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Archive: Week of July 23 |
From the chairman
By Brad Swickey
OBA Chairman
This week was the second anniversary of the passage of the Dodd-Frank Act and two community bankers were invited to testify on the law's impact on community banking and on bank customers. I am proud to say that one of those bankers was our own Jim Hamby, president and CEO of Vision Bank in Ada.
Jim testified before the House Committee on Oversight and Government Reform, while fellow banker Jim Purcell, president and CEO of State National Bank of Big Spring, Texas, testified before the House Oversight and Investigations Subcommittee. Both bankers answered questions about Dodd-Frank and the Consumer Financial Protection Bureau. Why the House members only invited bankers named Jim is not clear to me, but one thing is abundantly clear: many members of Congress still do not believe that Dodd-Frank impacts community banks. After all, they exempted community banks, didn't they?
Unfortunately, at the time of the passage of Dodd-Frank, bankers appeared divided on the issue, which not only confused some House and Senate members, but gave others who were not confused at all a reason to support passage. Today, I would have hoped all or most of the members in Congress would have heard the message loud and clear that Dodd-Frank has put an incalculable burden on community banks, forcing bankers to direct more of their financial and human resources toward regulatory implementation and compliance, while diverting financial and human resources from serving our customers and our communities.
Coincidentally, the American Bankers Association announced this week at the ABA Summer Leadership Meeting in Chicago it is revamping its Grassroots Committee during the ABA Convention in October to become effective. I won't go into the new structure, as I am certain you will hear more about it as we move closer to the ABA Convention, but the purpose of the restructure is to encourage more political awareness and engagement among all bankers. Making the announcement, Mike Hunter, ABA chief operating officer said, “Banks and their customers have never been more affected by decisions in Washington than they are today.” He went on to say, “The best way to ensure that lawmakers make the right decisions for banks, their customers and their communities is to create and maintain an open dialogue.”
Just as our own Hamby and fellow banker Purcell testified before Congress this week, demonstrating exactly what ABA's Hunter said needed to be accomplished, so must we testify and bear witness on behalf of OUR banks, employees, customers and communities. Please take the time to chronicle your story about how Dodd-Frank is affecting all of the aforementioned constituencies and share those with our senators and your representative. If you do not feel comfortable contacting elected officials directly, then please share your stories with me or another OBA board member. We are frequently in Washington and the more first-hand stories we have to tell about how Dodd-Frank is inhibiting our ability to serve our customers and communities and the strain it is putting on our human and financial resources, the better we can make our point and get across once and for all that Dodd-Frank does impact community banks.
One last thing: thank you Jim Hamby for standing up and supporting your bank and community banking in Oklahoma!! We appreciate your efforts on our behalf.
Concerns about Basel III continue in spotlight
In the July edition of the Oklahoma Banker, OBA President Roger Beverage wrote about the applicability of Basel III capital requirements to community banks. Click here to read the article: http://www.oba.com/bankers/oklahoma_banker.php?action=story&id=2843.
In addition, the OBA is sponsoring a one hour FREE webinar about the program, what it includes and what you'll be required to do. Here are the details:
Title: SNL Financial Presents: Basel III – The Impact on Your Bank
Date: Thursday, Aug. 2, 2012
Time: 10:30-11:30 a.m.
Space is limited. Reserve your webinar seat now at: https://www1.gotomeeting.com/register/394191688.
After registering, you will receive a confirmation email containing information about joining the webinar.
In related news, last week Rep. Peter King (R-N.Y.) and eight other House Financial Services Committee members wrote to federal banking agencies saying they have grave concerns about the effect the proposed Basel III regulatory capital reforms could have on community banks.
Community banks and thrifts have expressed the “view that these new standards could significantly curb their ability to lend and provide liquidity in their local markets,” their letter said. “[H]olding them to the same standards as international systemically significant institutions could place them at a competitive disadvantage, in part due to limited investor demand for small capital offerings and nominal access to capital markets beyond their regions.”
The lawmakers emphasized community banks did not engage in many of the risky practices that led to the financial crisis, and do not trade in complex financial products. “Thus, these institutions believe they are being held to a standard meant to serve as a backstop for financial activities they do not engage in,” they explained.
The House members also asked regulators to respond to a series of questions, including whether they gave any consideration to scaling capital standards to the size and complexity of the institution; if they're concerned that applying a one-size-fits-all approach could affect lending capacity and whether the proposals could further consolidate the banking system.
There are a number of community banks who have assumed these Basel III proposals simply don't apply to them. Unfortunately, they are mistaken.
Last Friday, the FDIC's Regional Office in Dallas hosted a meeting about Basel III, with a particular emphasis on what it may mean for community banks unless it is changed. The FDIC emphasized it's critically important for community banks to understand what's being proposed, how the proposals affect their bank and (most importantly) their bank's customers, and make their comments before the Sept. 7 deadline.
A couple of quick points were highlighted during the FDIC program and that we've found to be of interest for community bankers: even though Congress concluded otherwise for banks less than $15 billion in total assets, Trust Preferred Securities are being phased out of existence. The proposed rule would deal a crippling blow to every bank whose capital includes any amount of TRUPS.
Another concern expressed during the meeting was the impact that the proposed changes in capital and risk-weighting would have on mortgage lending. Balloon notes, for example, as proposed, would require 100 percent risk-weighting at a minimum under the proposed rules, and will drive many community banks out of mortgage lending activities.
Under the proposed rule, “category 1” residential mortgages must have the following features:
- Term equal to or less than 30 years;
- Regular periodic payments;
- No increases in principal, deferments and no balloons (a feature than many community banks use as a rate risk-management tool);
- Underwriting and repayment ability based on;
- Interest changes limited to 2 percent per year and 6 percent over the life of the loan;
- HELOC qualification includes principal and interest on maximum exposure;
- Loans that are not 90 days past due, on nonaccrual, or certain types of junior liens.
These loans are then risk-weighted, based on their loan-to-value ratio:+
- LTV equal to or less than 60 percent: 35 percent risk-weight;
- LTV > 60 to 80 percent: 50 percent risk-weight;
- LTV > 80 to 90 percent: 75 percent risk-weight;
- LTV > 90 percent: 100 percent risk-weight.
Moreover, the FDIC said that as the loan balance pays down, the mortgage could have a different risk-weight, and bankers will have to track these factors as a part of their overall compliance efforts.
All other residential mortgage exposures are risk-weighted at a minimum of 100 percent, and up to as much as 200 percent if the LTV is more than 90 percent.
Additionally, banks would be confronted with different capital rules for each piece of “high volatility” commercial real estate loans, past due assets and structured securities.
Bankers are encouraged to examine the NPRs and develop an understanding of how their banks will be affected unless there are some changes to the proposed rules. The OBA will be working with other state bankers associations to develop a comment template with points for bankers to consider in preparing their bank's official comment letter. The more letters we can generate, the more chance we have of effecting some real changes to the proposals.
TAG extension update
Based on a recent OBA survey, 64 percent of OBA member banks now support extending the deadline for the Temporary Account Guarantee (TAG) program, while 32 percent oppose it. Four percent of those who responded to the survey have various opinions about what any extension should look like.
At its summer meeting last week, the ABA Board of Directors voted to support a two-year extension of the Transaction Account Guarantee program that is slated to expire at the end of the year. This action was taken at the recommendation of the ABA Government Relations Council's Administrative Committee, which includes Oklahoma bankers Gwen Easter (First Bank and Trust, Perry), Jim Hamby (Vision Bank, Ada), and Mark Funke (Bank of Oklahoma, Oklahoma City).
The ABA's position coincides with the position taken earlier by the Independent Community Bankers of America and puts virtually all of the nation's banks on the side of extending the program. However, because it requires a change in the Dodd-Frank law itself – which must be passed by Congress – no one is wildly optimistic about its chances for success.
The ABA Board emphasized, however, that there will be no “quid pro quo” for extending TAG – particularly no language raising the credit union member business-lending cap – and ABA will adamantly oppose any amendment or other additions to the TAG's enabling legislation that would be detrimental to the business of banking.
Oklahoma bankers testify before congressional panels
Last week, former OBA Chairman Albert C. “Kell” Kelly and current president and CEO of SpiritBank in Bristow testified before the House Financial Services' Capital Markets Subcommittee in support of H.R. 2827. The bill would clarify what constitutes a municipal adviser and would remove banks from the Securities and Exchange Commission's proposed rule implementing the Dodd-Frank Act's Section 975. Kelly testified on behalf of the American Bankers Association, of which he is currently serving as chairman.
“Section 975 ... was not intended to cover banks. Instead, it established a regulatory scheme for unregulated entities providing advice to municipalities with respect to the municipal financial products defined by Congress,” Kelly said.
Kelly emphasized banks must receive an exemption from registering as municipal advisers because, among other things, the registration requirement would subject them to an unwarranted securities-based regulatory regime on top of the comprehensive bank regulatory regime.
“The problem is compounded because the SEC proposal goes far beyond just advice related to securities activities of state and local governments,” he said. “It would regulate all 'funds held by or on behalf of a municipal entity.'”
Banks have provided a full range of products and services to municipalities for decades, including traditional bank products such as deposit accounts, cash management services and loans, he explained. If the current proposal is adopted, the practical effect would be significant.
“By going far beyond what the statute intended, the SEC's proposal would capture nearly every bank and every employee who gives such advice and force them to register as municipal advisers,” Kelly said. “Any bank employee who may give 'advice' to local governmental bodies such as schools, libraries and hospitals would have to register.”
Click here to read Kelly's testimony: http://www.aba.com/Issues/Testimonies/Documents/7.20.12.MuniAdvisorsKellKelly.pdf.
Jim Hamby, president and CEO of Vision Bank, Ada, told the House Oversight and Government Reform Committee the Dodd-Frank Act has compounded the regulatory burden for community banks, and the law could drive community banks out of lines of business.
“It's frightening to consider that regulators have promulgated only a quarter of Dodd-Frank's more than 400 rules,” Hamby said. “New laws or regulations might be manageable in isolation, but wave after wave, one on top of another, will undoubtedly overrun many community banks.”
Hamby explained as the regulatory burden increases, banks' ability to lend diminishes. He emphasized Congress must be vigilant in its oversight to ensure that Dodd-Frank rules are adopted only when the benefit clearly outweighs the burden.
Click here to read Hamby's testimony: http://www.aba.com/Issues/Testimonies/Documents/JamesHambyTestimony071912.pdf.
Click here to watch the testimony: http://oversight.house.gov/hearing/continuing-oversight-of-regulatory-impediments-to-job-creation-job-creators-still-buried-by-red-tape/.
Sign up for annual Washington Visit!
The OBA has scheduled its annual Washington Visit for Sunday, Sept. 9, through Tuesday, Sept. 11, with departures from Washington on Wednesday, Sept. 12, 2012. Click here for registration, hotel information and more details! Deadline for registration is Aug. 14.
Contact Adrian Beverage (adrian@oba.com) with any questions.
FDIC objects to labels on deposit insurance costs
On July 9, the FDIC issued FIL-33-2012 to clarify banks may no longer indicate or suggest to their customers that there are bank costs associated with deposit insurance.
"The FDIC ... is concerned that labeling a fee as "FDIC" or "deposit insurance" or referring customers to the FDIC for (an) explanation of the fee may create the impression that the FDIC is requiring institutions to charge its customers the fee,” the issuance said. “[I]t is inaccurate, and therefore misleading, for an (insured depository institution) to state or imply that a particular fee charged to a customer is required by the FDIC or to refer customers to the FDIC for an explanation of the fee."
This is a reversal of policy that is hitting a number of banks across the country, including OBA-member banks. Banks have been allowed to charge their customers a deposit insurance fee for years, even though the FDIC actually discouraged the practice of labeling it as a deposit insurance “fee.”
In Advisory Opinion 90-78 the FDIC stated it was permissible for a bank to charge its customers a fee to compensate for the cost to the bank of deposit insurance on the customer's account. Again, in Advisory Opinion 91-30 the FDIC clarified its advice and stated that the fee charged could not exceed the actual cost of the insurance allocable to the account.
Apparently some customers called the FDIC about this “new fee” to complain about it and the FDIC didn't like that very much. Hence, the new pronouncement.
You can still charge a fee to compensate for the cost of FDIC insurance; you simply can't tell your customers what you're doing, either in person or by disclosing it on their account statements. You cannot use the words “FDIC” or “deposit insurance” in connection with your description of the fee. Apparently you don't have to limit the amount of the “fee” to the cost of deposit insurance.
So. It's a bit confusing, we realize. Make it an “account” fee and you're good, but just don't tell your customers it's for “deposit insurance.” Does anyone else see any problems here? Can you spell “deceptive?”
What banks can do to help in Colorado tragedy
We've had inquiries about what Oklahoma bankers can do to help in the wake of the events that took place in Aurora, Colo., Friday. Here is what the Colorado Bankers Association has suggested for its member banks:
In regard to last week's heartbreaking theatre shootings, CBA recommends that donations from your bank and from bank customers be directed to GivingFirst, accessible at https://www.givingfirst.org/. GivingFirst.org is a program of Community First Foundation, an Arvada, Colorado-based community foundation whose mission is “to improve quality of life by increasing community generosity and involvement.” Media and other organizations are directing contributions to this location.
In the case of the tragic July 20 shootings, the following organizations profiled on GivingFirst.org are offering direct support to those affected. Donating via GivingFirst.org allows the donor to make a direct contribution to a specific organization or to the general fund for this tragedy:
• Arapahoe/Douglas Mental Health Network
• Aurora Mental Health Center
• Bonfils Blood Center Foundation
• Colorado Organization for Victim Assistance
• Community Reach Center
• Denver Center for Crime Victims
• Jefferson Center for Mental Health
• Mental Health America of Colorado
• Metro Crisis Services, Inc.
• Safe2Tell
• Community First Foundation – General Fund
The Foundation's long term goal is to make donating to local charities an easier and more informed experience for individuals. It hopes GivingFirst.org becomes indispensable for local giving, by offering comprehensive, objective and up-to-date information about nonprofits.
In past tragedies CBA has organized Colorado banking's fundraising efforts that were very successful – Oklahoma City bombing, Columbine... This effort feels right in this environment. Thank you. Please be generous: GivingFirst.
Talk with your congressmen!
The August recess for Congress is just around the corner. It's a great time for you to host a meeting in your bank with your congressman and let him know what's going on in the “real world.” If you have questions about what to do or how to go about it, the American Bankers Association has put together the “basics” and the fundamentals of hosting such a meeting. Click here to see the video: http://www.youtube.com/watch?feature=player_embedded&v=6EudOVmRGgs
This is a great time of year for you to make a difference on behalf of your bank and the banking community in Oklahoma. If you have questions or concerns, call Roger Beverage (roger@oba.com) and chat with him about what's involved and what's at stake.
OBA education corner ...
As we mentioned before, things slow down in the summer for the OBA's Education Department. This, however, doesn't excuse you from studying up on our upcoming programs and being prepared when they come down the pike!
On the webinar front, for example, a pair of "Top 10 Mistakes" sessions are coming your way – on July 25 is the Top 10 Mistakes in Analyzing Business Financial Statements, while on July 26 is Top 10 Mistakes in Appraisal Compliance.
Also, take time to note all the events coming up on the OBA's calendar!