Tiered Regulation and Regulatory Relief



Updated on 08/01/2018


The Community Bankers Association of Illinois thanks President Trump for signing into law long-overdue, well-deserved and meaningful regulatory relief for the nation’s community banks.

The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) is a carefully constructed bipartisan bill that includes common-sense improvements to financial regulation that will allow community banks to better serve their customers and communities. For consumers it will open the door for more creditworthy borrowers and businesses and will contribute to local economic growth and job creation.

Community banks are the economic lifeblood of local communities. While holding less than 20 percent of the nation’s banking assets, community banks fund more than 60 percent of small-business loans and more than 80 percent of U.S. agricultural loans. Further, community banks operate in many areas where large banks do not, serving as the only physical banking presence in nearly one in five U.S. counties, according to the FDIC.

This legislation passed the U.S. Senate in March on a 67-31 bipartisan vote. Following Senate action, the U.S. House of Representatives passed the bill on a 258-159 bipartisan vote. Those members of the Illinois Congressional Delegation who voted in favor of this regulatory relief for community banks were Mike Bost (R-12th), Danny Davis (D-7th), Rodney Davis (R-13th), Bill Foster (D-11th), Randy Hultgren (R-14th), Adam Kinzinger (R-16th), Darin LaHood (R-18th), Peter Roskam (R-6th), Bradley Schneider (D-10th), and John Shimkus (R-15th).

CBAI’s President Kraig Lounsberry said, “We are delighted and thankful for the strong bipartisan support this legislation received in Congress and for President Trump signing the bill into law. This was a defining vote where members chose to either stand for or against community banks.” Lounsberry continued, “We sincerely thank the Illinois Members of Congress who stood with us. Every Illinois Republican Congressman voted to pass this legislation. We particularly thank three Illinois Democrats - Congressmen Danny Davis, Bill Foster and Brad Schneider for voting to support community banks despite their party leadership’s unjustified opposition to the passage of this legislation.”

The next step is the regulators implementing these beneficial provisions of this legislation.

  • Granting “Qualified Mortgage” (QM) status for portfolio mortgage loans at most community banks;
  • Increasing exemption thresholds for Home Mortgage Disclosure Act (HMDA) reporting;
  • Exempting certain community-bank loans from escrow requirements;
  • Simplifying community-bank capital requirements;
  • Increasing eligibility for a short-form Call Report to restore proportionality to quarterly reporting;
  • Expanding eligibility for the 18-month regulatory-examination cycle to more community banks;
  • Easing appraisal requirements to facilitate mortgage credit in local communities;
  • Exempting most community banks from the Volcker Rule;
  • Expanding access to the Federal Reserve’s Small Bank Holding Company Policy Statement to help more community banks build capital; and
  • Improving regulatory treatment of reciprocal deposits and certain municipal securities.

CBAI worked closely and tirelessly with both Democrats and Republicans in Congress, and the Independent Community Bankers of America (ICBA), to help enact this important legislation into law.

CBAI extends its thanks to all community bankers who engaged in the grassroots lobbying process to enlighten their lawmakers and encourage their support.


CBAI is hopeful that Congress and the Trump Administration will support the passage of additional meaningful regulatory relief for community banks. The continuing decline in the number of community banks combined with an increased concentration of banking assets in the mega banks pose a threat to our financial system and economy. Community banks are continuing to suffocate under an unprecedented regulatory burden which has driven many small banks to merge out of existence. Dealing with the increased regulatory burden is diverting scarce community bankers’ resources from serving their customers and communities to new compliance requirements, reviews and documentation.

The financial crisis demonstrated that the risks taken by Wall Street are very different from those taken by community banks, and regulations should reflect those differences. The regulatory burden imposed on community banks by a one-size-fits-all approach ignores the disproportionate burden of banking laws and regulations on community banks. Credit unions, Farm Credit System lenders and other non-bank financial services providers are not subject to the same laws and regulations as community banks. This unlevel playing field places community banks at a significant competitive disadvantage.

CBAI supports the ICBA’s Plan for Prosperity, a policy platform for the 115th Congress that promotes a regulatory environment in which community banks can thrive and contribute to their local economies. The Plan addresses the following issues to help community banks dedicate more of their resources to promoting economic growth: access to capital, regulatory relief, mortgage reform, bank oversight and examination, tax relief, and agricultural and rural America priorities.

CBAI urges Congress and regulators to expand and refine a tiered regulatory system based on bank size and risk profile to ensure that every law, rule and regulation clearly distinguishes and appropriately regulate community banks.


Report on CBAI Staff Visit to D.C.

CBAI’s Call on Washington

CBAI’s Capital Conference

ICBA’s Plan for Prosperity

Legislative and Regulatory Successes


Regulators Respond to Pressure on TruPS Treatment in the Volcker Rule

January 14, 2014

Federal banking regulators have responded to industry calls to rectify a Volcker Rule provision requiring banks to divest by July 2015 their holdings of collateralized debt obligations (CDOs) backed by trust-preferred securities (TruPS). The interim final rule permits banks to retain TruPS CDOs they owned as of December 10, 2013, if the CDOs were issued before May 19, 2010, and are backed primarily by TruPS or subordinated debt of bank holding companies that had less than $15 billion in assets when the securities were issued or of mutual holding companies. The rule will avoid the dramatic market impact of revised accounting treatment and forced divestiture of these securities.

The Independent Community Bankers of America (ICBA) worked with the various banking regulators and members of Congress to exempt these instruments from the Volcker Rule. CBAI and ICBA are reviewing the interim final rule to assess its impact and will weigh options for pursuing additional relief measures as necessary.

Read the Interim Final Rule.

Read the Agency News Release.

Read the Non-Exclusive List of TruPS CDOs that Are Not Covered Funds.

Access Additional Volcker Rule Resources.

Read ICBA Release.

Read ICBA Special Coverage.


House Passes Thrift Holding Company Relief Legislation

January 14, 2014

The United States House of Representatives passed, with strong bipartisan support, CBAI supported legislation to allow thrift holding companies to take advantage of the new 1,200-shareholder Securities and Exchange Commission deregistration threshold. The Holding Company Registration Threshold Equalization Act (H.R. 801) also would raise the registration threshold to 2,000 shareholders. Due to an oversight in the Jumpstart Our Business Startups (JOBS) Act, thrift holding companies could not take advantage of the increased shareholder threshold below which a bank or bank holding company may deregister with the SEC. The bill was co-sponsored by Illinois’ Mike Quigley (D-05).

Similar legislation (S. 872) has been introduced in the Senate. The bills are among many regulatory relief provisions in ICBA’s Plan for Prosperity platform for the 113th Congress.


November 18-21, 2013

CBAI's David Schroeder, vice president federal governmental relations, recently completed a trip to Washington D.C. Schroeder called on the offices of every member of the Illinois Congressional delegation, the Office of Comptroller of the Currency, Federal Housing Finance Agency, Conference of State Bank Supervisors, and the Consumer Financial Protection Bureau 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 tiered regulation, regulatory relief, and advance favorable legislation for community banks

Oppose expanded powers for tax-exempt credit unions

Oppose expansion of the Farm Credit System (FCS)

Congressional and regulators support for our positions on these major 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 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!

An unfortunate result of the financial crisis is that the largest banks have grown larger and remain candidates for bailouts. Today, the 10 largest banks (.2% of the nation’s banks) control 77% of all bank assets compared to just 55% in 2002. The nation’s 6,500 community banks represent only 12% of all bank assets.

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 not only the taxpayer-funded bailouts of the mega banks but also by their numerous and egregious misdeeds including: massive screw-ups in mortgage servicing, illegal document robo-signing and foreclosing on veterans, mortgage securities fraud, anti-money laundering lapses related to terrorist financing and drug trafficking, manipulation of LIBOR rates, massive bond trading losses (London Whale), and multi-million dollar executive pay scandals.

No financial institution, its directors, officers, or employees should ever 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 Senator Richard Durbin for taking a leadership position by co-sponsoring this important legislation.

Support tiered regulation, regulatory relief, and advance favorable legislation 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. The Dodd Frank Reform Act laid out a plan for applying separate supervision, capital, and liquidity requirements for the financial behemoths. In the Act, and elsewhere, tiered regulation has established a welcome and necessary beachhead. Now it is time to broaden that beachhead and ensure that every new banking law, rule and regulation clearly distinguishes and appropriately regulates community banks.

Legislation in the House and Senate to provide much needed tiered regulation, regulatory relief is gaining traction and includes the following.

H.R. 1750 – Community Lending Enhancement and Regulatory Relief Act of 2013 (CLEAR Act) has 87 bipartisan House co-sponsors. CBAI thanks House members Rodney Davis (R-13), Bill Enyart (D-12), Mike Quigley (D-5), Bobby Rush (D-1), and Aaron Schock (R-18) for cosponsoring this legislation.

S. 1349 – CLEAR Act legislation in the Senate has 21 bipartisan cosponsors. CBAI thanks Senator Mark Kirk for being an original sponsor in the Senate of this legislation. The CLEAR Act contains the following provisions.

  • Providing “qualified mortgage” status under the CFPB’s ability-to-repay rules for any mortgage originated and held in portfolio for at least three years by a lender with less than $10 billion in assets.
  • Exempting from any escrow requirements any first lien mortgage held by a lender with less than $10 billion in assets.
  • Exempting servicers that service 20,000 or fewer mortgages from certain new servicing rules.
  • Providing an exemption from the independent appraisal requirement for mortgages of less than $250,000.
  • Providing that a financial institution is not required to provide an annual privacy notice to its customers if it has not changed its privacy policies (House version only).
  • Exempting community banks with assets of less than $10 billion ($1 billion in Senate version) from the Sarbanes-Oxley 404(b) internal-controls assessment mandates. The exemption threshold would be adjusted annually to account for any growth in banking assets.
  • Requiring the SEC to conduct a cost-benefit analysis of new or amended accounting principles (House version only)
  • Requiring the Federal Reserve to revise the Small Bank Holding Company Policy Statement by increasing the qualifying asset threshold from $500 million to $5 billion.

S. 635 – Privacy Notice Modernization Act of 2013 has 43 bipartisan cosponsors in the Senate. The Privacy Notice Act eliminates the requirement that financial institutions mail annual privacy notices even when there has been no change in policies and practices with respect to disclosing nonpublic personal information.

    H. R. 749 – Privacy Act Notice legislation in the House passed by voice vote on March 13, 2013. CBAI thanks all members of the House for voting in favor of this legislation and we especially thank Cheri Bustos (D-17), Tammy Duckworth (D-8), Bill Enyart (D-12), Bill Foster (D-11), Randy Hultgren (R-14), Dan Lipinski (D-3), and Aaron Schock (R-18) for cosponsoring.

H.R. 1553 – The Financial Institutions Examination Fairness Act has 131 bipartisan co-sponsors in the House. The Exam Fairness Act included establishing examination standards including firm deadlines for exit interviews and receipt of examination results, and establishes a FFIEC Ombudsman separate from the prudential regulators. CBAI thanks Cheri Bustos (D-17), Rodney Davis (R-13), Tammy Duckworth (D-8), Adam Kinzinger (R-16), and Peter Roskam (R-6) for cosponsoring this legislation.

    S. 727 – Exam Fairness legislation in the Senate has 18 bipartisan cosponsors.

H.R. 797 – Municipal Advisor Oversight Improvement Act has 26 bi-partisan cosponsors in the House. The Municipal Improvement Act would exempt traditional banking activities from triggering costly and unnecessary registration requirements. CBAI thanks Tammy Duckworth (D-8), Bill Foster (D-11), Mike Quigley (D-5), and Aaron Schock (R-18) for cosponsoring this legislation.

    S. 710 – Municipal Advisor relief Act in the Senate has 14 bi-partisan cosponsors.

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 all of them should 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 (MBL) (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. The only members of the Illinois delegation who are cosponsoring the MBL legislation are Cheri Bustos (D-17), Dan Lipinski (D-3) and Bobby Rush (D-1). This legislation unfortunately has 116 House cosponsors and 17 Senate cosponsors. No Illinois member of the House is cosponsoring the additional capital access legislation.

Given current budget deficits and the ever-growing federal debt, together with survey results showing that community banks do a better job serving the very customers credit unions were created to serve, now is the time for Congress to end the credit unions’ unfair tax subsidy.

Oppose expansion of the Farm Credit System (FCS)
CBAI opposes the expansionist agenda of the Farm Credit System 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.

CBAI strenuously opposes the Farm Credit Administration’s “Rural Community Investments” proposal which would allow FCS institutions to extend non-farm loans to virtually anyone in towns and cities with populations under 50,000, because such financing would be misleadingly characterized as “investments” instead of loans.

FCS should be refocused as a wholesale funding source for community banks serving agriculture and provide a correspondent banking function rather than a direct retail competitor with its unfair GSE tax and funding advantage. FCS institutions should face regulatory safeguards, disclosures and controls equal to community banks and housing GSEs, including CFPB oversight.


CFPB Issues Final Rule on New Mortgage Disclosure Forms

The Consumer Financial Protection Bureau today issued a final rule requiring new mortgage disclosure forms that combine existing disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The new forms, which the CFPB has developed for more than two years as part of its “Know Before You Owe” initiative, include information such as interest rates, monthly payments and closing costs.

The CFPB said the rule requires mortgage lenders to use the new disclosures, implements rules on when the new forms are to be given to consumers, and limits how the final terms can change from the original loan estimate.

The CFPB said the Loan Estimate form, which replaces the early Truth in Lending statement and the Good Faith Estimate, should be provided to consumers within three business days after they submit a loan application. The Closing Disclosure form, which replaces the final Truth in Lending statement and the HUD-1 settlement statement, should be delivered within three business days before closing on a loan.

The rule is effective Aug. 1, 2015.

Read the Final Rule.

Read CFPB Fact Sheet on Disclosures.

Read CFPB Fact Sheet on Testing Process.