U.S. House Members Express CECL Concerns to FASB

Sixty-two members of the United States House of Representatives signed a Member Letter to the Chairman of the Financial Accounting Standards Board to express their strong concern about FASB’s proposed Current Expected Credit Loss (CECL) model. The CECL model would require banks to estimate loan losses on individual loans the day they are made and adjust the estimated losses throughout the life of the loans. The concept of recording a loan loss on day-one flies in the face of the plain logic that a loan is good the day it’s made otherwise you wouldn’t make the loan. Predicting losses on loans that currently qualify, and which mature in 5, 10 or 30 years, will be pure speculation.

The House members stated “FASB must proceed with utmost caution … as [CECL] has the potential to irreversibly damage community banks”. They went on to recommend a “method for determining expected losses should be simple, straightforward, and easy to apply. A requirement that uses complex, theoretical forecasting models, determining each loan’s probability of failure based on a wide range of economic factors, is impractical, costly, and time consuming for community banks.” Read U.S. House Member Letter to FASB.

CBAI thanks Illinois Congressmen Mike Bost (R-12), Rodney Davis (R-13), Bill Foster (D-11), Randy Hultgren (R-14), and Mike Quigley (D-05) for signing the U.S. House Member Letter to FASB that urges caution, suggests better alternatives and requests a response to their thoughtful questions and concerns. 

February 2, 2016


CBAI Critical of FinCEN’s Regulatory Impact Assessment for New Customer Due Diligence Requirements

The Financial Crimes Enforcement Network (FinCEN) has proposed new Customer Due Diligence (CDD) requirements for financial institutions to identify beneficial owners of legal entity customers. FinCEN’s rulemaking on these new requirements began in 2012, continued in 2014, and on Christmas Eve of 2015, published in the Federal Register the Regulatory Impact Assessment (RIA) which included a brief 30 day comment period.

CBAI’s comment letter highlighted that community banks have long been enlisted in the fight against identity theft, financial fraud, money laundering, and terrorist financings. As good citizens, community banks are proud to fulfill their responsibility to identify and report the bad actors, but doing so comes with a very real regulatory burden and a significant cost of compliance. CBAI urged FinCEN to “tread as lightly as possible on community banks and to be cognizant of the many and significant challenges community banks face on a daily basis in complying with an ever-increasing regulatory burden while also striving to serve the needs of their communities, consumers, and small businesses.”

CBAI recommended that new CDD rules be justified with a robust cost/benefit analysis. A review of the RIA however discovered significant deficiencies. The RIA’s Executive Summary states, “Although limitations prevent us from fully quantifying all costs and benefits attributable to the CDD rule, [and later “we can only describe the rule’s benefits qualitatively”] the U.S. Department of Treasury is [nonetheless] confident that the proposed rule would yield a positive net benefit to society.” This statement reminds us of the figure of speech Trust us – we’re the government, and quite honestly is insufficient evidence to support the implementation of the proposed rule.

CBAI urged FinCEN to pause in the rulemaking process, conduct a robust breakeven analysis, and publish for comments (a 90 day comment period) a revised RIA. Read CBAI Comment Letter to FinCEN.

January 25, 2016


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