Week of Oct. 2

Greetings from Guy

By Guy Sims
OBA Chairman

We wrapped up our first day of meetings on our Washington visit on Monday. Seventy bankers met with the ABA, U.S. Chamber of Commerce, FDIC and Federal Reserve. As you can imagine, the Oklahoma bankers had many questions and observations to share with the regulators.

I have always found this trip to be enlightening, but I also think we enlighten the people who live in the beltway as Oklahoma bankers are always candid with their observations. Today, we meet with the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and our congressional delegation. It should be another interesting day.


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Working on regulatory relief

As this issue of the OBA Update is arriving in your computer, 70 bankers and a number of OBA Strategic Members are gathered in Washington, D.C., to make the collective case for regulatory relief for member banks. 

“This is the biggest group we’ve ever had on our Washington Visit,” OBA Chairman Guy Sims said. “I hope we will bring some good news back to member banks when we return, but I’m not as optimistic as I was earlier in the year.  

“We’re meeting with the regulators and all members of our delegation. I understand that a legislative ‘deal’ is in the works and is almost ready to be revealed. I’m pretty sure we’ll learn a lot more about this possibility when we’re there.”

Sims was referring to an announcement by Sen. Sherrod Brown (D-Ohio) late last week that he expects his negotiations with Senate Banking Committee Chairman Mike Crapo (R-Idaho) to bear fruit in “the next two or three” weeks. Brown is the ranking member of the Senate Banking Committee.

“Brown also said that the issue receiving the most attention so far has been the SIFI (systemically important financial institution) designation/threshold,” OBA President Roger Beverage said. “It’s currently at $50 billion, and there are many banks and other interested parties who believe this level needs to be increased.  

“My guess is the negotiations over the ‘proper’ threshold amount is what’s holding things up. When I look at the priorities of most bankers associations, for the most part those priorities are not controversial. It just baffles me why a regulatory relief package can’t quickly come together and get passed. But in this toxic political environment (in Washington), it’s amazing anything has gotten done.”

Sen. Brown noted the $50 billion Dodd-Frank asset threshold for systemically important status is “the one [issue] people have apparently talked about the most,” adding that “we are talking about that” but “I don’t know that we have a solution yet.”

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Tax reform outline released

Last week, the Trump administration and congressional leaders released news about a joint framework for tax reform that was (apparently) hammered together by White House insiders, the speaker and the president pro temp of the Senate. This outline provides a very general road map for the House Ways and Means Committee as the long-awaited tax reform package is finalized.  

Democrats immediately attacked the outline as a giveaway to the wealthy while totally ignoring the needs of the middle class and the workers in this country. It lowers the corporate tax rate to 20 percent and establishes a 25-percent rate for “pass-through” organizations, such as Subchapter “S” corporations, LLCs and partnerships.

At the individual level, it’s proposed to cut the current seven tax brackets to three with rates of 35, 25 and 12 percent. Its most controversial proposal is elimination of the deduction for state and local taxes, and right behind that is the elimination of the alternative minimum tax.

The standard exemption is doubled for married couples to $24,000 and $12,000 for individuals. Experts have said this exemption will result in many filers being able to file an exceptionally short return, but the details remain to be revealed at a later date.

ABA President and CEO Rob Nichols applauded Congress and the administration for their step forward.

“We are encouraged by their commitment to this critically important issue by lowering rates and broadening the tax base, and look forward to seeing a more detailed plan as the legislative process begins,” he said. “ABA and the nation’s $17 trillion banking industry support comprehensive tax reform and will work with Congress to enact a final plan that grows the economy, creates jobs and reflects our core principles.”

For businesses, it appears the ultimate plan will allow expensing of depreciable assets other than structures for at least five years.

“This is likely a sop to those of us who have genuine concerns about the elimination of the deductibility of business interest expense,” OBA President Roger Beverage said. “Even a partial limitation is problematic for smaller businesses, and the outline suggests that limiting this deduction in some fashion will be included.

“The Speaker has come up with this idea, because he believes the business tax system itself should be converted to one that’s based on ‘equity’ rather than ‘debt.’ Our position so far has been that this change will harm smaller businesses because of the limits they face in going to the equity markets to raise capital. Larger firms don’t face that issue and, thus, small businesses would end up on the short end of the stick. That’s not a good result.”

The proposal apparently will be drafted in a manner that will protect the research and development and low-income housing tax credits.  It also includes a one-time repatriation of previously untaxed corporate earnings.  Reportedly these earnings are a part of some $3 trillion that’s being held outside of the United States by U.S. companies. 

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Agencies issue regulatory capital simplification proposal

Wednesday, the federal banking agencies issued a proposed rule intended to simplify the complex Basel III regulatory capital calculations for all but the nation’s very largest banks. According to the ABA, the proposal would simplify the treatment of assets subject to common equity tier 1 capital threshold deductions and limitations on minority interest and replace the definition of high-volatility commercial real estate exposures with a more straightforward measure.

Not all regulatory officials are in favor of this proposal, however.  Most notable among those who have reservations is FDIC Vice Chairman Tom Hoenig.

“I find that (this proposal) is neither simpler nor less burdensome than the current rule,” he said in a statement released following the announcement. “It is just different. Different, but it still remains overly complicated and burdensome offering mostly technical adjustments. It falls well short of achieving the kind of simplification that would provide truly meaningful benefit to the industry, investors, and the public. Unfortunately, the proposed changes will only perpetuate the disparate capital benefits across banks of different sizes and provide only minimal regulatory reporting relief.”

Click here to read Hoenig’s full statement: 

The ABA said the “proposed rule would replace the complex definition of HVCRE exposure – which has caused numerous headaches for bankers in recent years – with a definition for high-volatility acquisition, development or construction loans, or HVADC, to apply to credit facilities that primarily finance or refinance ADC activities. The new rules dictate that such loans would receive a 130-percent risk weight, unlike the 150-percent risk weight for HVCRE.  

“ … the proposal would eliminate the current complex calculation for minority interest that can be included in regulatory capital. Includable minority interest would be able to account for up to 10 percent of the parent banking organization’s CET1, tier 1 and total capital elements.”

According to ABA’s President and CEO, Rob Nichols, the “proposed provisions affecting commercial real estate will require careful evaluation to ensure they achieve the goal of encouraging business lending – especially to small businesses.”

Comments on the proposal are due 60 days after it is published in the Federal Register.

Click here to read the proposal.

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ABA, trade groups file suit over CFPB arbitration rule

Friday, the American Bankers Association joined in a lawsuit filed by the U.S. Chamber of Commerce and a number of other national and regional trade associations to block the Consumer Financial Protection Bureau’s arbitration rule from taking effect.

The groups challenged the rule on several grounds: that the bureau itself is unconstitutional (a claim currently being appealed), that the CFPB violated the Administrative Procedures Act in its rulemaking and that the Bureau violated the Dodd-Frank Act by precluding use of a consumer-benefiting dispute mechanism.

“For years, our organizations have tried to work with the CFPB to promote strong consumer protection while maintaining a functional arbitration system,” the plaintiffs said in a joint statement. “Unfortunately, the CFPB chose to instead finalize a rule that will harm consumers and businesses by effectively banning arbitration and increasing speculative class action litigation. As Congress continues to consider action within its purview, we are filing this challenge to ensure all legal remedies are utilized to preserve arbitration for consumers.”

By ignoring the results of its own study, which showed that consumers who prevail in disputes under arbitration win 166 times the award that successful class action plaintiffs do, the bureau acted arbitrarily and capriciously in violation of the APA, the lawsuit said. More evidence has emerged to demonstrate the harm to consumers under the rule, which virtually bans mandatory arbitration agreements in contracts for financial products and service. Last week, for example, results of an OCC study showed that the rule may raise the cost of credit by as much as 25 percent.

Thanks to the ABA for providing us with the release noted above.

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OBA education corner …

Fall has arrived and the weather is cooperating with that fact … to a degree. Well, as well as Oklahoma weather can ever cooperate! One thing that is always cooperative, at least with your personal calendar, is OBA education as there’s a seminar, webinar or school always coming up in the near future. Take note of the following:

  • Legal Liabilities When Check Fraud Occurs, Oct. 10, webinar — Learn best practices for spotting and stopping fraud losses.
  • TRID Review and Update, Oct. 11, webinar — This program is designed for mortgage loan department managers, compliance officers, loan officers, auditors and others with responsibilities for preparing, delivering or auditing TRID disclosures.
  • Understanding Reg CC and the New Amendments, Oct. 11, webinar — A review of the final amendments to Regulation CC, which will impact fraud loss allocation and backroom check processing operations, set to take effect July 1, 2018.
  • Supervisor Bootcamp, Oct. 11-12, Oklahoma City — Supervisor Boot Camp will help you build essential traits such as leadership, professional maturity and emotional IQ.
  • HMDA: Consumer Applications, Oct. 12, webinar — Attend this session and learn more about application processing for consumer loans under the new rules and gain valuable tips that will help your bank prepare for 2018.
  • Advanced Financial Statement Analysis, Oct. 16, webinar — Attend this proactive seminar and learn a “comprehensive approach” to financial statement analysis.
  • Loan Documentation 101: Basic Secured Loan Doc, Oct. 18, webinar — This is the first of a two-part series.
  • Loan Documentation 101: Lien Perfection, Oct. 19, webinar — This is the second of a two-part series.
  • IRA Basics Seminar and IRA Update/Review Seminar, Oct. 31, Tulsa, Nov. 1, Tulsa, Nov. 2, Oklahoma City and Nov. 3, Oklahoma City — There are so many pieces to building the IRA foundation of knowledge that it takes a lot of nuts and bolts and “brain-power” to hold it all together. Just when you finally grasp it, they change the rules again! The goal of these two days at each location is to raise your comfort level if you are a rookie and to reinforce your knowledge if you have a higher level of experience.

Additionally, Esther George, president of the Federal Reserve Bank in Kansas City, will be giving a speech on “The U.S. Economy and Monetary Policy” on Oct. 17 at the Sam Noble Museum on the University of Oklahoma campus. This event is free to attend, although seating is limited. For more information and to register online, please visit price.ou.edu/obacfs by Oct. 11, or contact Melissa Bishop at (405) 325-5591 or mbishop@ou.edu.

Finally, insights about trends and expectations regarding agriculture and rural economies will be the focus of the Rural Economic Outlook Conference taking place Oct. 20 on Oklahoma State University’s Stillwater campus. Click here for more information and to register online.