OUR POSITION

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.

Position

  • Community banks need regulatory relief to support the financial needs of their customers, serve their communities, and contribute to their local economies.

  • 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, risk profile, 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, local communities, and small businesses.

In December 2020, Congress enacted much needed reforms to the beneficial ownership reporting requirements under the Bank Secrecy Act. Adopting these reforms has been a long-standing priority for ICBA. Going forward, small businesses will be required to file their beneficial ownership information directly with FinCEN upon business formation. Community banks will be able to rely upon this information, thereby relieving them of an onerous reporting obligation.

In addition, the CARES Act which was passed in April 2020 in response to the COVID-19 pandemic contained several ICBA-supported regulatory relief provisions including temporary relief from troubled debt restructurings (TDR) and FASB’s Current Expected Credit Losses (CECL), as well as instituting a temporary 8% community bank leverage ratio.

To mitigate the impact of community banks participating in the SBA PPP, the regulatory agencies temporarily changed the asset thresholds for a number of regulatory requirements including the accounting and audit requirements under Part 363 of the FDIC regulations, the requirements for an 18-month exam cycle, the Small BHC Policy Statement, and the eligibility requirements for using the CBLR framework. The FDIC also issued rules to mitigate the impact of participating in the SBA PPP on insurance assessments.

ICBA’s community bank agenda for the 117th Congress encompasses regulatory relief priorities including the removal of barriers to entry for de novo community banks, reforms relating to minority depository institutions, 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.

For 2021, ICBA will also pursue further regulatory relief from the agencies including: (1) a permanent 8% CBLR; (2) a permanent extension of CECL; (3) permanently raising the $500 million and $1 billion asset thresholds under Part 363 auditing and accounting requirements; (4) a consistent CRA regulatory framework among the agencies; and (5) narrowing the small business reporting responsibilities under Section 1071 of the Dodd Frank Act.

Staff Contacts

Brian Cooney

Senior Vice President, Legislative Counsel

Washington, DC

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Christopher Cole

Executive Vice President, Senior Regulatory Counsel

Washington, DC

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