the 18-month exam cycle. The package would also ease appraisal requirements, exempt institutions with assets of $10 billion or less from the Volcker Rule, expand access to the Federal Reserve’s Small Bank Holding Company Policy Statement, and improve regulatory treatment of reciprocal deposits and certain municipal securities.

The Senate agreement also includes provisions specifically designed for larger community banks with assets from $10 billion to $50 billion. Among them are measures eliminating mandatory Dodd-Frank Act Stress Testing (DFAST) and removing the requirement that publicly held companies establish a risk committee.

ICBA strongly supports the Senate compromise package and will push for its swift passage in both the Senate and the House. Any final regulatory relief bill will undoubtedly be signed into law by President Trump.  ICBA will continue to advocate for additional regulatory relief.

Staff Contacts: Brian Cooney and Chris Cole