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
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’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