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Tax Reform Bill Clears the U.S. Senate

In the early hours of Saturday, December 2, 2017, the United States Senate narrowly passed tax relief and reform legislation. The vote was 51 to 49 with all of the Republicans but one voting for passage and all of the Democrats voting against. CBAI anticipates that the differences between the competing House and Senate versions of this legislation will now be negotiated over the coming weeks in a conference committee, but the Senate bill is expected to remain largely intact.

This legislation represents the most significant overhaul of the tax system in the past 30 years and addresses a number of issues including: personal income tax rates, standard deductions, personal exemptions, state and local taxes, tax credits, the home mortgage interest deduction, other deductions, the individual insurance mandate, the Alternative Minimum Tax, inheritance taxes, corporate taxes, business write-offs and multi-national corporations.

One issue that concerned CBAI and ICBA in both the House and Senate bills was the unfair treatment of Subchapter “S” corporations. Approximately one-third of all community banks are organized under Subchapter “S”. Subjecting these community banks to a higher maximum tax rate would exacerbate the tax disparity among financial service providers, would disrupt the corporate and tax structure of the community bank profession, and would harm community banks’ ability to serve their customers and communities. CBAI issued an Action Alert, in conjunction with the ICBA, urging CBAI Subchapter “S” community bankers to weigh-in with their Member of Congress to ensure meaningful relief under the tax code. More than 3,500 community bankers responded to this Action Alert nationwide, and the Senate reportedly lowered the effective tax rate for Subchapter "S" businesses by providing a 23 percent deduction for qualified income.

A second issue raised during the Senate’s consideration of their tax plan was a provision that would force community banks to pay a tax on mortgage servicing, when the servicing right is created, and not over the years the income is collected. A similar provision was not included in the House bill. The mortgage servicing industry is rapidly consolidating and increasingly dominated by the very largest banks. None-the-less, a significant number of community banks choose to service their loans regardless of whether the loans are retained in portfolio or sold on the secondary market. There are numerous examples of large bank and servicing company missteps and customer abuse and neglect in loan servicing, but that is not the case with community banks. Community banks are more responsive to their customers and more willing to work with distressed borrowers. The mortgage market needs more community banks servicing loans, not less. This tax increase would have forced some community banks to stop servicing loans, reduce profitability for those that remain in the business, and further consolidate the mortgage servicing industry.  Thankfully through the efforts of Senator Mike Rounds (R-S.D.) and others, this provision was removed from the Senate legislation.

Unfortunately, the tax disparity between community banks and credit unions and the Farm Credit System was not addressed in either the House or Senate tax reform bills. Congress is missing the perfect opportunity to level the playing field between community banks and their tax payer subsidized entities. CBAI will continue to highlight this discrimination against tax-paying community banks.

Speculation is that Congress will pass meaningful tax reform before Christmas. CBAI will also work together with the ICBA and the Illinois congressional delegation to protect our hard-won victories and improve the legislation for community banks and the customers and communities that they serve. Read ICBA Release.

December 5, 2017

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CBAI Members Attend Federal Reserve’s Community Bankers Symposium

On November 10, 2017, the Federal Reserve Bank of Chicago hosted its 12th Annual Community Bankers Symposium titled, "Winds of Change: Headwinds, Tailwinds and Regulation." The Symposium was a joint effort among the Federal Reserve Bank of Chicago, Federal Deposit Insurance Corporation, and the Office of Comptroller of the Currency.

The previous evening, CBAI hosted a Welcome Dinner for its members attending the Symposium at Mastro’s Steakhouse. The Welcome Dinner was generously sponsored by the Federal Home Loan Bank of Chicago.

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Federal Reserve Community Banker Symposium - November 2017

The day-long Symposium began with opening remarks by Charles L. Evans, President and Chief Executive Officer, Federal Reserve Bank of Chicago. Mr. Evans' personal commentary on the economy is that it is on solid ground and the fundamentals are favorable going forward. He cautioned that the prolonged  low interest rates, and gradual future rate increases nearing only 2.75% (the long-term Fed Funds Rate), leaves little room for the Fed to react aggressively in the event of an economic downturn. He noted that this is particularly concerning as the current expansion crosses the 100-month mark which makes this the third-longest period of economic expansion.

Lara Lylozian, Assistant Chief Accountant for the Federal Reserve System, provided a CECL Presentation. Takeaways for community banks from this presentation include: CECL is a high priority for regulators; community banks should be proactive and not wait for the regulators to tell you what to do; the process should begin now and should include data collection and investigation of all available resources; bankers should take an “adopt and adapt” approach to implementation; and the regulators will only be setting the CECL guiderails and will not immediately be expecting perfection but will be expecting a “best faith effort”.

An informative Ombudsman Panel and Consumer Compliance Supervisory Panel bracketed lunch and an Economic Update by Richard Brown, Chief Economist & Deputy Director, Federal Deposit Insurance Corporation.

Blake Paulson, Deputy Comptroller of the Office of the Comptroller of the Currency, provided the View from the OCC because Acting Comptroller Noreika's last day at teh OCC was November 10th, and Josepth Otting had not yet been confirmed as the Comptroller. Paulson commented that he has worked under seven Comptrollers in his OCC career, and Otting is different in that he has significant previous bank experience (OneWest Bank, CIT Bank and U.S. Bancorp). As Paulson stated that he believes Otting’s experience will be positive for the OCC and the 1,400 banks it regulates.

CBAI encourages Chicago Fed member banks to plan on attending the 13th annual Symposium next year as the new leadership of the OCC, FDIC, and the Federal Reserve Board will likely be invited to speak to attendees.

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Joseph Otting Takes the Helm at the OCC

The Community Bankers Association of Illinois (CBAI) congratulates Joseph M. Otting on the occasion of his being sworn in as the 31st Comptroller of the Currency. President Trump nominated Otting in June and was confirmed by the United States Senate on November 16th. He was sworn into office by Secretary of the Treasury Steven T. Mnuchin.

Otting takes the OCC helm from Keith Noreika, who was acting Comptroller following the departure of Thomas Curry. Otting brings to the position deep executive-level banking experience with CIT Bank, OneWest Bank, U.S. Bank, and Union Bank, and is distinguished from other recent Comptrollers because he has led banks whose primary regulator was the OCC. Blake Paulson, Deputy Comptroller (Central District) of the OCC said at a recent Federal Reserve Bank of Chicago Community Bankers Symposium that he believes Otting’s extensive management and banking experience will be positive for the Agency and the 1,400 national banks it regulates.

Mr. Otting holds a bachelor of arts in management from the University of Northern Iowa and is a graduate of the School of Credit and Financial Management, at Dartmouth College in Hanover, New Hampshire. Read OCC’s News Release.

November 30, 2017

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Tax Reform Bill Clears the U.S. House

On November 16th, the United States House of Representatives cleared a major hurdle by passing H.R. 1 – the Tax Cuts and Jobs Act by a vote of 227-205. All Illinois Republican members of the House voted in favor and all Illinois Democrats voted against the bill. The legislation contained several provisions which the Independent Community Bankers of America (ICBA) and CBAI support, including: the 20% corporate rate, estate tax relief, and repeal of the alternate minimum tax for individuals and corporations. Both Associations, however, have significant concerns about several provisions including the treatment of Subchapter “S” corporations and active shareholders of Subchapter “S” community banks.

Approximately one third of all community banks are organized under Subchapter “S”. Subjecting these community banks to a higher maximum tax rate exacerbates the tax disparity among financial service providers, would disrupt the corporate and tax structure of the community bank industry, and would harm community banks’ ability to serve their customers and communities. CBAI recently issued an Action Alert, in conjunction with the ICBA, urging CBAI Subchapter “S” community bankers to weigh-in with their Member of Congress to ensure meaningful relief under the tax code. This Action Alert generated more than 3,500 responses nation-wide.

On November 9th the Senate Finance Committee released its version of the Tax Cuts and Jobs Act, and as of November 17th has concluded four days of marking-up their bill. ICBA has published an Issues Brief which describes the differences between the House and Senate versions of tax relief and reform and where more attention is needed. CBAI looks forward to working with our community bank members, the Illinois congressional delegation, and the ICBA in improving the tax legislation as it moves through Congress. Read ICBA’s Issues Brief.

November 21, 2017

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CBAI Supports Senate Community Bank Regulatory Relief Legislation

The U.S. Senate banking reform proposal unveiled on November 16th represents the best opportunity in many years for long-awaited, meaningful, and well-deserved regulatory relief for community banks. CBAI supports this important legislation and will be engaging our members in a grass roots effort to advance the bill, advocating for its passage with the entire Illinois Congressional Delegation, and working with the Independent Community Bankers of America to address any concerns and to improve this legislation.

Although past attempts at bi-partisan regulatory reform have consistently fallen short, hope was revived this year under the leadership of new Senate Banking Committee Chairman Mike Crapo (R-Idaho). Throughout the year, the Committee has been holding hearings and taking testimony from community banks, regulators and the mid-sized banks. These hearings provided an important informational foundation and opportunities for further discussions among members of the Committee. Although talks with Ranking Member Senator Sherrod Brown (D-Ohio) reached an impasse, Chairman Crapo continued negotiations with other Democrats on the Committee. The two sides reached an agreement and released language last week. CBAI understands that the Chairman wants the bill marked-up in the normal course of business but is hopeful it will pass out of the Committee with strong bipartisan support and considered for passage in the Senate by early 2018.

The Economic Growth, Regulatory Relief and Consumer Protection Act has been described as right-sizing regulation for smaller financial institutions and includes important consumer protections for veterans, senior citizens and victims of fraud. Also, it will improve the nation’s financial regulatory framework for Main Street banks, and encouraging economic growth in local communities.

The bipartisan legislation is sponsored or co-sponsored by 10 Republicans, 9 Democrats, and one Independent. The proposal includes many provisions in the Independent Community Bankers of America’s Plan for Prosperity. These provisions include the following:

  • Increase exemption thresholds for Home Mortgage Disclosure Act reporting;
  • Provide “qualified mortgage” status for portfolio mortgage loans at most community banks;
  • Exempt certain community bank loans from escrow requirements;
  • Simplify community bank capital requirements;
  • Increase eligibility for a short-form call report to restore proportionality to quarterly reporting;
  • Expand eligibility for the 18-month regulatory examination cycle;
  • Ease appraisal requirements to facilitate mortgage credit in local communities;
  • Exempt most community banks from the Volcker Rule;
  • Expand access to the Federal Reserve’s Small Bank Holding Company Policy Statement to help more community banks build capital; and
  • Improve regulatory treatment of reciprocal deposits and certain municipal securities.

Although CBAI believes that the Congress can and should do more to provide real regulatory relief to the nation’s community banks, we will continue to strongly advocate and support the passage of this U.S. Senate regulatory relief bill. CBAI is urging Illinois Senators Dick Durbin and Tammy Duckworth to co-sponsor and support this meaningful reform proposal. CBAI appreciates the leadership of Chairman Crapo and all the Republican and Democrat members of the Senate Banking Committee who negotiated this common-sense proposal. See Bill. See Section-by-section Legislative Summary. See Original Announcement on the Agreement. Regulatory Relief Impact by Asset Size.

November 20, 2017