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CBAI Urges Illinois Congressmen to Cosponsor FHLB Member Bill

In a July 17, 2017 letter, the Community Bankers Association of Illinois (CBAI) urged the Illinois members of the United States House of Representative to cosponsor the Housing Opportunity Mortgage Expansion Act (H.R. 2890), which is bi-partisan legislation introduced by Representatives Randy Hultgren (R-IL-14th) and Gwen Moore (D-WI-4th). This bill will grandfather the Federal Home Loan Bank (FHLB) memberships of approximately 20 captive insurance companies which are threatened as a result of a regulation implemented by the Federal Housing Finance Agency that prohibits new captive insurers from joining a FHLB and requires existing captive members to terminate their memberships in the coming years.

Two of the Chicago FHLB’s largest borrowers are captive insurers, cumulatively accounting for about one-third of its total advances/borrowings. Unless Congress acts, the FHFA’s rule will terminate the memberships of these Chicago FHLB members, significantly reducing its size and scale, as well as its overall profitability. Also, the borrowing costs for community bank members will likely increase while the amount of FHLB funding devoted to affordable housing and community investment programs will decrease. A regulation that results in a smaller and less efficient Chicago FHLB, with lower profits and less ability to carry out its mission, is the wrong approach and will hurt efforts to revive and sustain Illinois housing markets and local economies.

CBAI partnered with the Chicago FHLB in Capitol Hill meetings urging support for this legislation, and as a result of this cooperative effort Illinois Representatives Mike Bost (R-12th), Danny Davis (D-7th), Rodney Davis (D-13th), Bill Foster (D-11th), Robin Kelly (D-2nd), Darin LaHood (R-18th), Peter Roskam (R-6th), Bobby Rush (D-1st), and Brad Schneider (D-10th) are now cosponsoring this legislation. Read Letter.

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CBAI Again Urges CFPB to Provide HMDA Reporting Relief

In a July 31, 2017 comment letter, CBAI again urged the CFPB to provide community banks with HMDA reporting relief. The letter was sent in response to the Bureau’s proposal to temporarily increase the transaction threshold to 500 lines of credit for two years and during that time reconsider the open-ended transaction coverage limits. CBAI renewed the recommendations made in its May of 2015 comment letter to the CFPB which specifically included permanently increasing the open-end line of credit reporting threshold to 2,000 (versus the temporary proposed 500) lines of credit.

CBAI also expressed concern with the Bureau’s rulemaking process which has only provided few and minor exemptions for community banks after voluminous and complex rulemaking, which in itself constitutes an unnecessary and additional regulatory burden on community banks. CBAI urged the Bureau to use its authority granted under the Dodd-Frank Section 1022(b)(3)(A) which recognizes the need to tailor regulations to fit the diversity of the financial marketplace, and explicitly gives the CFPB the authority to adapt regulation by allowing it to exempt any class of entity from its rulemaking. Community banks do not abuse their customers and communities and are deserving of the broad exemptions the Bureau is able to grant them under the law. Read Comment Letter.

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CBAI Seeks Congressional Support for Reciprocal Deposit Legislation

In August 2, 2017 letters to the United States House and Senate leadership, the Community Bankers Association of Illinois urged lawmakers to support for H.R. 2403 and S.1500 which address the issue of reciprocal deposits inappropriately being treated as brokered deposits. Read Letters.

Reciprocal deposits are used by many community banks in Illinois and around the country to meet the needs of their customers and obtain funds to lend in their communities. Customers such as local governments require FDIC insurance on their deposited funds. With deposit insurance limits at $250,000 community banks join networks that allow them, through the use of reciprocal deposits, to ensure that those deposits are fully insured while receiving back from those network participants the amount of the shared deposits to lend back in their communities.

Reciprocal deposits are included in the definition of brokered deposits. However, reciprocal deposits did not exist when the law was enacted, and reciprocal deposits actually have all the characteristics of a bank’s core deposits. As a result, they are wrongly governed by the law on brokered deposits.

The House and Senate legislation addresses this issue and provides strong safety and soundness protections.

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CBAI Attends Banking Digital Currency Seminar

CBAI’s David Schroeder, vice president federal governmental relations, attended the Banking Digital Currency Seminar in Chicago on June 5, 2017. The Seminar was a joint initiative by the Illinois Department of Commerce and Economic Opportunity and the Department of Financial and Professional Regulation (both members of the Illinois Blockchain Initiative), together with Coin Center, and the Digital Currency Group.

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The Illinois Blockchain Initiative represents the first of its kind governmental collaboration aimed at understanding digital currencies and distributive ledger technology. The members of the Initiative believe that it is critical that banks and regulators understand the business models and the products and services in this space. The seminar was in part an opportunity for a wide-ranging discussion of the opportunities and challenges of engaging with these companies as a banking partner. The need for this engagement was highlighted by a recent study of the cryptocurrency industry indicating that sustainable banking relationships were one of the most consistent pain points for all industry participants.

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Presenters explained the various digital currency business types which include: wallets, exchanges, payment processing, special service providers, mining, and blockchain. Recommendations for bankers at this stage included: consideration of an early adopted advantage, gaining an appreciation for the nuances of the virtual currency ecosystem, critically assessing the nature of de-risking, and developing or drawing upon internal resources.

CBAI member, Michael Busch, President of Burling Bank in Chicago, was a presenter on a panel of bankers who together explained their decision making process and the operating methodology they employed in the banking digital currency companies (which included early and consistent engagement with their respective regulators).

Chicago is developing as an emerging fintech hub. It is a financial services epicenter that has a deep and talented workforce pool. The goal of the Illinois Blockchain Initiative is to foster financial innovation through early engagement, risk-based analysis, experimentation and global collaboration with engagement and assistance, education and training, and modernizing regulation. 

Given the market capitalization of Bitcoin at $43 billion (USD), and with an estimated 2.8 to 5.0 million users of Bitcoin (globally), banking digital currency is an emerging issue which provides community bankers with challenges but opportunities.

June 5, 2017

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CBAI Supports Law Suit Against the NCUA

The Community Bankers Association of Illinois (CBAI), joined with a coalition of state affiliates and the Independent Community Bankers of America to file a friend-of-the-court brief strongly supporting a lawsuit against the National Credit Union Administration (NCUA) which challenges its field of membership rule. Read Amicus Brief.

The NCUA’s October of 2016 final rule greatly expanded the service areas within which credit unions can operate. The rule renders meaningless the existing statutory standard that limits these institutions to serving a well-defined local community, neighborhood or rural district. The brief says the agency’s deliberate violation of statutory restraints to enlarge credit unions’ geographic reach is part of its ongoing campaign to promote the credit union industry. It urges the court to grant the motion for summary judgment [against the NCUA].

In a February 5, 2016 comment letter, CBAI responded forcefully to the NCUA’s proposed expansion of its field of membership rule and urged its immediate withdrawal. The proposed rule was then being framed by the NCUA as “regulatory relief” - versus the wholesale charter enhancement that it really was. The sweeping changes in this proposal would dramatically extend the credit union tax-advantaged status over taxpaying community banks. Read CBAI Comment Letter.

At that time, the NCUA stated their proposed rule was the most sweeping change in membership in the NCUA’s 45 years history. The reason for the proposal was clearly identified by the NCUA’s Vice Chairman by the comment, “Congress is deadlocked” on these issues. Apparently this was the reason why quasi-legislative actions could be justified by unelected NCUA bureaucrats. The proposed rule was a clear and intentional end-around Congress and disregarded congressionally imposed and established rules to assure that credit unions adhere to their original mission.

If credit unions want to weaken (so as to virtually eliminate) the common bond requirement and operate like banks, they should be taxed like banks and should be required to meet all of the same regulatory requirements as banks. They can't have it both ways.

Credit unions were never meant to be tax-exempt community banks!

June 8, 2017