REGULATORY RELIEF: COMMUNITIES FIRST ACT
- MIB supports the ICBA initiated enactment of the Communities First Act (CFA), legislation that provides much needed regulatory and tax relief for community banks, their customers, and their communities.
DODD-FRANK ACT IMPLEMENTATION
MIB in association with ICBA seeks the following outcomes in the agency rulemakings that will implement the Dodd-Frank Wall Street Reform and Consumer Protection Act:
- Regulations implementing the too-big-to-fail provisions must effectively rein in large banks and financial firms and should level the playing field with community banks.
- Strongly supported the FDIC’s new rules implementing the Dodd-Frank changes to the deposit insurance assessment base. The change in the assessment base will save community banks $4.5 billion over three years.
- Supported a broad definition of non-depository “covered persons” subject to Consumer Financial Protection Bureau rules, examination, and enforcement.
- The CFPB should use its authority to exempt any class of providers or any products or services from the rules it writes to grant broad relief to community banks and/or community bank products where appropriate.
- In implementing the mortgage lending provisions of the Dodd-Frank Act, the CFPB must make full use of its discretion to exempt rural lenders and lenders that hold loans in portfolio from new requirements.
- Regulators should not define “qualified residential mortgage” in the credit risk retention rules so stringently that thousands of community banks and other lenders are driven from the residential mortgage market, leaving only a few of the largest lenders to operate in it. Too narrow a definition will severely limit credit availability to first-time and low- and moderate-income borrowers.
OUTDATED CREDIT UNION MODEL
- Exempting credit unions from federal taxation is no longer justified, especially in view of the current federal budget deficit crisis, and ICBA urges Congress to review this long-overlooked and unwarranted federal tax subsidy. At a minimum, credit unions with assets of more than $1 billion should be subject to federal taxation.
- MIB opposes expanded powers for credit unions, particularly the proposal to raise the cap on “member business loans,” as long as credit unions remain exempt from taxation and the Community Reinvestment Act (CRA).
- MIB with ICBA supports applying CRA requirements to credit unions comparable to and with the same asset size distinctions as banks and thrifts.
- Opposes efforts by NCUA to undermine the common bond requirement by encouraging credit union mergers and conversions to geographic charters.
- MIB supports ICBA’s effort to warn regulators that excessively tough exams that result in potentially unnecessary loss of earnings and capital can have a dramatic and adverse impact on the ability of community banks to lend and therefore impair their ability to support economic growth. To prevent unnecessary bank failures, the examiners must exercise some restraint.
- Community banks are ready to meet the objectives stated in the 2008 Interagency Statement on Meeting the Needs of Creditworthy Borrowers. However, community banks cannot meet those objectives without a change in the current exam environment.
- Supports legislation that would reform the appellate process for agency decisions or actions and that would allow bankers to appeal to an independent council or ombudsman office an adverse determination made by an examiner in an exam report.
- Oppose any attempt by the regulators to require officers and directors to independently purchase insurance coverage for civil money penalties, given the trend among carriers to exclude coverage for suits brought by regulators (“regulatory exclusion”).
- Tax laws should promote robust economic activity and a vibrant community banking sector and foster saving and investment.
- Oppose new bank-specific fees or punitive new tax levies, and transactions taxes specifically targeting the financial services sector.
- A permanent solution to the estate tax is needed to establish certainty in estate tax planning and prevent a return to pre-2001 levels.
- The net operating loss (NOL) five-year carryback should be extended or made permanent for all community banks.
- Community banks should have enhanced access to tax-exempt bonds and increased “qualified small issuer” limits.
- Public policy should support community banks’ ability to raise capital including allowing S corporation banks to issue preferred stock, increasing their shareholder limits, and allowing new IRA shareholder investments.
- Tax policy should foster greater savings and bank liquidity including tax-advantaged savings accounts and CDs.
- Tax reform should encompass both corporate and individual tax laws to recognize the different taxpaying structures so as not to distort or disadvantage one form over another.
GSE SECONDARY MARKET REFORM
- Reforms of the housing finance system must not disrupt its recovery.
- Community banks need the continued existence of a strong, impartial secondary market for residential mortgages that is financially strong and reliable.
- The housing Government Sponsored Enterprises (GSEs), or any successor entities, must not directly compete with the private sector at the retail level.
- All lenders should have equitable access to the secondary market regardless of size or volume.
- The Federal Housing Finance Agency, the housing GSE’s, the Department of Housing and Urban Development and the Federal Housing Administration, should not develop or implement any rule or practice that by design would limit participation by community banks.
- Loan pricing by the housing GSEs to community banks should be on equal terms with the largest mortgage originators.
- The secondary market entities must have a limited mission focused solely on supporting residential and multifamily housing in all communities in the U.S.
- The function of Fannie Mae and Freddie Mac should not be incorporated into the Federal Home Loan Bank (FHLB) system.
- Mortgage servicing requirements from the GSEs as well as the mortgage servicing fees paid by the GSEs should reflect the community bank business model and cost structure. Any changes to mortgage servicing standards or compensation should not encourage additional consolidation of the mortgage servicing business with the largest aggregators.
- Object to the housing GSEs’ aggressive demands on community banks for the repurchase of transferred residential mortgages for minor, technical violations of underwriting agreements that had no bearing on loan quality at the time of underwriting.
MORTGAGE LENDING REFORM
- Strongly urges the CFPB to provide community banks a safe harbor for “qualified mortgages” from the “ability to repay” requirements mandated by the Dodd-Frank Act. Furthermore, balloon mortgage loans originated and held in portfolio by financial institutions should be considered “qualified mortgages” for purposes of this safe harbor.
- Strongly urges the regulatory agencies not to define “qualified residential mortgage” under the credit risk retention rules of Dodd-Frank so stringently that community banks would no longer have the ability to structure loan terms that fit a qualified borrower’s unique financial situation. Too narrow a definition will severely limit credit availability to many creditworthy borrowers who do not have significant down payments or have seasonal incomes, or other unique situations which fall outside of secondary market guidelines. Community banks need to retain the flexibility to serve these borrowers.
- Support the integration of Truth in Lending Act (TILA) disclosures with the mortgage disclosures required by the Real Estate Settlement Procedures Act (RESPA), as long as any future rulemaking to integrate these disclosures simplifies the mortgage lending process and does not provide additional regulatory burden.
- As regulators implement the Dodd-Frank Act mortgage reforms, mortgage loans held in portfolio, must be exempt from product restrictions such as limits on balloon loans, requirements to establish escrow accounts for taxes and insurance, other loan terms, or prepayment penalties.
- Any proposals to deal with predatory lending practices should be aimed at loans that have less than prudent underwriting standards and that are sold on the secondary market.
- Efforts to stop abusive lending practices should not prohibit responsible loan products created to meet the diverse needs of consumers, such as lower income borrowers, borrowers in rural communities, or first-time homebuyers—these are products that help community banks meet credit needs and support economic development in many communities.
REINING IN THE FARM CREDIT SYSTEM (FCS)
- MIB through ICBA urges Congress to restrict the FCS to its historical mission of serving the agricultural marketplace.
- Adamantly oppose the FCS’s expansionist agenda which would allow FCS lenders to become the equivalent of commercial banks while retaining their GSE status with its inherent tax and funding advantages.
- The Farm Credit Act should further define and narrowly target FCS lending activities to refocus on serving bona-fide farmers and ranchers and young, beginning, and small farmers and their farmer-owned cooperatives.
- Oppose the Farm Credit Administration’s “Rural Community Investments” proposal to allow FCS institutions to extend non-farm financing in towns and cities of up to and in some cases greater than 50,000 population if such financing is labeled as “investments” instead of loans.
- FCS lenders should only be allowed to purchase loans or loan pools of failed banks from the FDIC as a purchaser of last resort to fill a gap if there are not enough private sector purchasers available. This was FCA’s stated explanation for the proposal and FCA should be held to this standard.
- The FCS should be required to work with commercial banks, particularly as a funding source and through loan participations.
- The FCA should be required to engage in joint rulemaking with federal banking agencies when proposing regulations that could involve allowing non-farm lending activities for FCS lenders.
- Mergers of large FCS entities should be prevented to curtail the concentration of financial assets within the System and provide for more localized service.
- The FCA should require greater transparency of FCS activities and should publish instances of illegal FCS lending; any exemptions granted for such lending and identifying the FCS institutions and circumstances involved in large FCS loan losses.
DEPOSIT INSURANCE; TRANSACTION ACCOUNT INSURANCE
- Our nation’s federal deposit insurance system is critical to depositor confidence in the banking system, to the protection of small depositors and the funding base of community banks. A strong Deposit Insurance Fund is important to maintaining public confidence that the FDIC has adequate resources to protect the nation’s depositors.
- MIB appreciated ICBA’s strong support of FDIC’s changes to the deposit insurance assessment system which incorporated the new assessment base. The new rates and the change in the assessment base will save community banks $4.5 billion over three years.
- Provided that the DIF has sufficient liquid assets, MIB supports an interim refund of any unused prepaid assessments in 2012 rather than only a final refund in 2013 as the regulations currently prescribe.
- Seek effective implementation of the “hold harmless” provision of Dodd-Frank that shields banks under $10 billion in assets from premiums that will result from increasing the Deposit Insurance Fund minimum reserve ratio from 1.15% to 1.35%.
- Urges Congress to extend full FDIC insurance on noninterest-bearing transaction accounts once the temporary coverage expires on December 31, 2012. ICBA supports an extension of coverage under the terms of the existing program with no separate assessment for the insurance.
RISK-BASED CAPITAL RULES; BASEL II AND III
- MIB supports ICBA’s position on much higher capital and liquidity requirements for systemically risky financial institutions and will monitoring the recommendations of the Financial Stability Oversight Council and the Basel Committee on Banking Supervision. Basel III sets new minimum capital ratios for common equity, Tier 1 capital, and total capital as well as creating new conservation and countercyclical capital buffers through increased common equity. Supports the new conservation and countercyclical capital buffers when limited to systemically important financial institutions. Oppose the inclusion of accumulated other comprehensive income in the calculation of Tier 1 regulatory capital due to the introduction of interest rate volatility on capital adequacy calculations.
- MIB agrees with ICBA’s concerns about implementing any type of bifurcated risk-based capital framework that may disadvantage community banks relative to other sized financial institutions.
- The risk-based capital rules should provide for an increased portion of the allowance for loan and lease losses (ALLL) beyond the current amount of up to 1.25% of a bank’s risk-weighted assets. This increase in regulatory capital would combat the procyclical impairment model by encouraging banks to reserve more and bring attention to the loss-absorbing abilities of the ALLL.
- Support equal access to credit and fair lending and condemns discrimination based on race, ethnicity, national origin, gender, religion or other listed classification.
- Oppose the use of inconsistent standards when evaluating a community bank’s fair lending practices.
- Oppose any changes to methodologies, standards or analysis used to assess fair lending compliance without providing proper notice to community banks.
- Supports transparency regarding the legal theories and methodologies used when enforcing fair lending laws while preserving the confidentiality of specific community bank information.
ACCOUNTING / AUDITING
- Opposes the Financial Accounting Standards Board’s (FASB) proposed fair value disclosure requirements in the financial instruments project that require parenthetical disclosures on the face of the balance sheet for all financial instruments (including mortgage loans) carried at amortized cost.
- Opposes proposals by the Public Company Accounting Oversight Board (PCAOB) to amend and expand the scope of duties of the independent accountant during the audit and to introduce mandatory auditor rotation.
- Supports the current proposed loan impairment model as it seeks to better capture the procyclical nature of bank lending.
- When accounting standards are developed, provisions should be made for smaller financial institutions and businesses so that the cost of implementing the standards does not outweigh their benefit to financial statement users.
- Opposes the FASB’s proposed classification and measurement framework for investment securities and loan participations that would require these assets to be reported at fair value if the holder does not possess the ability to manage credit risk in the event of default by the issuer or borrower.
- Strongly urges Congress and the regulatory agencies to continue on the successes of the Dodd-Frank Wall Street Reform and Consumer Protection Act in refining a tiered regulatory and supervisory system that recognizes the differences between community banks and larger, more complex institutions.
- Strongly supports a better allocation of supervisory and regulatory resources away from community banks and towards larger institutions proportionate to their asset size and risk to the financial system.
BANK SECRECY ACT AND ENFORCEMENT
- Strongly supports Treasury’s efforts to develop risk-based examinations for Bank Secrecy Act (BSA) compliance.
- Increasing feedback from the law enforcement community to banks is a vital component to stopping terrorist financing and money laundering practices.
- A streamlined and easily applied system for BSA reporting should be developed. ICBA encourages FinCEN to simplify suspicious activity reporting.
- Nonbank institutions that perform “bank-like” functions and offer comparable financial services should be subject to the same anti-money laundering and BSA laws and regulations as banks.
- Government should develop a single comprehensive watch-list for terrorists.
- Supports public and private sector efforts to maintain and promote public confidence in the banking sector during times of crisis and to facilitate the recovery of affected banks and their communities. Efforts should include ensuring bank liquidity and the smooth flow of payments, flexible regulatory enforcement, and addressing the industry’s dependency on the telecommunications and energy sectors.
- Welcomes the vital and unique role that correspondents — bankers’ banks and community banks offering correspondent banking services — play in providing products and services tailored uniquely for community banks and their customers.
- Supports Regulation D (Reserve Requirements of Depository Institutions) provisions that support a balanced and competitive marketplace between Federal Reserve Banks and private-sector correspondent banks.
OVERDRAFT COVERAGE SERVICES
- Strongly supports a consistent regulatory framework for overdraft services to facilitate compliance and understanding for community banks and their customers..
- Strongly supports community banks retaining the ability to offer a variety of overdraft coverage services. Consumers should be fully informed about the terms, conditions and choices related to overdraft coverage programs or any similar services provided by their bank.
- Strongly urges that any legislation, rule or guidance distinguish between discretionary or ad hoc overdraft coverage and automated overdraft programs. Discretionary or ad hoc programs – in which bank staff evaluates overdrafts on a case-by-case basis – are services that customers expect from their local bank and should not be subject to the same rules and limitations as automated programs, which are often run by third-parties.
PAYMENT CARD PROGRAMS
- Opposes legislative and regulatory efforts that, while theoretically intended to prevent unfair, deceptive or abusive payment card acts or practices, would adversely affect community bank payment card issuers and agents as well as their customers.
- Opposes legislative and regulatory efforts to extend consumer protection provisions to small business payment cards.
- Supports simplified credit card disclosures; however, policies that generate more compliance costs for community banks will not benefit consumers.
- Supports consumer choice in payment card offerings through enhanced transparency, education and fairness. A well-informed consumer has the ability to shop with his or her feet, a free-market factor that benefits community banks which thrive on successful relationship banking.
- Strongly opposes legislation to lift existing payment card network rules which would result in deceptive surcharging and payment card discrimination by merchants, and give merchants the ability to steer customers away from their preferred form of electronic payment.
- Supports industry efforts to adopt chip and PIN technology for payment cards to replace magnetic strip technology provided community banks are given sufficient time to plan for and implement this shift.
- Opposes legislation that would allow bankruptcy judges to re-write mortgage contracts for primary residences in Chapter 13 bankruptcy cases.
NATIONAL FLOOD INSURANCE PROGRAM (NFIP)
- The National Flood Insurance Program (NFIP) should be reauthorized on a long-term basis. An affordable flood insurance program is vital to many communities.
- Concerned about the impact on community banks and their customers of reform efforts to increase penalties on lenders, mandate escrows for flood insurance, and to impose new rates for properties after remapping.
CUSTOMER DATA SECURITY AND FRAUD
- A national standard should be enacted for securing customer data to protect community banks and their customers against fraud and data breaches.
- Any federal legislation must recognize the existing mandates set forth in the Gramm-Leach-Bliley Act that require community banks to protect customer data, and maintain a consumer notification plan in the event of a data breach.
- Entities that use, maintain, or process sensitive customer information, such as data brokers, third- party processors and retailers, should be subject to increased federal oversight.
- Policymakers should recognize that community banks must maintain an appropriate balance between securing customer information and sharing appropriate information for the purpose of providing products and services.
- Opposes any legislative or regulatory efforts that would make banks liable for losses incurred by business customers as a result of the customers’ poor security practices.
- The annual customer privacy notice must be eliminated for banks that only share information permitted by law and for banks whose policies or information sharing practices have not changed.
- Supports the preservation of the existing privacy exceptions that enable community banks to share information with third parties without providing an opt-out to consumers
AFFORDABLE SMALL-DOLLAR FINANCIAL PRODUCTS FOR UNDERSERVED AND UNBANKED INDIVIDUALS
- Community banks offer many affordable small-dollar loan and deposit products and services to their customers.
- Supports new and innovative products and services for potential and existing customers. Guidelines that are developed for small-dollar loan products and services should be easily understood by bankers and flexible enough to be adaptable to various markets and operations.
- Opposes any government initiative that offers financial products directly to the unbanked and underserved that would be in direct competition with those offered by community banks.
- MIB supports effective and voluntary financial education.
PAYMENT CARD INTERCHANGE
- Strongly supports an unregulated payment card interchange system to ensure a well functioning and balanced payment card system that provides tremendous benefit for community banks, their customers, and millions of merchants of all sizes.
- MIB support ICBA’s effort to confirm whether the small debit card issuer exemption is indeed shielding community banks from the negative impact of debit card interchange price-fixing.
- Strongly opposes legislative efforts to have the government set or limit credit interchange fees, or create antitrust exemptions allowing merchants to “negotiate” in anti-competitive and collusive ways to shift their costs to community banks and their customers.
PAYMENTS SYSTEMS ACCESS AND GOVERNANCE
- Supports payment systems that are competitive, progressive, and secure, and that offer fair and open access to all community banks regardless of size and operational capability to meet the existing and evolving global payment needs of their customers.
- Supports the Federal Reserve System in its dual role as payment systems regulator and provider of services, and encourages the Federal Reserve to evaluate ways it can promote the evolution and efficiency of emerging payments such as electronic person-to-person payments to facilitate a common, interoperable framework for banks of all sizes to compete.
- Encourages the Federal Reserve to use vigorously its new authority to identify and regulate systemically important payment, clearing and settlement systems.
- Supports the important roles private-sector rulemaking organizations – payment card networks, and check and ACH clearing houses — play in developing and maintaining rules supporting fair and open access to payment systems.
- Supports public- and private-sector rulemaking bodies collaborating on ways to establish uniformity and efficiency between certain rules if appropriate and feasible.
DUAL BANKING SYSTEM: REGULATORY CHOICE
- MIB supports the dual banking system where bank chartering and supervision is divided between the federal government and the states.
- MIB supports a multi-agency federal bank regulatory system.
THE FEDERAL HOME LOAN BANK SYSTEM
- The Federal Home Loan Banks (FHLBs) must remain a strong, stable, reliable source of funding for community banks.
- The FHLBs’ special functions and purposes must be recognized and maintained under the Federal Housing Finance Agency (FHFA).
- The FHFA should develop concentration limits for advances for both individual FHLBs and the FHLB system to protect the system’s safety and soundness.
- The regional structure and cooperative nature of the FHLB system must be maintained as they best address the diverse needs of community bank members.
- The FHFA should not reimpose a housing mission asset test on community financial institutions
MUTUAL AND SAVINGS INSTITUTIONS
- MIB supports and defends the choice of mutual ownership before all regulatory and legislative bodies. Mutuality is a viable charter alternative that should be accorded parity in all respects with other charter forms.
- It is important that thrift institutions be equally represented and accorded parity in all respects with other charter forms. Any new laws or regulations should consider the impact on mutual banks business model and their viability.
- A financial institution has the right to choose the type of charter under which it operates. No regulatory agency should obstruct the right of a credit union to convert to a mutual institution. Also supports the right of a mutual or savings institution to assert a private right of action under the Savings and Loan Holding Company Act.
THE SEPARATION OF BANKING AND COMMERCE
- Long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms (such as Wal-Mart and Home Depot), has served our nation well and was reaffirmed by the Gramm-Leach-Bliley Act (GLBA).
- Industrial loan companies (ILCs) are hybrid charters that can own or be owned by commercial firms because they operate outside the Bank Holding Company Act. Congress should permanently close this loophole to preserve the separation of banking and commerce.
COMMUNITY REINVESTMENT ACT
- Commends the bank regulatory agencies for building on a tiered Community Reinvestment Act examination system.
- The rules must be applied appropriately and consistently by examiners to provide the intended flexibility to allow community banks to meet the needs of their communities.
- Urge Congress to apply CRA to tax-exempt credit unions and to non-depository lending institutions in a manner comparable to, and with the same asset size distinctions, as banks and thrifts.
- Supports greater emphasis on performance context, improved examiner training, and eliminating the data collection requirements for small business and small farm loans.
ADVANCING SMALL BUSINESS RELATIONSHIPS
- Promotes the Small Business Administration loan programs and federal policies that foster a vibrant small business sector.
- Increasing financial literacy protects consumers, fosters financial stability and benefits individuals, communities, and our nation as a whole.
POLITICAL ACTION COMMITTEES (ICBPAC & MIBPAC)
- MIB urges CEOs of all member banks, other community financial institutions and state and regional partners to sign an ICBPAC Solicitation Authorization form and contribute to ICBPAC and MIBPAC.
- CEOs should encourage their eligible officers and employees to contribute to MIBPAC and ICBPAC.
- CEOs should encourage their directors to contribute to ICBPAC. All banks that achieve 100 percent PAC participation from their board of directors are eligible for membership in ICBPAC’s 100 Club.