FDIC Rescinds Its Controversial Plan to Assess Reciprocal Deposits as Brokered Deposits

Community banks have recorded another victory! The FDIC Board of Directors voted to rescind its controversial plan to assess reciprocal deposits as brokered deposits in the calculation of community bank deposit insurance assessments. The FDIC initially made this recommendation in a July of 2015 Notice of Proposed Rulemaking (NPR) to “refine” the deposit insurance assessment system for small depository institutions ($10 billion in assets and under). The FDIC received more than 400 comment letters (including a letter from CBAI) critical of the plan and CBAI is pleased to report that the FDIC has responded to the concerns of community banks.

In a September of 2015 comment letter to the FDIC, CBAI raised serious concerns about the NPR’s treatment of reciprocal deposits, which are an important source of community banks’ funding, and highlighted the major differences between reciprocal and brokered deposits which clearly indicate that reciprocal deposits are core deposits. CBAI emphasized that these deposits are an important tool for community banks to compete against larger banks, and they do not foster a further concentration of banking assets in too-big-to-fail mega banks. CBAI concluded by urging the FDIC to continue “separate treatment for reciprocal deposits from brokered deposits by defining core deposits to include reciprocal deposits.” Read CBAI’s Comment Letter to the FDIC.

Also, in a December of 2015 letter to U.S. House Financial Services Committee leadership, CBAI urged support for the bipartisan H.R. 4116, a bill which would amend the Federal Deposit Insurance Act to ensure that reciprocal deposits are not considered to be funds obtained through a deposit broker. CBAI’s comment letter specifically pointed out that Illinois law requires units of local government deposits to be fully insured and how reciprocal deposits allow local governments to get what they need - insured deposits, and community banks to get what they need - money to lend back into their communities. This letter of support was important in keeping legislative pressure on the FDIC to make this concession to community banks. Read CBAI’s Letter to HFSC Leadership.

This victory underscores how consistent involvement in the legislative and regulatory process yields positive results for community banks!

January 21, 2016


CBAI Supports the ICBA’s Position on Proposed FDIC Assessment Changes

The ICBA recently responded to an FDIC Notice of Proposed Rulemaking (NPR) regarding changes to FDIC assessments. The ICBA’s response on behalf of the nation’s community banks differs radically from the joint response by the ABA, the Financial Services Roundtable (“representing the largest integrated financial companies”) and The Clearing House (“owned by the world’s largest commercial banks”).

The FDIC’s rulemaking will implement the Dodd-Frank Act requirement that large banks are responsible to increase the Deposit Insurance Fund (DIF) reserve ratio (Ratio) from 1.15% to 1.35%. This in recognition of the large banks’ outsized risk to the DIF and their behavior in causing the financial crisis. The surcharge to increase the Ratio would equal 4.5 basis points of the large banks’ assessment base. The FDIC expects the surcharge on large banks will commence in 2016, that it should take approximately eight quarters to raise the Ratio to 1.35%, and banks with less than $10 billion in assets (community banks) will receive a credit for the portion of their regular assessment that contributes to the growth of the Ratio between 1.15% and 1.35%.

CBAI and ICBA strongly supported the Dodd-Frank mandate to surcharge the large banks and indemnify community banks. ICBA’s recommendation was to reduce the eight quarter surcharge period to four quarters. A reduction in the surcharge period would properly fund the DIF in a shorter period of time, and community banks would be able to take advantage of the assessment credits sooner than later, perhaps as early as the fourth quarter of 2017.

The ABA and the other mega bank groups are clearly supporting the big bank position on this issue. Their recommendations include increasing the surcharge assessment period from 8 to 14 quarters (into 2019 with a potential shortfall extension to 2020); cutting the surcharge in half to 2.25 basis points; integrating the assessments into the offsets of long-term unsecured debt issued by many large banks; not including the assessment base of affiliate small banks in the assessment base of the large banks; and a full $10 billion deduction from the surcharge base for every bank larger than $10 billon. These recommendations are obviously meant to ease the burden of responsibility on the largest banks which dramatically delay the funding of the DIF and the use of assessments-credits by community banks.

The ABA decision to again side with the big banks and the other large bank associations further highlights the need for autonomous community bank representation by the ICBA and CBAI. CBAI proudly supports the community bank position on this important issue and urges the FDIC to incorporate ICBA’s recommendations in the final rule.

January 20, 2016


FHFA Responds to the Powerful Voice of Community Banks

The Federal Housing Finance Agency (FHFA) has made a significant concession to community banks in its final rule regarding membership in Federal Home Loan Banks. The FHFA will not require members to maintain an ongoing minimum level of specified residential mortgages as a condition of eligibility for membership in Federal Home Loan Banks. This positive development was the direct result of the FHFA receiving more than 1,300 comment letters from primarily community banks (and their associations), all but a small handful urging the FHFA to not implement the harmful proposed rule.

CBAI advocated strongly on behalf of Illinois community banks in a January of 2015 comment letter to the FHFA stating, “It is clear that if the Proposed Rule is adopted it would have a profound impact on the FHLB system (“System”), FHLBanks and Members including but not limited to: increased regulatory burden and difficulties in Member balance sheet management; the stability of the System and its continued reliability as a funding partner particularly in times of economic stress; uncertainty about continuing Member access to liquidity; the future value of FHLBank membership and the implications for membership decisions; and the impact on housing and community development throughout the System.” CBAI concluded the letter by stating, “This harmful proposal does not need to be further delayed or studied but needs to be completely abandoned.” Read CBAI Comment Letter.

CBAI thanks the many Illinois community bankers who responded to our Action Alert to weigh-in with the FHFA regarding this important issue. This clear victory is further evidence that when community bankers respond in large numbers, together we can favorably impact regulation that affects community banks. 

January 14, 2016


FASB Responds to Community Banker Concerns

FASB’s Chairman, Russell Golden, responded to community banker concerns about his disturbing comments regarding the cause of the financial crisis and the proposed Current Expected Credit Loss (CECL) model. Golden has requested a meeting during the first quarter of 2016 to discuss those concerns.

In letters to FASB, CBAI and ICBA criticized Golden’s apparent lack of understanding of the role community banks paid in the financial crisis and the CECL model’s applicability to community banks. CBAI stated in its letter. “In the span of four sentences you cite community bank failure statistics followed by your conclusion that ‘Clearly community banks have been a major part of the problem’ and that this is the reason why ‘all lending institutions should be included in the new guidance.’ This flawed reasoning is comparable to citing elder financial abuse statistics and then blaming senior citizens for that abuse.”

Golden’s response letter stated “My remarks are neither intended to address the cause of the financial crisis nor suggest that community banks had a role in the crisis.” CBAI welcomes Golden’s admission that community banks were not the cause of the financial crisis which is why CBAI strongly believes community banks should not be ensnared in a regulatory solution (complete with an added burden) to a problem they did not cause. 

CBAI letter stated, "Too-big-to-fail (TBTF) banks, not community banks, caused the financial crisis. The banking system and economy was threatened with massive destruction by the greed and excess of these mega banks not community banks." CBAI’s letter continues, “What is not needed in FASB’s response to the financial crisis is a one-size-fits-all CECL model being imposed on community banks. What is needed is an exemption from the proposed CECL model for banks under $10 billion in assets. An exemption would alleviate the concerns of community banks regarding inappropriate and expensive provisioning that does not fairly present the risk profile of their assets.” CBAI then detailed the parameters of a simple and straightforward alternate approach.

CBAI thanks the many Illinois community bankers who responding to the recent Action Alert to encourage FASB reconsider their proposed CECL model. CBAI also looks forward to a continued dialogue with FASB, the goal of which will be to shield Illinois community banks from the harmful effects of this inappropriate accounting standard. Read CBAI Letter to FASB. Read ICBA Letter to FASB. Read FASB Response.

January 5, 2016


Omnibus Funding and Tax Extenders Signed into Law

Congress passed and President Obama signed into law a $1.1 trillion omnibus spending bill and a $680 billion package of tax extenders, wrapping-up the 2015 congressional session. While CBAI was disappointed that no additional regulatory relief for community banks was included in this legislation, the year-end package did include CBAI and ICBA-supported provisions to:

  • pass the Cybersecurity Information Sharing Act, which encourages the public and private sectors to voluntarily share critical cyber-threat information,
  • require regulators to study and report to Congress the effect of the Basel III capital requirements on mortgage-servicing assets,
  • increase by $3 billion funding for the Small Business Administration’s 7(a) guaranteed loan program,
  • reauthorize SBA’s expired 504 refinance program,
  • continue SBA fee waivers for loans to veterans,
  • make permanent a five-year S-Corp recognition period for built-in gains,
  • permanently extend the S-Corp stock basis adjustment for charitable contributions of property, and
  • cement a $500,000 Section 179 expensing limit for new and used equipment including off-the-shelf-software.

Following December’s passage of the CBAI and ICBA-backed regulatory relief measures in the highway and transportation funding bill, both Associations worked diligently to include additional regulatory relief in the funding and tax legislation. CBAI and ICBA will continue working with lawmakers to expand regulatory relief for community banks in 2016. CBAI thanks the many members of the Illinois Congressional delegation for their overwhelming and bi-partisan support for this important legislation. December 21, 2015