Report on CBAI Staff Visit to Washington July 13-17, 2015

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1 Report on CBAI Staff Visit to Washington July 13-17, 2015 Urges Support for Community Bank Positions CBAI vice president of federal governmental relations David Schroeder visited every office of the Illinois Congressional delegation in mid-july, as well as senior legislative staff at the Independent Community Bankers of America (ICBA), to discuss a variety of important issues and urge the immediate passage of legislation deemed vital to Illinois community banks as noted below. Summary Descriptions Support Community Bank Access to Capital Support Community Bank Positions on Tiered Regulation and Regulatory Relief Support Enhanced Security for Consumer Data (data breaches) Support Taxation of Credit Unions and Oppose Their Expanded Powers Support for CBAI s positions on these major legislative and regulatory initiatives will allow community banks to encourage additional lending, fuel job creation, help create economic growth, and more fully serve their communities. Detailed Positions Support Community Bank Access to Capital Access to capital for community banks has never been more difficult than it is today. Since 2007, the public capital markets have been either unavailable or unattractive to many community banks and holding companies. Many community banks have had to rely more on existing shareholders, directors and insiders for capital raises and less on new investors, including institutions and private equity investors. Furthermore, many community banks need to raise additional capital not only for business purposes but also to ensure compliance with regulatory

2 requirements including Basel III. Those community banks that have not redeemed their Troubled Asset Relief Program (TARP) or Small Business Lending Fund (SBLF) securities, or that have been deferring dividends on their trust preferred securities, have additional reasons for needing capital. H.R Community Bank Access to Capital Act of 2015 is bi-partisan legislation which will enhance community bank and thrift access to capital by: increasing the Small Bank Holding Company Policy Statement asset threshold, providing an exemption from Basel III, increasing the asset size definition of a community bank, providing an exemption from SOX internal control attestation requirements, maintaining and not eroding the accredited investor standards, increasing the number of purchasers to not be deemed a public offering, and amending the SEC requirements regarding S&L holding company registration and deregistration thresholds. CBAI thanks Congressman Randy Hultgren (R-14) for taking a leadership position and cosponsoring this important legislation. Support Community Bank Positions on Tiered Regulation and Regulatory Relief The financial crisis demonstrated that the risks taken by Wall Street mega banks are very different from those assumed by community banks and regulations should positively reflect those differences. The regulatory burden imposed on community banks by a one-size-fits-all approach ignores the disproportionate burden of banking laws and regulations on community banks. The steady increase in regulations over many decades threatens community banks and their communities. Credit unions, Farm Credit System lenders and other non-bank financial service providers are not subject to the same laws and regulations as community banks. This discrimination against community banks places them at a significant competitive disadvantage. CBAI supports the Independent Community Bankers of America s (ICBA) Plan for Prosperity, a policy platform for the 114 th Congress that promotes a regulatory environment in which community banks can thrive and contribute to their local economies. The Plan contains flexible priorities to ease excessive, redundant and costly regulations while supporting greater regulatory accountability to help community banks dedicate more of their resources to promoting economic growth. CBAI and the ICBA are encouraged that dozens of bills currently in both the House and Senate contain sections of the ICBA s Plan for Prosperity. The Plan for Prosperity: amends Basel III to restore its original intent. provides additional capital for small holding companies by modernizing the Federal Reserve s Policy Statement. provides relief from the Securities and Exchange Commission rules. supports a robust housing market by reforming mortgage lending.

3 strengthens accountability in bank exams by providing a workable appeals process. reforms bank oversight and examinations to better target risks. eliminates the annual requirement for redundant privacy notices. balances consumer regulation through more inclusive and accountable CFPB governance. eliminates arbitrary disparate impact fair lending causes of action. ensures the viability of mutual banks with new charter options. requires rigorous and quantitative cost-benefit analysis to justify new rules. cuts red tape in small business lending by eliminating burdensome data collection. preserves community bank mortgage servicing. strengthens the voice for community banks by creating a Treasury Assistant Secretary for Community Banks. modernizes subchapter S constraints. provides a five-year loss carryback to support lending during economic downturns. provides risk targeting in the Volcker Rule. CBAI urges Congress and regulators to continue to expand and refine a tiered regulatory system based on size and risk profile to ensure that every banking law, rule and regulation clearly distinguishes and appropriately regulates community banks. H.R and S. 812 CLEAR Relief Act of 2015 is bi-partisan legislation to provide regulatory relief to community banks specifically with respect to: the annual privacy act notification requirement, Call Reports filings in the first and third quarters, increasing the Small Bank Holding Company Policy Statement threshold, SOX internal control attestation requirements, TILA exemptions for escrow requirements, QM exemption for loans held in portfolio, and including balloon mortgages as a qualified mortgage loans. CBAI thanks Senator Mark Kirk, and Congressmen Robert Dold (R-10) and Randy Hultgren (R-14) for taking a leadership position by cosponsoring this important legislation. Support Enhanced Security for Consumer Data (data breaches) Consumer data breaches at large retailers such as Target, Neiman Marcus, Michaels and Home Depot have shaken public confidence about the security of their confidential personal information. Community banks, however, effectively safeguard consumer data and have been working hard to protect their customers from the adverse consequences of recent data breaches. CBAI urges Congress to ensure that when consumer information is compromised (a data breach), whether it is a retailer, data broker, financial institution or other entity, the responsible party should bear the resulting fraud losses and the complete costs of mitigation and restitution. Community banks unfortunately bear the majority of fraud losses and reissuance costs from these breaches therefore there is insufficient incentive for retailers to act in the most responsible manner. Retailers must step-up to the responsibility that comes along with handling confidential

4 personal information. Allocating financial responsibility to the party that is best positioned to secure consumer data will provide a strong incentive to more effectively protect sensitive consumer data. H.R and S. 961 Data Security Act of 2015 has bi-partisan House and Senate cosponsors. This legislation requires those handling sensitive financial account information or non-public personal information to: implement an information security program, provide notification of data breaches, require service providers to implement appropriate safeguards, communicate with account holders regarding breaches, and to provide alternate compliance procedures for financial institutions and affiliates under the Gramm-Leach-Bliley Act (GLBA). CBAI encourages every member of the Illinois delegation to cosponsor this important data security legislation. Support Taxation of Credit Unions and Oppose Their Expanded Powers Taxation of Credit Unions Credit unions are now indistinguishable from community banks and have grown to control a significant share of the banking services market. Their original business model, approved by Congress in 1934, is outdated as credit unions have long since strayed from their founding purpose of serving individuals of modest means and with a common bond. Credit unions now provide financial services that are identical to the community banks with which they vigorously compete. Their federal tax-exempt status, in exchange for serving their original mission, is clearly no longer justified. Credit union tax subsidies should be eliminated and credit unions should pay their fair share. The total assets of credit unions now exceed $1 trillion dollars. The number of billion dollar credit unions has grown from 8 in 1991 to more than 208 in These billion dollar credit unions are larger than 90% of the nation s community banks. It defies logic to believe these enormous credit unions are respecting the requirements that their members have a common bond of occupation or association, or are within a well-defined local community, neighborhood or rural district. In fact, many credit unions now advertise that anyone can join, others construct creative schemes to circumvent membership rules and some even boast proudly - they are just better than banks. Credit unions were originally granted tax-exemption because of their similarity to other types of mutually owned financial institutions, notably savings banks and savings and loans. Yet the exemption for SBs and S&Ls was repealed over 60 years ago. In 1951, Congress repealed their exemption because those mutual were in active competition with taxable institutions. The most recent Office of Management and Budget tax expenditure analysis estimated that the tax-emption for credit unions will reduce federal tax revenues by $9.46 billion over fiscal years contributing to the federal budget deficits and the ever-growing national debt.

5 Now is the time for Congress to end credit unions unfair tax subsidy and level the playing field between credit unions and taxpaying community banks. Credit unions must pay their fair share. Expanded Powers for Credit Unions Credit unions are seeking to expand their commercial lending powers, a change which credit unions have sought for more than a decade. If approved this would result in further revenue losses to the U.S. Treasury and an increase in the federal budget deficits. Again in the 114 th Congress, credit unions are working with their allies to expand their commercial lending powers by increasing the percentage of assets cap on member business lending (MBL) (H.R which is euphemistically titled The Credit Union Small Business Jobs Creation Act). CBAI strongly opposes this credit union expansion of powers bill. The only members of the Illinois delegation who are cosponsoring this MBL bill are Cheri Bustos (D- 17) and Dan Lipinski (D-3). House Appropriations Committee s credit union allies recently proposed an amendment to the Financial Appropriations Act for FYI 2016 to increase member business lending. This backdoor increase in MBL is represented by their industry as merely creating parity between credit unions and commercial banks. CBAI urges Congress to not allow credit unions to further encroach into business lending, which would alter the fundamental character of their charter and expand their already significant tax subsidy. Also, the National Credit Union Administration (NCUA), which is the cheerleader regulator for the credit union industry, has recently released a proposed rule to relax business lending rules for tax-exempt credit unions. The NCUA is trying to accomplish by administrative fiat what it has been unable to accomplish through the legislative process, completely disregarding the fact that Congress enacted limits on their industry for very good reason to limit risky lending and to restrict these tax-exempt institutions to their fundamental mandate of serving individuals of modest means and with a common bond. CBAI is angered by their proposed Congressional endaround and encourages members of the Illinois delegation to voice their concerns to the NCUA about their misguided proposal. Community banks are taxed while credit unions are subsidized. CBAI urges Congress to end this discrimination against community banks. CBAI thanked members of the Illinois Congressional delegation for their support, and urged their support and cosponsoring legislation which is vital to Illinois community banks. ###