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ACB & ICBA Top Priorities for 2016
Basel III Amendments: Restoring the Original Intent of the Rule. Basel III was originally intended to apply only to large, internationally active banks. ACB/ICBA support a full exemption from Basel III for non-systemically important financial institutions (non-SIFIs). If a full exemption is not possible, ACB/ICBA propose the following amendments:
More Accurate Identification of "Systemic Risk." The current threshold of $50 billion for the identification of "systemically risky financial institutions" (SIFIs) under Title I of the Dodd-Frank Act is too low. It sweeps in too many banks that pose no systemic risk and should not be subject to higher prudential standards. A higher threshold and a more flexible "SIFI" definition under Title I would more accurately identify those institutions that impose systemic risk to our banking system.
Relief from Securities and Exchange Commission Rules. ACB/ICBA recommend the following changes to SEC rules which would allow community banks to commit more resources to their communities without putting investors at risk:
TARGETED REGULATORY RELIEF
Supporting a Robust Housing Market: Mortgage Reform for Community Banks. Provide more community banks relief from certain mortgage regulations, especially for loans held in portfolio. When a community bank holds a loan in portfolio, it has a direct stake in the loan's performance and every incentive to ensure it is properly underwritten, affordable, and responsibly serviced. Relief would include:
Preserve Community Bank Mortgage Servicing. The provisions described below would help preserve the important role of community banks in servicing mortgages and deter further industry consolidation, which is harmful to borrowers:
Strengthening Accountability in Bank Exams: A Workable Appeals Process. The trend toward oppressive, micromanaged regulatory exams is a concern to community bankers nationwide. An independent body would be created to receive, investigate, and resolve material complaints from banks in a timely and confidential manner. The goal is to hold examiners accountable and to prevent retribution against banks that file complaints.
Reforming Bank Oversight and Examination to Better Target Risk. ACB/ICBA offer the following recommendations to allow bank examiners to better target their resources at true sources of systemic risk:
Risk Targeting The Volcker Rule. Exempt non-systemically important financial institutions (non-SIFIs) from the Volcker Rule. The Volcker Rule should apply only to the largest, most systemically risky banks. Proposals to apply the rule to non-SIFIs carry unintended consequences that threaten to destabilize segments of the banking industry.Balanced Consumer Regulation: More Inclusive and Accountable CFPB Governance. The following changes would strength CFPB accountability, improve the quality of the agency's rulemaking, and make more effective use of its examination resources:
Eliminate Arbitrary "Disparate Impact" Fair Lending Suits. Amend the Equal Credit Opportunity Act and the fair Housing Act to bar "disparate impact" causes of action. Disparate impact describes differential results that arise despite the use of practices that are facially neutral in their treatment of different groups. In June 2015, the U.S. Supreme Court limited the application of disparate impact theory under the Fair Housing Act so that statistical data alone is not sufficient to establish liability: a plaintiff must also cite a specific practice that results in disparate impact. Despite this limitation, lenders still have to consider factors such as race and national origin in individual credit decisions to protect themselves from fair lending regulatory enforcement actions and lawsuits. Moreover, the Supreme Court's decision does not extend to the Equal Credit Opportunity Act. Legislation is needed to eliminate disparate impact and ensure lenders that uniformly apply neutral lending standards are not be subject to unnecessary regulatory enforcement actions or frivolous and abusive lawsuits under the Equal Credit Opportunity Act or the Fair Housing Act.Rigorous and Quantitative Justification of New Rules: Cost-Benefit Analysis. Provide that financial regulatory agencies cannot issue notices of proposed rulemakings unless they first determine that quantified costs are less than benefits. The analysis must take into account the impact on the smallest banks which are disproportionately burdened by regulation because they lack the scale and the resources to absorb the associated compliance costs. In addition, the agencies would be required to identify and assess available alternatives including modifications to existing regulations. They would also be required to ensure that proposed regulations are consistent with existing regulations, written in plain English, and easy to interpret.
Cutting the Red Tape in Small Business Lending: Eliminate Burdensome Data Collection. Exclude banks with assets below $10 billion from new small business data collection requirements. This provision, which will likely require the reporting of information regarding every small business loan application, will fall disproportionately upon smaller banks that lack scale and compliance resources.
Modernize Subchapter S Constraints. Subchapter S of the tax code should be updated to facilitate capital formation for community banks, particularly in light of higher capital requirements under the proposed Basel III capital standards. 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). These changes would better allow the nation's 2,200 Subchapter S banks to raise capital and increase the flow of credit.