Our Position

Community Bank Access to Capital

Position

  • ICBA supports legislative and regulatory changes that would improve the ability of community banks to raise capital.

  • ICBA opposes the inequitable capital treatment of community banks, based solely on corporate structure, for banks participating in economic stimulus programs such as the Emergency Capital Investment Program.

  • Subchapter S of the tax code should be updated to facilitate capital formation for community banks by increasing the shareholder limit for Subchapter S eligibility, allowing the issuance of preferred shares, and permitting individual retirement account (IRA) shareholders.

  • The asset threshold under the Federal Deposit Insurance Corporation Improvement Act (FDICIA) for requiring an annual audit should be raised from $500 million to $1 billion, and the asset threshold for an internal control report, also required by FDICIA, should be raised from $1 billion to $5 billion.

  • SEC Regulation D should be revised so that the definition of an “accredited investor” includes individuals with a net worth of $1 million or more, including their primary residence.

Background

Since 2007, the public capital markets have often been either unavailable or unattractive to many community banks and holding companies. These community banks have had to rely more on existing shareholders, directors and insiders for capital raises and less on new investors, including institutions and private equity investors. S. 2155, enacted in 2018, included a favorable community bank provision which raised the asset limit under the Federal Reserve’s Small Bank Holding Company Policy Statement from $1 billion to $3 billion, allowing more community bank holding companies to more easily raise capital.

Small Bank Holding Company Policy Statement. ICBA is supportive of additional upward adjustments to the asset limits under the Federal Reserve’s Small Bank Holding Company Policy Statement to ensure these thresholds remain current and properly align with industry consolidation trends.

Federal Deposit Insurance Corporation Improvement Act. ICBA supports modernizing the asset thresholds for requiring both an independent annual audit of an insured depository institution and an internal control report under the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The FDICIA asset thresholds should be raised to reflect the overall increase in the size of community banks since these thresholds were last adjusted in 1993 and 2005. The asset threshold for requiring an annual audit should be raised from $500 million to $1 billion, and the asset threshold for an internal control report should be raised from $1 billion to $5 billion.

Subchapter S Banks. Various tax code changes would facilitate capital formation for Subchapter S banks. The limit on Subchapter S shareholders should be increased from 100 to 200; Subchapter S corporations should be allowed to issue preferred shares; and Subchapter S shares, both common and preferred, should be permitted to be held in individual retirement accounts (IRAs). Additionally, Subchapter S banks should receive the same capital treatment as Subchapter C banks when participating in economic stimulus programs designed to increase capital investments in local communities. For example, favorable capital treatment under the Emergency Capital Investment Program is not available to Subchapter S Community Development Financial Institutions and Minority Depository Institutions.

SEC Regulation D. Community banks often rely on the safe harbor of SEC’s Regulation D when raising capital. However, SEC Regulation D should be revised so that the definition of an “accredited investor” includes individuals with a net worth of $1 million or more including the value of their primary residence. The current definition requires individuals to exclude their primary residence when computing their net worth.

Staff Contact: Chris Cole and Jenna Burke

Staff Contact

Christopher Cole

Executive Vice President, Senior Regulatory Counsel

Washington, DC

Email

Jenna Burke

Senior Vice President and Senior Regulatory Counsel

Washington, DC

Email