The Brown-Vitter Battlefield

Too big to fail (TBTF), and the need to end it once and for all received an additional boost from two Federal regulatory opinion leaders last week. Federal reserve Chairman Ben Bernanke and OCC Comptroller Tom Curry, while not formally endorsing the Brown-Vitter concept, came out swinging last week calling for the need for higher capital requirements for the nation's largest banks.  The Brown-Vitter bill, S. 798, would mandate capital levels of 8% or greater for banks $50 billion and greater and 15% for banks with assets exceeding $500 billion. The legislation also eliminates Basel III requirements on community banks, which IBAT has advocated.

In Sunday's Washington Post, columnist Barry Ritholtz opines why the Brown-Vitter legislation has gone farther than any other legislative attempts to end too big to fail. "Simplicity. The most common message heard during the debate over Dodd-Frank was its complexity. The beauty of the TBTF act is its simplicity - hard numbers for capital reserves."  Ritholtz also observes that the bill has broad ideological support among a broad cross-section of parties whose interests align with this legislation. A copy of the full Washington Post story can be found here.

ICBA has come out strongly in favor of Brown-Vitter.  ICBA President Cam Fine observed "it's time to put the word 'free' back in 'free market.'  Let's get the taxpayer subsidy out and level the playing field among TBTF banks and community banks."

The IBAT Board will consider endorsement of the bill in a special called telephone board meeting later today.  IBAT President and CEO Chris Williston was recently quoted in several industry trade publications as saying, "the too big to fail debate is critical in our quest to obtain comprehensive regulatory relief for community banks. It highlights the disparity of bank business models and why we should not be subjected to the same regulatory overkill as the systemically important banks."

Week in Review 05.10.13

Compared with many of the recent headline-grabbing news stories, [last] week's spate of economic statistics seem like cause for elation. No murder, no mayhem, just a slow-leak in Ten Year prices to [Friday] morning's yield of 1.90%. A monster 10.5% year-over-year jump in home prices nationwide is at least partly responsible for the slow motion sell-off. According to CoreLogic's Home Price Index Report, the largest gains happened in the places that needed it the most; Nevada, California, and Arizona. Yipee-Ki-Yay! For the country as a whole this represents the biggest annual gain since March 2006 and the 13th consecutive monthly rise... Read more in the Baker Market Update.


As a result of our recent website migration, portions of IBAT2GO, the official mobile application of IBAT, are temporarily suspended.  A new version of the app has been submitted to the Apple app store and we will notify you when Apple has approved it for download. Until then, the Legal Ease archive in the current version of IBAT2GO remains accessible. 

Thanks for your patience as we make the necessary updates and please let us know if you have any questions.

Texas Bankers Hall of Fame

In a ceremony on April 25, Robert A. Hulsey (American National Bank of Texas), Walter Johnson (Amegy Bank), Kenneth T. Murphy (First Financial Bank, N.A.) and the late Walter G. Lacy, Jr. (Citizens National Bank, Waco) were inducted to the Texas Bankers Hall of Fame at Sam Houston State University.  

The banking program at Sam Houston State University established the Texas Bankers Hall of Fame in order to provide positive recognition to Texas Bankers. Through this medium, the university recognizes bankers who have made valuable contributions to the banking profession and are pioneers in shaping their respective banking institutions.

IBAT congratulates all the recipients and especially Robert Hulsey, a past Chairman of both IBAT and the IBAT Education Foundation. 

And the Winner Is...

Thanks to all who conducted bank PAC drives during the month of March.  Thanks to your generosity and support, the IBAT PAC and IBAT FedPAC received more than $105,000 during the month!

Jefferson Bank in San Antonio was the lucky recipient of the PAC drawing and IBAT staff will travel to San Antonio in the near future to host a barbecue dinner with all the "fixins" for their guests.  

Some of our members prefer to conduct their PAC Drives during other months of the year.  For those of you who haven't had your PAC drive yet, you can still do so and be entered in next year's drawing.  Better yet, if you host one before next March and then host one during March 2014, your bank will have two entries in the drawing in April 2014.  

IBAT continues to be on the legislative and regulatory frontline with the Texas community banking industry as our only focus. We value and appreciate your support of our industry through contributions to the IBAT PAC and IBAT FedPAC.

CFPB Final Rule


Last week, the Consumer Financial Protection Bureau (CFPB) released its final remittances transfer rule, an amendment to Regulation E. This latest final rule makes two significant changes: 

  • First, it is now optional that providers disclose foreign taxes or fees imposed by a recipient institution for receiving transfers into an account if the provider includes a disclaimer that these fees and taxes may apply. 
  • Second, when funds are deposited into the wrong account because the sender provides an incorrect account number or routing number, the provider must attempt to recover the funds. However, the provider would not be responsible for the cost of funds that cannot be recovered.

A effective date for the final rule is October 28 of this year. The final rule is available on the CFPB website.

CFPB Mortgage Reforms - Part 2

In order to provide additional clarification on the recently issued CFPB mortgage reforms, IBAT Regulatory Compliance Manager Kelly Goulart is releasing a series of white papers addressing each change contained in the seven major mortgage lending initiatives, six of which have been finalized by the CFPB (more or less).  

The second part of the series, focused on changes to Regulation Z, is now available on the IBAT website.  These changes include prohibitions on mandatory arbitration, waiver of statutory causes of action and financing single-premium credit insurance.

The third part of the series will follow next week focusing on the Ability to Repay (ATR) and Qualified Mortgage (QM) rules.

Previous documents in the series can be found here: 
Escrow requirements for HPMLs.

Week in Review May 3

Yes, it's that time again. The month's first Friday brings a fresh, new round of employment numbers from the Bureau of Labor Statistics, and, this time, the surprise is to the upside. If one sets the bar low enough, disappointment can be avoided. With the markets expecting an unchanged Unemployment Rate and a 140k rise in Non-Farm Payrolls, imagine the warm, fuzzy feelings generated by the reported 165k rise in NFP along with a .1% decline in the Unemployment Rate to 7.5%. And for those still disconcerted by last month's meager 88k jobs gain... Read more in the Baker Market Update.

CFPB Mortgage Reforms

Based upon recent conversations with Texas community bankers looking for additional clarification and guidance on the CFPB mortgage reforms, IBAT will be releasing a series addressing each change contained in the seven major mortgage lending initiatives, six of which have been finalized (more or less) by the CFPB.  

The first in this series focuses on the escrow requirements for HPMLs (§1026.35) - which become effective for applications received on or after June 1, 2013.  Member banks will first have to determine if they are exempt from the rule based upon the "Small Creditor" exemption, and if they can take advantage of that "Small Creditor" exemption, exactly what are they exempt from.  In our next installment, we will cover changes to Regulation Z §1026.36(h) and (i) including mandatory arbitration clauses, financing single premium credit insurance, and waivers of certain consumer rights. 

CFPB Rural Exemption

Early last week IBAT Associate Counsel Shannon Phillips along with IBAT President and CEO Chris Williston met with Senior staff of the Consumer Financial Protection Bureau (CFPB) in Washington, D.C. urging the CFPB to expand its definition of rural areas for exemption from onerous new mortgage rules. Currently, the CFPB definition only excludes 158 or Texas's 254 counties.

IBAT has long advocated that all mortgage loans kept in portfolio by community banks be excluded.  The CFPB has chosen to adopt a rural exclusion model instead and final rules take effect on June 1, 2013.

Phillips reviewed the results of IBAT's analysis of why the CFPB rural definition was overly restrictive and encouraged the CFPB to carefully consider IBAT's findings.  CFPB made it clear that while no changes are contemplated before the June 1 effective date, bureau economists are committed to reviewing the definition in the future.  A copy of IBAT's analysis and recommendations can be found here.

"IBAT will continue to press forward for modification of the rules to exempt more banks domiciled in rural counties," said IBAT President and CEO Chris Williston. "We made our case that the consequences of the current rule would force many IBAT members to abandon their mortgage programs and disenfranchise many borrowers who otherwise do not qualify for traditional mortgage loan financing."

West Relief

IBAT and TBA recently teamed up to coordinate relief efforts for our banker friends in West, Texas, following the massive fertilizer plant explosion.  We are happy to report that although the fund drive is still ongoing, community bankers have stepped up to help the West community with more than $65,000 in relief donations.  Additional pledges continue to come in every day.  IBAT and TBA will work with POINTWEST Bank and The State National Bank as they assist their own employees who suffered losses and the West community in their recovery and rebuilding efforts.  

"In the same way that our state's community bankers provided financial assistance to our friends devastated by Hurricane Ike and the wildfires that ravaged parts of our state, they are now pulling together to help our friends in West.  Community bankers are a family and when tragedy strikes one, it affects us all, " said Chris Williston, IBAT President and CEO.

You still have time to contribute to the Texas Bankers Disaster Relief Fund and we will continue to keep you informed on fundraising efforts and disbursements in the coming weeks.     

Special Baker Market Update 5.2.13

Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable... Read more in the Baker Market Update.

Debit Surcharge Prohibition

As reported in Monday's Legislative Insider newsletter, last Friday saw the passage of HB 3068 by Mendenez, which would prohibit merchants from assessing a surcharge on a debit card transaction, from the Texas House of Representatives.  The bill now moves to the Senate for consideration.  

Sincere thanks to all who answered our "Call to Action" last Thursday, and contacted your State Representatives!  This is a case study in the success of the grassroots effectiveness of the IBAT members, and more than a few legislators have commented on the number of contacts they received from their constituent community bankers.  We promise never to pull a "chicken little" scenario, and will use this powerful, effective and valuable tool only when necessary... which it will likely be again before the end of May.  Job well done, and we thank you.  Stay tuned as this bill moves through the process, as we will no doubt call upon you again as it moves to the Senate floor.

Targeting Too Big to Fail

It was an impressive showing.  That's how many members of the Texas Congressional delegation described the number of Texas community banker constituents and associates that packed their Congressional offices to lobby for comprehensive regulatory relief and a permanent legislative fix to end taxpayer subsidies of banks deemed too big to fail.  More than 100 Texans accompanied IBAT staff to our nation's Capitol last week as part of IBAT's and ICBA's Washington Policy Summit. Pictures capturing the event can be found here.

The group specifically lobbied some twelve regulatory relief provisions that should be enacted in the 113th Congress and encouraged members to support any Congressional efforts to end the unfair subsidies enjoyed by the so-called. "systemically important institutions." Senators Brown of Ohio and Vitter of Louisiana have introduced legislation (S.798) that would dramatically increase the capital requirements of the nation's largest banks. The legislation would also provide much-needed regulatory relief for community banks.

Following visits to more than 30 Texas offices, the group was briefed by several members of the Congressional delegation including Texas Representatives Sessions, Neugebauer, Hensarling and Cuellar.  Texas senior Senator John Cornyn and House Financial Services Subcommittee Chairman Shelley Capito (R, West Virginia) also briefed the attendees.

"It is time we quit talking about helping community banks out of the current regulatory quagmire and enact legislation that will do just that," said IBAT Executive Vice President Steve Scurlock. "IBAT members are growing weary paying for the sins of the big too big to fail banks."

Financial Services Committee Chairman Hensarling advised the group that his committee was determined to introduce and enact bipartisan regulatory relief legislation this year. "Discussions are already underway with House democrats to do just that," Hensarling concluded.

IBAT wishes to thank all those that made the trip at their own expense to work on this important agenda.

Due Diligence Checklist

During IBAT's 21st Congressional Visit last week, a prominent regulatory compliance attorney and friend of Texas community bankers remarked to IBAT staff about the number of requests he is receiving regarding vendor due diligence.  Additionally, Gordon Moore with IBAT Services was able to visit with a senior staff member of the Office of Comptroller of the Currency who stated the OCC is working on an update to their guidance on third-party vendor relationships.  

IBAT will update members as soon as any revisions to the guidance are released, though, a review of the current guidance seems warranted and IBAT has developed a vendor due diligence quick reference guide and checklist as a resource for members. While this review is distilled from the current OCC guidance, it remains relevant for all banks regardless of their primary regulator.

Week in Review April 30

Risk is something that investors have always had to live with; credit risk, interest rate risk, exchange risk, event risk, lots o' risk. This week we learned about a new kind of risk: Twitter risk. Tuesday's fraudulent Associated Press tweet sent equity prices tumbling and bond prices soaring. Fortunately, the "anti-social" media hoax was short lived. As if there wasn't enough to worry about! Like this morning's initial Q1 GDP estimate of 2.5% which proved a disappointment for those experts expecting 3.0%. For those experts expecting 2%, the number was great. Apparently, there were more disappointed experts than not, as rising bond prices... Read more in the Baker Market Update.