Third Anniversary of the Dodd-Frank Wall Street Reform Act – Unfinished Business

July 21, 2013

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The intent of the Act was to prevent a recurrence of the events that led to the 2008 financial crisis and address the issue of too-big-to-fail. This legislation was directed primarily at the nation’s largest banks and financial firms and marked the greatest change to regulation in the financial service industry in decades. With the passage of the 848-page bill, it became the responsibility of the federal agencies to begin writing the rules to turn Congress’ law into detailed implementing regulations.

More than 10 federal agencies have been mandated to implement aspects of the Dodd-Frank Act, but the majority of the rules are being written by just six agencies: the Federal Reserve, the FDIC, the OCC, the CFPB, the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC). In certain cases the rule-writing requires coordination among several autonomous federal regulatory agencies which is proving to be more challenging and time-consuming than expected – leaving much that remains to be done.

July 21, 2013 marked the third anniversary of the Dodd-Frank Act. The law included a total of 398 federal rulemaking requirements.

Of the 398 required rules –
    158 rules have been finalized,
    113 rules have been proposed (but not finalized), and
    127 rules have not been proposed. *
Key provisions of the Dodd-Frank that are still unfinished include a rule that curbs a bank’s ability to do its own in-house trading (Volker Rule), and a rule requiring lenders to retain some credit risk in loans they securitize.

Treasury Secretary Jacob “Jack” Lew said recently, “If we get to the end of this year and we cannot, with an honest, straight face, say that we have ended too-big-to-fail, we are going to have to look at other options.” Lew stressed, “It is unacceptable to be in a place where too-big-to-fail has not ended.”

CBAI supports the continued reform of our financial system to significantly reduce the probability and severity of a future financial crisis. The taxpayer bailout of big banks and financial firms must never happen again!

*Source - Davis Polk & Wardwell - Dodd-Frank Three-Year Anniversary Report

Staff Visit to Washington D.C. Reinforces Support for Illinois Community Bank Positions and Initiatives

July 22-25, 2013

CBAI's David Schroeder, vice president federal governmental relations, recently called on the offices of every member of the Illinois Congressional delegation and federal regulators to urge support for positions and initiatives which are vitally important to Illinois’ community banks.

Support resolving the issue of too-big-to-fail (TBTF)

Support regulatory relief contained in ICBA’s Plan for Prosperity and tiered regulation for community banks

Oppose expanded powers for tax-exempt credit unions

Oppose expansion of the Farm Credit System (FCS)

Support for our positions and initiatives will allow community banks to encourage additional small business lending, fuel job creation, help create economic stability, and more fully serve their communities.

Support resolving the issue of too-big-to-fail (TBTF)
CBAI urges the continue reform of our financial system to significantly reduce the probability and severity of a future financial crisis. The taxpayer bailout of big banks and financial firms must never happen again!

Support for resolving too-big-to-fail is growing among banking regulators, a bipartisan group of legislators, and distinguished thought leaders. This chorus has been fueled by the taxpayer-funded bailouts of the mega banks and also by their numerous misdeeds. No financial institution, its directors, officers, or employees should be too-big-to-manage, too-big-to-regulate, too-big-to-fail, too-big-to-prosecute, too-big-to-jail, and should certainly not be too-big-to-change.

Senator Sherrod Brown (D-OH) joined with Senator David Vitter (R-LA) in introducing the Terminating Bailouts for Taxpayers Fairness Act of 2013 (S. 798). This legislation will help eliminate the threats posed by too-big-to-fail financial institutions with capital guidelines appropriately scaled to the size, scope and risks of the institutions, and offers much-needed regulatory relief to community banks. CBAI thanks Illinois Senator Richard Durbin for taking a leadership position by co-sponsoring this important legislation.

Support regulatory relief contained in ICBA’s Plan for Prosperity and tiered regulation for community banks
The steady increase in regulations threatens community banks and their communities. CBAI supports regulatory relief and tiered regulation for community banks. The financial crisis clearly demonstrated that the material risks of Wall Street mega banks are very different from those of community banks, and they should not be treated the same way.

CBAI has joined 37 state and regional community bank associations in endorsing ICBA’s Plan for Prosperity, a policy platform for the 113th Congress that promotes a regulatory environment in which community banks can thrive and lend more robustly to small businesses and residents, thereby helping their communities grow and thrive.

Many Plan for Prosperity provisions have made their way into legislation, the most encompassing to-date is the Community Lending Enhancement and Regulatory Relief Act of 2013 (H.R. 1750 and S. 1349). CBAI thanks Illinois Senator Mark Kirk for taking a leadership position by co-sponsoring this important legislation.

Oppose expanded powers for tax-exempt credit unions
The original credit union model has become outdated as credit unions have long since strayed from their founding purpose of serving individuals of modest means and with a common bond. Their federal tax-exempt status, in exchange for serving their original mission, is clearly no longer justified. Their tax subsidy should be eliminated and they should all pay their fair share.

Credit unions are seeking to expand their commercial lending powers by increasing the percentage of assets cap on member business lending (H.R. 688 and S. 968). If authorized, any growth will likely come at the expense of tax-paying community banks. In addition, credit unions are seeking to raise capital from outside investors (H.R. 719), discarding their longstanding reliance on retained earnings. This change would fundamentally alter the exclusive member-focused character of credit unions – a condition for their original tax exemption. Credit unions should not be granted these or any additional powers as long as they remain exempt from taxation.

Oppose expansion of the Farm Credit System (FCS)
CBAI opposes the expansionist agenda of the Farm Credit System (FCS) which would allow FCS lenders to become the equivalent of commercial banks while retaining their Government Sponsored Enterprise (GSE) status. The FCS’s funding advantage as a GSE constitutes an unfair competitive advantage over rural community banks.

The FCS should follow its historical mission of serving bona fide farmers, ranchers, and young, beginning and small farmers and their farmer-owned cooperatives. If it chooses not to follow this mission, it should be subject to taxation and should also face regulatory safeguards, disclosures and controls equal to community banks, including CFPB oversight.


Senator Kirk Introduces Community-Bank Lending Bill

July 29, 2013

U.S. Senator Mark Kirk (R-IL) joined with fellow Senate Banking Committee members Jerry Moran (R-KS) and John Tester (D-MT) in introducing the Community Lending Enhancement and Regulatory Relief (CLEAR) Act (S. 1349). This legislation would provide much-needed regulatory relief for community banks, enabling them to focus on lending, helping small businesses and communities grow, and creating jobs.

kirk schroeder

David Schroeder, CBAI VP of federal governmental relations, personally  thanked Senator Kirk for introducing this legislation during his recent   quarterly visit to Washington D.C.

Senator Kirk said, “In an era of new regulations that hamper community   banks’ ability to meet the needs of their communities, I am proud to join   Senators Moran and Tester in this bipartisan bill that aims to address        the unique differences between mega global financial institutions and   community banks.”

The CLEAR Act includes four provisions that would:

Exempt community banks with assets of less than $1 billion from the Sarbanes-Oxley 404(b) internal-controls assessment mandates. Community banks’ internal-control systems are monitored continually by bank examiners which should not have to incur the unnecessary expense of paying an outside audit firm for attestation work.

Require the Federal Reserve to revise the Small Bank Holding Company Policy Statement by increasing the qualifying asset threshold from $500 million to $5 billion. The increased threshold would ease capital requirements for small banks.

Exempt community banks with assets of less than $10 billion from escrow requirements for any first mortgage held by the lender. This exemption will help support the still-struggling housing recovery.

Provide “Qualified Mortgage” status under the Consumer Financial Protection Bureau’s ability-to-repay rules for any mortgage held in portfolio for at least three years by community banks with less than $10 billion in assets.

U.S. Congressman Blain Luetkemeyer (R-MO) has already introduced the CLEAR Act (H.R. 1750) in the House which similarly seeks targeted regulatory relief for community banks.


CBAI Leadership Bankers and Staff Meet with Senator Durbin

July 2, 2013

CBAI leadership bankers and staff met with Illinois Senator Richard Durbin to discuss issues of importance to Illinois community banks. Bank of Springfield hosted this roundtable discussion during the Senate’s July 4th recess.


The common theme expressed by leadership bankers from CBAI’s first Chairman, Art Murray of Citizens State Bank in Milford (1974-1975), to CBAI’s current Chairman, Rick Jameson of Morton Community Bank (2012-2013), was the stifling impact of over regulation/examinations and unfair competition on the ability of community banks to serve their communities.

CBAI bankers thanked Senator Durbin for co-sponsoring the Terminating Bailouts for Taxpayers Fairness Act (S. 798) and encouraged him to take a strong leadership position in moving this important legislation forward. The Brown-Vitter bill would establish more appropriate capital standards for the nation’s largest financial institutions and provide much needed regulatory relief for community banks. CBAI’s top Federal Policy Priority is addressing the issue of too-big-to-fail. Taxpayer bailouts must never happen again.

CBAI bankers encouraged additional progress by both regulators and legislators on differentiating community banks from too-big-to-fail financial institutions. The group emphasized that the business model and risks of large, complex and interrelated financial institutions is completely different than community banks, and painting the industry with a broad regulatory brush is inappropriate; community banks are nothing like the large financial behemoths and future legislation and regulation should reflect that fact.

CBAI’s past Chairman Robin Loftus (Security Bank, S.B., Springfield) shared her recent experiences as the current Chairman of the Consumer Financial Protection Bureau’s (CFPB) Community Bank Advisory Council. While the CFPB’s examination and enforcement authority is limited to banks in excess of $10 billion in assets (and the shadow financial industry), input from the Advisory Council is vital to the Bureau’s rule writing. Loftus identified several areas where their input has already been beneficial in avoiding inappropriate regulation.

CBAI staff also addressed other opportunities for Senator Durbin to co-sponsor legislation in the Senate which would help reduce the regulatory burden for community banks. David Schroeder, Vice President Federal Governmental Relations, will be discussing these opportunities in greater detail when he visits members of the Illinois Congressional delegation in Washington later this month.

CBAI leadership bankers and staff thanked Senator Durbin and his capable staff for attending the roundtable discussion.


CFPB Finalizes Amendments to Qualified Mortgage Rule

May 30, 2013

The Consumer Financial Protection Bureau (CFPB) finalized amendments to the Ability-to-Repay/Qualified Mortgage (QM) rule by creating specific exemptions and modifications for small creditors and by also revising the rule on how to calculate loan origination compensation. READ CFPB FINAL RULE.

Under the amendments, the CFPB made several adjustments to the Ability-to-Repay rule to facilitate lending by small creditors, including community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgage loans.

    The rule extends QM status to loans that small creditors hold in their own portfolio even if the customers’ debt-to-income ratio exceeds 43%.

    The rule provides a two-year transition period during which small creditors can make balloon loans and those loans will meet the definition of QMs. During this transition period the CFPB will study whether the definition of “rural” or “underserved” needs to be changed.

    The rule allows small creditors to charge a higher annual percentage rate for first-lien QMs while maintaining a safe harbor for the Ability-to-Repay requirements.
Under the amendments, the CFPB provides certain exceptions to the Dodd-Frank requirement that loan originator compensation be included in the permissible points and fees. The compensation paid by a mortgage broker to a loan originator employee does not count towards the points and fees threshold.

The amendments take effect with the Ability-to-Repay rule on January 10, 2014.

The Community Bankers Association of Illinois appreciates the CFPB’s willingness to amend the Ability-to-Repay rule. In a February 22, 2013 comment letter, CBAI strongly advocated for the new “small creditor” category, a $5 billion asset and 3,500 mortgage threshold, as well as expanded definitions of “rural” and “underserved’ communities. CBAI and the Independent Community Bankers of America will continue to work with the CFPB to make this rule more favorable for community bank participation in residential mortgage lending.