IBAT News

IBAT and ICBA have continued to work on a number of priority issues that are problematic for all community banks including: the elimination of trust preferred to be counted toward Tier 1 capital as well as ending the small BHC treatment under Reg Y (the Collins amendment);  price controls and other issues regarding interchange (the Durbin amendment);  retention of legal lending limits for state chartered banks; and, reduced impact and regulatory oversight of the proposed new Consumer Financial Protection Agency/Bureau over community banks.

The unintended elimination of trust preferred from Tier 1 capital calculations is particularly disturbing to us and has caused much unrest among many IBAT members.  We have come to understand the proactive role the FDIC is playing in this process, and today have emailed this letter to Chairman Sheila Bair with a copy to the entire Texas Congressional delegation.  If you are one of the many affected banks, we encourage you to weigh in as well with the FDIC as soon as possible.  I think it is important that they hear from many of the banks that will be adversely affected if this provision is not eliminated or revised substantially.

You can be sure of IBAT’s continued advocacy on these important issues.

(Fortune) -- It might seem that the banking sector's bailout saga is nearing its close, leaving room to focus on other catastrophes like the European debt crisis or the Gulf oil spill, but some small banks across the country that benefited from TARP are still struggling to stay afloat, and many more will likely fail... read more.

Though House and Senate lawmakers still have plenty of issues to work out in the final regulatory reform bill, one thing is already clear: The legislation will do little to streamline the fractured financial regulatory framework... read more.

It appears that financial reform will be with us for awhile longer in the United States Senate.  Late yesterday, the Senate failed in a vote to cut off debate which clears the way for other amendments to be considered, and more importantly, likely puts off final action until sometime next week.  Senators are vying for some of their pet amendments to be heard, threatening to vote or debate to continue until they are. IBAT and ICBA continue to work on many of the important amendments to the bill that will improve it for community banking.

I wanted to bring some clarity to one of the amendments that has caused a stir among many community bankers, especially those with trust preferred debt obligations.  Sandler O’Neill and other investment firms have put out memos alerting their clients (or prospective clients) to an amendment that was offered and passed by Senator Susan Collins of Maine to address capital standards and guidelines for big banks, which inadvertently eliminates trust preferred shares to be counted as Tier 1 capital for all banks.  Senator Collins has laid out her intentions to fix this with Senator Dodd before the bill is finally passed in the Senate.  Senator Collins has gone on record and made her feelings known that it was never her intention to penalize the community banks with this amendment.  This amendment was largely orchestrated by the FDIC.

You can be sure that IBAT has received many phone calls and emails from concerned bankers on this amendment.  Both Texas Senators have been contacted and encouraged to share their concerns with Senator Collins and ICBA is working diligently with Maine bankers and others to either grandfather existing trust preferred debt holders or provide some level of exclusion for banks by size.

Credit Union Business Lending Expansion

Thanks to all of you who answered our call yesterday to weigh in with House Financial Services Committee members from Texas relative to an anticipated credit union business lending expansion amendment to the 30B small business stimulus initiative.  We are pleased that no such amendment was offered, and the bill passed out of committee.  Chairman Barney Frank has vowed that this issue will be heard soon, perhaps considered as part of a broad sweeping jobs bill or stand alone measure.  Keep your powder dry.  You can bet we will.

As always, thank you for paying attention to all of the challenges we face in Washington DC.  We know you have a bank to run and customers to serve.

A college student, dressed conservatively and boasting a 3.5 grade point average, walks into a U.S. bank branch to cash a check. Just another day — only this "customer" ... readmore.

Will the United States Senate vote on financial reform this week?  That is the question on everyone's mind, including Senate Majority Leader Harry Reid's.  With some 311 amendments filed and only dozens heard, Reid would like to push for cloture (shut off debate) and move the bill sometime this week.  Odds are that a final vote will take place next week.

With over 70% of the public favoring some sort of Wall Street reform, coupled with the Goldman Sachs fraud hearings, passage is imminent.  "Anyone who would have you believe that financial reform can be defeated in this Congress is simply kidding themselves," IBAT's Chris Williston told the IBAT Board in a special conference call yesterday.  "Hope is not a strategy.  The only real strategy is to get in there and fight like hell.  That is why we are and will continue to work with ICBA to better the bill for community banks."

Williston outlined the good work that has already been done for community banks and efforts under way to support passage of good amendments as well as work against harmful ones, acknowledging that we will win some and lose some as evidenced by last week's vote limiting interchange.

Addressing industry concerns that certain segments of the industry are not speaking with one consistent voice, Williston observed, "I didn't see the large too big to fail banks or their Washington representatives holding hands with us as we fought to get clarifying language to permanently change the deposit insurance base to assets from deposits.  Why?  Because it transfers much of the liability for funding the DIF to the large banks consistent with their risk profile."  Over 98% of the community banks in this country will realize a savings of 31% on future FDIC premiums if the bill is enacted.

"Still, unless directed otherwise by you, the Board, I cannot imagine a scenario that would cause us to rise up and raise our hand in support of this legislation at the end of the day," Williston concluded.

Many important votes are still pending, including votes on amendments that would reduce the reach of a new Consumer Financial Protection Bureau and place ultimate enforcement and rulemaking with the bank's prudential regulator.  The question is...what amendments will be heard and considered for final vote?

Please stay tuned to the developments this week and calls for grassroots support when needed.  Texas Senators John Cornyn and Kay Bailey Hutchison have been extremely accommodating and supportive of efforts thus far to minimize the collateral damage on the community banking industry.

As strange as this may sound, I've always been a fan of Kurt Vonnegut, with his bizarre sense of imagination and very unique writing style.  He refers in one of his books to "peepholes", and how the same situation or event can perceived so tremendously differently based upon the perspective of those watching events unfold. 

Please consider the following observations on the current state of play with the "Dodd bill", (S. 3217) through my "peepholes"  . . .

The American public is mad at "banks", and our industry has very much become a political target.  There has been plenty of bad behavior over the years, primarily among the largest banks, both commercial (or "traditional" or whatever) and investment, to incite this anger, and the economic crisis is the latest in a long saga.  The only possible silver lining - community banks are finally being seen as the "good guys" by the lawmakers, the press and the public.  In this environment, we're pretty happy not to be perceived as "one industry".  Can't really imagine how aligning with the giant banks (most of whom have substantial investment banking operations as well) and their ample baggage benefits community banks in the present environment... read more.

And late yesterday afternoon, spoiling some of the victories scored by the community banking industry earlier in the week, the Senate adopted one of the ugliest ornaments of them all…an amendment offered by Senator Dick Durbin of Illinois that seeks to limit and control future debit interchange fees.  The vote was 64 to 33.  Texas Senator John Cornyn voted against the amendment and Senator Hutchison did not vote on the measure.

While the amendment is certainly better than stand alone legislation to limit interchange by the Illinois Senator, it is clearly a blow to the industry.  Unlike Durbin’s original proposal that would establish a three judge panel to set interchange rates, the adopted amendment directs the Federal Reserve to set interchange fees based on the cost of processing the transaction.  Although the amendment does not apply to banks and credit unions under $10 billion in total assets, both ICBA and IBAT vigorously opposed it on the grounds that business owners might be persuaded to establish merchant accounts at too big to fail banks to limit future payment processing costs.

There is no such interchange provision in the House passed version of regulatory reform.  We will continue with our strong opposition to this provision as the bill is finally passed and heads to conference committee to reconcile differences.

Yesterday’s vote concluded action on the bill for this week.  Senate Majority Leader Reid has set a cloture (closure) vote on Monday to end the filing of future amendments.  Many important votes remain for community banking including:

• amendments that will weaken the jurisdiction of the new Consumer Financial Protection Bureau;
• an amendment to preserve the rights of states to establish lending limits for  state chartered banks;
• an amendment that will preserve the ability of the Federal Home Loan Bank to provide much needed liquidity to community banks;
• amendments that would extend the reach of any new Consumer Bureau established to payday lenders and other nonbank firms, including efforts to exempt auto dealers.

Please stay tuned for further grassroots alerts on these amendments next week.  Thank you for your patience and diligence thus far.  And of course, have a good weekend and Merry Christmas!

1. Deposit Insurance Assessments.
As reported last week, our Senior Senator from Texas, Kay Bailey Hutchison led the charge along with Senator Jon Tester (D - Montana) to effectively track House language for deposit insurance assessments.  By changing the assessment base to assets less tangible capital, some 98% of community banks will pay less than they do under the current domestic deposit assessment base.  Based upon some questions from our members, it is important to recognize that the assessment rate will obviously be reduced as the assessment base increases to allow the FDIC to raise the same amount of money.  In a resounding vote of support for community banking (the large banks obviously were strongly opposed, as their costs will increase - as they should), the Senate voted 98 - 0 for this amendment.  Special and heartfelt thanks to Senator Hutchison and her banking staff, Dana Barbieri for their tireless work on this issue.  And special thanks to all of you who contacted Senator Cornyn on very short notice, resulting in his cosponsorship of this bill, which we very much appreciate as well.  

2. Reporting Requirements
Community banks were also the beneficiaries of an amendment by Senator Olympia Snowe (R - Maine) to strip onerous reporting requirements on deposit relationships and ATM transactions, including geocoding, and required annual disclosures.  
 
3. Consumer Protections
In other action, the Senate voted down a Republican alternative to the Consumer Financial Protection Bureau (CFPB), which would have provided direct oversight of this new entity by the FDIC.  We have long advocated for consumer protection to be kept with the safety and soundness regulators, and continue to have serious concerns over both the House Consumer Financial Protection Agency (CFPA) and the Dodd-proposed CFPB.  That fight will be forthcoming.

4. $50 B prepaid Liquidation Fund, other issues dropped
The $50B prepaid resolution fund was dropped.  IBAT supports the idea of a prefunding process for the dissolution of too-big-to-fail institutions. We are confident this will be addressed in conference committee.

Strengthening the 10% nationwide deposit cap, and mandating a statuatory 6% capital level for all bank holding companies was also defeated.  

This Week.
Debate has commenced, and more votes are scheduled starting today.  Senator Hutchison is also taking a lead role with Senator Amy Klobuchar (D - Minnesota) to allow state banks the ability to choose either the Fed or FDIC as their federal regulator.  We have been strong proponents of this provision, and believe the Fed should retain regulatory oversight of community banks as well as the largest institutions in the country.  IBAT has also weighed in strongly on a number of other issues to be debated over the coming days, including credit/debit card interchange restrictions, ATM fee limitations, retention of state level legal lending limits, pre-emption issues and of course, the ever-present CFPB.  

IBAT will continue to do whatever possible to favorably impact this complicated and frustrating process with only one constituency always in the forefront - you, the community banker. 

The total amount of credit outstanding rose by $2 billion in March to $2.451 trillion, growing at an annual rate of 1% according to the Federal Reserve. Economists had predicted that total borrowing would slide by $3.9 billion during the month, according to a consensus estimate from Briefing.com... read more.