Overregulation in ICBA’s sights

With the revamped Plan for Prosperity, released in January, ICBA is making an aggressive play for regulatory relief

By Thomas Warren

While professional pollsters, pundits and prognosticators were caught flat-footed during last fall’s surprise election results, ICBA’s Aaron Stetter immediately understood the opportunities facing community banks. Charged with managing the relaunch of ICBA’s Plan for Prosperity regulatory relief platform in the new year, Stetter and his congressional relations colleagues knew that the newly elected Congress and Trump administration would be allies in easing the industry’s excessive regulatory burdens and fostering economic growth.

“We’d heard the calls from community bankers for a stronger and more aggressive regulatory relief push through our Plan for Prosperity,” says Stetter, who is ICBA’s executive vice president of policy and political operations. “Suddenly, we had an even more sympathetic ear in Washington to get it done.”

The recently launched Plan for Prosperity builds on the foundations of previous installments and lays out a comprehensive approach to reforming community bank regulations. The revamped plan, which ICBA has made the centerpiece of its 2017 advocacy on Capitol Hill and at the White House, is designed to roll back overregulation, freeing community banks to lend and spur economic growth at the local level.

Streamlined growth
The goal of the Plan for Prosperity aligns perfectly with Washington’s new political environment: to enhance economic growth by streamlining unnecessary or overly burdensome regulations. The economic recovery that began in 2009 has averaged a sluggish growth rate of just over 2 percent: the weakest rebound in the post–World War II era. Meanwhile, community banks suffer from a ceaseless barrage of new regulations; the number of discrete regulatory requirements has increased by nearly 40 percent since 2005.

The Plan for Prosperity is designed to address both issues at once. For instance, the plan would focus the Basel III capital rules on the largest and riskiest banks—as originally intended—to mitigate the negative effect on community bank lending. It also would expand exemptions from Consumer Financial Protection Bureau mortgage restrictions, eliminate rules on small-business data collection, and strengthen accountability in bank exams. New provisions of the plan would repeal Collins Amendment capital restrictions on nonsystemically important financial institutions and offer tax relief that would help level the playing field with credit unions and the Farm Credit System.

How can you help?

ICBA needs community bankers’ help in ensuring lawmakers take action on the Plan for Prosperity. Here are two places to start:

1. Use the action alerts on ICBA’s Be Heard grassroots website (www.icba.org/beheard). They make it easy to send custom messages to your members of Congress.

2. Attend the ICBA Capital Summit, from April 30 to May 3 in Washington, D.C., and meet directly with your legislators on Capitol Hill. Learn more at www.icba.org/summit17.

Together, these policies would achieve what Republicans and Democrats alike say they want: community banks that can focus their energies on economic growth instead of regulatory mandates.

Legacy of success
While the more favorable political climate improves the community banking industry’s chances of achieving these reforms, ICBA has set the stage with several Plan for Prosperity successes in recent years.

Recently enacted reforms have eased Consumer Financial Protection Bureau mortgage burdens on community banks that operate in rural or underserved areas, extended the 18-month exam cycle to more community banks, eliminated redundant privacy notice requirements, reduced FDIC supervisory monitoring of de novo banks, and allowed thrift holding companies to take advantage of new Securities and Exchange Commission registration thresholds.

On the table

Meanwhile, more than 60 bills embodying nearly every provision of the plan were introduced in the House and Senate during the last Congress. Community bank-specific provisions also were included in House Financial Services Committee chairman Jeb Hensarling’s (R-Texas) multipronged Financial CHOICE Act, which will be the primary vehicle for regulatory relief in 2017.

“ICBA and community bankers have the Plan for Prosperity teed up already, because we’ve made sure Congress knows these issues and how they can help local economies,” says Paul Merski, ICBA’s group executive vice president of congressional relations and strategy. “We’re coming at this from a position of strength, because there are community bankers in every congressional district, and we’ve been working on regulatory relief for years.”

Nevertheless, ICBA’s pursuit of a bolder and more aggressive Plan for Prosperity represents nothing short of a complete overhaul of community bank regulation. While the current regulatory load has been building for decades, Washington’s response to the 2008 Wall Street financial crisis has exacerbated community bank overregulation and further restricted consumer access to credit.

“ICBA and community bankers have the Plan for Prosperity teed up already, because we’ve made sure Congress knows these issues and how they can help local economies.”
—paul merski, icba

According to a 2015 SNL survey of community banks, 35 percent of respondents said their compliance costs increased by at least 30 percent over the previous five years. Meanwhile, an ICBA lending survey of community bankers released in 2015 showed three-quarters said new mortgage regulations are keeping them from making more residential mortgage loans.

The way forward
After years of stubbornly weak economic expansion, policymakers have made stronger growth and investment a top priority in 2017. Although many policy proposals are sure to elicit bitter debate in Washington and across the nation, easing regulatory burdens to unleash the economic power of community banks enjoys widespread bipartisan support.

“This year holds a lot of promise for community banks, but passing legislation is hard work and never a sure bet,” says Stetter. “So we’re going to have to scrap and fight and make sure our voice is heard just like any other year.

“As aggressive as we are in the provisions of our Plan for Prosperity, we’re going to have to be just as bold and outspoken in our advocacy.”

As ICBA president and CEO Cam Fine said when the new plan was released, “Community banks are on the cutting edge of financial investment within their communities. Excessive regulation should not prevent them from powering small businesses that will innovate and create jobs at the local level and beyond. ICBA’s Plan for Prosperity is the unequivocal place
to start.

What’s in the plan?

ICBA’s enhanced Plan for Prosperity includes the following provisions.
To read the complete plan, visit www.icba.org/advocacy.

Access to capital

  • Restore the original intent of the Basel III rule.
  • Create a more accurate identification of “systemic risk.”
  • Modernize the Fed’s small-bank holding company policy statement to enhance capital.
  • Relieve community banks from excessive Securities and Exchange Commission rules.
  • Repeal the Collins Amendment for nonsystemically important financial institutions.
  • Address minority bank capital challenges.

Regulatory relief

  • Balance consumer regulation through more inclusive and accountable Consumer Financial Protection Bureau governance.
  • Eliminate arbitrary “disparate impact” fair-lending lawsuits.
  • Ensure the viability of mutual banks through new charter and capital options.
  • Support rigorous cost-benefit analyses of all new rules.
  • Modernize the Bank Secrecy Act.
  • Eliminate small-business data-collection rules.
  • Target the Volcker Rule on a bank’s individual risk.
  • Preserve access to investment advice for middle-class savers.

Mortgage reform

  • Create a safe harbor from onerous underwriting standards.
  • Establish relief from burdensome HMDA, escrow and appraisal requirements.
  • Preserve the ability of community banks to service mortgage loans.
  • Reform the closing process and accompanying paperwork.Bank oversight and examination
  • Strengthen accountability in bank exams and create a workable appeals process.
  • Reform bank oversight and examination to better target risk.

Tax relief

  • Lower marginal rates needed for individuals, corporations and businesses.
  • Incentivize credit for low- and middle-income customers and American agriculture.
  • Modernize Subchapter S constraints.
  • Create a limited liability corporation option for community banks.
  • Repeal the estate tax.
  • Update the bank qualified bond issuer limitation.
  • Support a five-year loss carryback that encourages lending during economic downturns.
  • Create a tax credit for BSA compliance costs.
  • Agriculture and rural America

    • Address arbitrary agricultural loan concentration limits.
    • Institute tax relief for rural lending.

    Thomas Warren (thomas.warren@icba.org) is ICBA’s assistant vice president of communications.