IBAT is proud to be affiliated with the Independent Community Bankers of America, the only national association dedicated exclusively to community banks and to the creation and promotion of an environment in which community banks flourish.
Federal Priorities – Spring 2021
Challenges abound for community banks in Texas and across the nation. IBAT has long pushed for a recognition of the unique business model of community banks and the positive contributions these institutions make in meeting the needs of small business borrowers, working with low- to moderate-income customers, contributing to their communities and creating jobs and economic activity. While simpler to set arbitrary asset thresholds, we encourage Congress to focus on business activities and risk profiles when determining appropriate regulatory treatment of various categories of banks.
Among the priority issues facing the community banking sector in the 117th Congress are:
IBAT supports extending tax credits and deductions for community bank lending to small business borrowers, consumers in underserved communities and farmers and ranchers. In addition to providing some level of parity in competing with credit unions, Farm Credit System lenders and others, the benefits would be significant to the constituencies served and provide a significant return on investment to the federal government.
IBAT supports reasonable measures to allow a safe harbor for banks doing business with marijuana related businesses (MRB) in states where cannabis is legal. We encourage reasonable actions by Congress to address these significant issues.
Subchapter S offers benefits to allow smaller banks to remain viable and compete with tax-advantaged credit unions and farm credit system lenders. We support raising the limit on shareholders from 100 to 500, allowing Sub S banks to issue preferred stock, making dividends on those shares tax deductible, and allowing those dividends to be treated as ordinary income for tax purposes. Further, we support an LLC structure for banks.
Data security breaches continue to be a significant and costly problem for all banks. We are supportive of requiring the same Gramm-Leach-Bliley standards banks must adhere to for all entities that handle sensitive customer data. Further, we encourage Congress to take the necessary steps to counter ever-increasing threats in the cybersecurity space.
The ongoing proliferation of “patent assertion entities,” or “patent trolls,” continues to be a source of frustration and expense. IBAT strongly supports the very simple fix of exempting “end users”—those who simply purchase software or a product from a third party—from any liability for alleged patent infringement.
Recent accounting standards regarding loan impairment (CECL) are adding significant costs and burdens to community banks with questionable, if not nonexistent, benefits. Community banks should be exempted from the onerous requirements of this “solution in search of a problem” in our sector of the industry. We were supportive of H.R. 3182 and S. 1564 in the last Congress requiring a study of this proposal.
IBAT recommends raising the currency transaction report (CTR) threshold from $10,000 to $30,000 and indexing future increases on an annual basis. The current threshold, set in 1970, is significantly outdated and captures far more transactions than originally intended. A higher threshold would produce more targeted, useful information for law enforcement. IBAT also supports the creation of a tax credit to offset the cost of BSA compliance.
In recent years, the pace of de novo bank formation has slowed to a trickle. De novo formation is needed to offset the loss of smaller community banks through consolidation and help ensure a robust community bank landscape serving small businesses and households.
ICBA supports a flexible and tailored supervisory policy for de novo banking applicants. Capital standards, exam schedules, and other supervisory requirements should be based on the pro forma risk profile and business plan of the applicant and not on a standard policy that applies to all de novo bank applicants.
IBAT has consistently opposed the mixing of banking and commerce. Recent approvals and additional applications for FDIC insurance and access to the payments system through the chartering of an industrial loan corporation (ILC) by several fintech and commercial companies with a diverse array of other business lines are troubling. In addition to further tilting an already unlevel playing field to the detriment of community banks and the small businesses and individual customers we serve, such an arrangement would foster further consolidation and concentration in the industry, promote credit allocation, provide multiple avenues for consumer privacy risks and potentially create more risk to the FDIC fund. The FDIC should declare a moratorium on ILC insurance applications, and Congress should promptly close the ILC loophole.
While there have been marked and appreciated improvements in the level of regulatory burden over the past several years, the expectation is that this trend will be reversed going forward. Many community banks simply do not have the resources to comply with the regulatory expectations, especially in the areas of CRA, fair lending and HMDA as they have evolved. “Regulatory burden” is frequently cited as a primary reason for selling a community bank. We would submit that a community bank should have the opportunity to correct a violation of consumer protection law or shortcoming in a compliance management system or protocol prior to a formal (and public) order being issued.
IBAT opposes well intended but ultimately counterproductive proposals to allow the U.S. Postal Service (USPS) to offer financial products and services. The encroachment into these activities by a major federal agency would represent a significant, government-sponsored, competitive threat to the ongoing viability of the nation’s thousands of private-sector, tax-paying community banks. Financial services are best provided in a competitive, private, and free marketplace that openly and efficiently benefits customers.
IBAT strongly opposes efforts by the credit union industry to expand field of membership, business lending authority and raising capital from outside sources whether by legislation or regulatory fiat. The recent purchase of community banks by credit unions is clearly an indication that these business models have few, if any, differences. We are supportive of efforts to provide for rent parity between banks and credit unions operating on military bases. Further, regulatory restrictions on the conversion of a credit union to a bank charter are significant and inappropriate. It is time to seriously examine the tax-exempt status and regulatory treatment of this ever-expanding industry.
87th Legislature White Paper
What passed, what was defeated and what changes are coming to community banking following the 87th Regular Session of the Texas Legislature? This White Paper was developed by the IBAT Legislative Team with exclusive insight into the real-world impact of lawmakers’ actions on community banks and their customers.
Stay engaged with lawmakers throughout the legislative session or in the interim, using these helpful resources.