ICBA News, sponsored by March Networks—Credit Union Bill Reintroduced

In the News
ICBA’s Fine: Hoenig Is Right on Megabank Exams
FDIC Vice Chairman Thomas Hoenig’s plan to expand bank examinations at the largest financial institutions is another critical step in getting a handle on the banking system’s systemic risks, ICBA President and CEO Cam Fine wrote in a BankThink op-ed. Meticulously reviewing the operations of large financial firms for signs of trouble will help avoid future systemic risks and better align regulatory resources to the true sources of those risks, Fine wrote on the American Banker opinion page.

“Community banks do not pose systemic risk, but are no strangers to strict examinations,” Fine wrote. “On the other hand, on-site regulators at the largest financial institutions can get lost in the shuffle. Facing institutions whose size and complexity are off the charts relative to community banks, examiners are left with theoretical data models—and the good word of the institutions they are inspecting.” Read the Op-Ed.

Accounting
FASB Proposes Changes to Loan and Security Accounting
The Financial Accounting Standards Board proposed a new, comprehensive recognition and measurement framework for loans, securities and financial liabilities.

Under the proposal, loans and securities would be classified based on the asset’s cash flow characteristics and the bank’s business model. If the financial instrument generates payments of principal and interest on specified dates, recognition would be based on business model. Otherwise, the financial instrument would be recognized at fair value with gains and losses reported in net income.

For loans and securities that generate cash flows on specified dates, the bank’s objective for the asset would drive classification and measurement. Measurement buckets would be established—amortized cost, fair value through other comprehensive income, fair value through net income—based on the bank’s intent to hold or sell the asset. Equity investments would be recognized at fair value with changes in fair value flowing through net income with some exceptions. Financial liabilities would generally continue to be classified at amortized cost.

Public banks would be required to disclose the fair values for all financial assets and liabilities (excluding demand deposits) on the face of the balance sheet. The use of the fair value option would become conditional with only limited uses.

Stay tuned to ICBA for further developments on this and the FASB’s proposal for asset impairment.

Credit Unions
ICBA-Opposed Credit Union Bill Reintroduced
Rep. Ed Royce (R-Calif.) again introduced ICBA-opposed legislation to increase the business-lending cap for tax-exempt credit unions. The Credit Union Small Business Jobs Creation Act (H.R. 688) would increase the cap from 12.25 percent of total assets to 27.5 percent of total assets.

At a House Ways and Means Committee hearing last week, the Business Coalition for Fair Competition cited the budget impact of the credit union tax exemption. The group noted that credit unions’ tax exemption costs the U.S. Treasury $2 billion annually, while the community banks that “are the lifeblood of towns across the country” contribute $4 billion in taxes each year.

In related news, Reps. Peter King (R-N.Y.) and Brad Sherman (D-Calif.) reintroduced ICBA-opposed legislation (H.R. 719) that permits the National Credit Union Administration to allow qualified credit unions to accept supplemental capital. The legislation requires the supplemental capital to be uninsured and subordinate to other claims against a credit union. The measure also would authorize the NCUA to set maturity limits on it.

ICBA continues to strongly oppose the credit union power grab for community banks’ small-business customers. An ICBA-supported study released in November found that additional business-lending powers for tax-exempt credit unions would reduce tax revenues and pose new risks to the health of the credit union industry and financial system as a whole.

Further, the association recently called on the Congressional Budget Office and Joint Committee on Taxation to calculate revenue cost estimates of increasing the business-lending cap. A 2010 CBO report of legislation to increase the cap to 25 percent estimated a revenue impact of $354 million over 10 years, ICBA noted.

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Congress
Community Banks To Be Focus of House Financial Services Panel
The health and growth of community banks and their role in lending to small businesses will be among the House Financial Services Committee’s top oversight concerns in the 113th Congress. The committee’s oversight plan includes an amendment sponsored by Rep. Gregory Meeks (D-N.Y.) to review the community bank impact of FDIC Deposit Insurance Fund assessments, new mortgage rules, the expiration of the Transaction Account Guarantee program and other issues.

The plan, which the committee marked up last week, will guide the committee’s oversight over the next two years.

Among its other provisions, the oversight plan covers:

the degree to which the increasing concentration of bank assets in the largest institutions may contribute to a regulatory environment that discriminates against community banks,
the process the FDIC uses to supervise and, if necessary, resolve community banks,
the impact of Consumer Financial Protection Bureau actions on small businesses and on financial institutions with fewer than $10 billion of assets,
how proposed Basel III regulatory standards will be tailored to meet the unique features of the U.S. financial system,
new regulations affecting the mortgage industry,
the safety and soundness and regulatory treatment of the credit union industry, and
reducing unnecessary, duplicative or overly burdensome financial regulations.

Congress
ICBA-Backed Muni Advisor Exemption Introduced
ICBA-advocated legislation to exempt community banks from proposed municipal advisor regulations was recently introduced in the House. The Municipal Advisor Oversight Improvement Act, sponsored by Reps. Steve Stivers (R-Ohio) and Gwen Moore (D-Wis.), would prevent community banks and their employees from having to register as municipal advisors with and be examined by the Securities and Exchange Commission.

Municipal advisors were established in a Dodd-Frank Act provision as a new class of regulated persons who advise state and local governments on financial matters, including bond issuance, investment of bond proceeds, and financial derivatives usage. The legislation sponsored by Stivers and Moore would clarify the municipal advisor definition to prevent financial market participants who do not advise municipalities from facing improper, duplicative and onerous regulations.

Similar legislation introduced by Reps. Robert Dold (R-Ill.) and Moore unanimously passed in the House last year but was not taken up in the Senate. In an October letter to senators, ICBA wrote that the exemption would allow community banks to continue providing traditional banking services to the municipal governments of the communities they serve.

Congress
Bill Offering Privacy Notice Relief Reintroduced
Legislation that would eliminate a provision requiring financial institutions to provide annual privacy notices to customers even when their policies have not changed was reintroduced in Congress. Rep. Blaine Luetkemeyer (R-Mo.) reintroduced the ICBA-advocated measure, which was passed last year by the House.

The bill would require financial institutions to provide the information to customers only if their privacy policies have changed. In a letter to House members, ICBA wrote that the legislation would remove an unproductive and burdensome annual expense.

Congress
Bill Would Apply New Deregistration Threshold to Thrifts
ICBA-advocated legislation to allow thrift holding companies to deregister under Title VI of the JOBS Act in the same manner as bank holding companies was introduced.

Legislation signed into law last year raised from 300 to 1,200 shareholders the deregistration threshold for bank holding companies, but failed to explicitly apply the new threshold to thrift holding companies. Rep. Steve Womack’s (R-Ark.) bill would extend the higher threshold to these institutions.

In a November letter to the Securities and Exchange Commission, ICBA noted that thrift holding companies were left out of the legislation due to a drafting oversight and that the banking agencies have already interpreted the statute as broad enough to include thrifts that are registered with the agencies under the Exchange Act.

Because thrift holding companies are regulated just like bank holding companies, ICBA said, there is no justification to distinguish between these two types of financial institutions.

Regulation
Regulators Say They’re Focused on Community Bank Impact of New Rules
Gauging the impact of new financial regulations on the nation’s community banks is a top priority for regulators, according to testimony from a congressional hearing last week. The FDIC is focused on addressing megabank risks while being sensitive to the regulatory impact on community banks, FDIC Chairman Martin Gruenberg told the Senate Banking Committee.

Comptroller of the Currency Thomas Curry said he has directed OCC staff to look for ways to minimize potential burdens on community banks and to organize and explain the agency’s rulemaking documents to facilitate community bankers’ understanding of how the rules affect their institutions.

Consumer Financial Protection Bureau Director Richard Cordray said the bureau knows community banks might be more likely to retreat from the mortgage market if the new rules are too burdensome. He said the CFPB is working to tailor its rules to encourage small providers to continue providing credit and other services.

Bank Failures
Chicago Bank Closed By Regulators
Covenant Bank in Chicago was closed by regulators, which entered a purchase-and-assumption agreement with Liberty Bank and Trust Co. in New Orleans. As of Dec. 31, Covenant Bank had approximately $58.4 million in assets and $54.2 million in deposits. The FDIC said the cost to the Deposit Insurance Fund will be an estimated $21.8 million. Covenant Bank is the third FDIC-insured institution to fail in the nation this year. Read More from FDIC.

Economy
Industrial Production Edges Down in January
Industrial production edged down 0.1 percent in January following a 0.4 percent increase in December, the Federal Reserve reported. Manufacturing output decreased 0.4 percent in January following upwardly revised gains of 1.1 percent in December and 1.7 percent in November. The capacity utilization rate for total industry decreased in January to 79.1 percent, which is 1.1 percentage points below its long-run average.

Regional News
FDIC Issues Guidance To Help Miss. Storm Recovery
The FDIC announced steps intended to provide regulatory relief to financial institutions in areas of Mississippi affected by severe storms, tornadoes and flooding. The agency is encouraging banks to work constructively with borrowers experiencing difficulties beyond their control because of damage caused by the severe weather, such as extending repayment terms, restructuring existing loans or easing terms for new loans. Banks may receive favorable Community Reinvestment Act consideration for supporting disaster recovery.

Poll
This Week’s Quick Poll
Take this week’s Quick Poll on microlending programs, and view the results of the previous poll on the impact of new Federal Housing Administration rules on private mortgage insurance. View the Archive.

ICBA News
ICBA Selects ProfitStars LendingNetwork as Preferred Solution
ICBA announced that it has expanded its Preferred Service Provider relationship with ProfitStars to include the LendingNetwork service, enabling community banks to facilitate financing for lending opportunities that do not meet their standard lending criteria. ProfitStars’ LendingNetwork offers alternative financing from a group of more than 50 dedicated, responsive commercial lenders. Community banks will be able to use this program to retain customers and serve their future business needs. Read ICBA Release.

Education
CFPB Mortgage Reform Audio Call Tomorrow
ICBA is hosting an audio conference this week to outline a roadmap on the new Consumer Financial Protection Bureau mortgage requirements. The audio conference, scheduled for 11 a.m. (Eastern time) tomorrow, will address as many practical considerations as possible to help community banks begin rolling out new policies, procedures and practices. Register Online.

Products and Services
Is Your Compliance Program Ready for 2013?
Join this complimentary webinar and hear Wolters Kluwer Financial Services compliance experts, including two former federal regulators, review high-risk areas with increased vulnerability and recommend a five-prong strategy for preparing your institution. The webinar is scheduled for 2 p.m. (Eastern time) Tuesday, Feb. 26. Register Online.

Products and Services
Breaking Through to the Board: Four Tips for a Better Board Package
Because of access to technology, our society is inundated with information. To attract and keep the attention of your board of directors, you have to be clear, concise and, most of all, compelling. ICBA Preferred Service Provider Banker’s Dashboard will host a webinar to provide best practices to streamline your board package and deliver the right content to facilitate your board’s best thinking. The webinar is scheduled at 2 p.m. (Eastern time) Thursday, Feb. 21, and Tuesday, Feb 26. Click the links to register or call (770) 507-9894.