Greetings from Guy
By Guy Sims
Another interesting week in politics, both at the state and national level. At the state capitol, the Republican-led House failed to pass a budget bill on Wednesday and failed to pass a budget bill out of committee on Friday. These two measures were the “brainchild” of Senate Republicans!
The state budget issue was discussed at length at our OBA Board meeting this past week. It was evident from our discussion that some see this impasse as a revenue issue, while others see the impasse as an opportunity to trim waste out of state government. While I lean towards cutting waste, I suspect the right answer is somewhere in between.
On the national level, we witnessed two Republican senators, Jeff Flake (R-Ariz.) and Bob Corker (R-Tenn.), openly criticize President Trump. The president was quick to fire back with his own criticism and “insults” on Twitter.
Once again, I’m not surprised by the president’s response – but I fail to see the wisdom in picking fights with senators from one’s own party, as evidenced by both the ObamaCare repeal votes!
We continue to hear positive rumors the Senate Banking Committee is close to finalizing a bipartisan regulatory reform bill. Few details have leaked out as to what is actually in the bill, other than most of the reform will be in the consumer mortgage lending area. It also appears the systemically important financial institution threshold of $50 billion is going to be changed in some manner, probably along the lines of a formula rather than a hard-dollar cap.
Meanwhile, the House of Representatives passed a budget this past week, which clears the way for the tax reform debate. The tax reform bill is to be revealed Wednesday and we should see more details at that time.
As previously discussed, we need to watch this process closely, as the “devil” is in the details. There are many issues that could significantly impact the community banking industry.
Hope everyone has a great week!
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) announced this afternoon he will retire at the end of his current term.
“Today, I am announcing that I will not seek reelection to the U.S. Congress in 2018,” Hensarling said. “Although service in Congress remains the greatest privilege of my life, I never intended to make it a lifetime commitment, and I have already stayed far longer than I had originally planned.”
The news didn’t come as a total shock to those following Capitol Hill.
“I’m really not all that surprised,” OBA President and CEO Roger Beverage said. “Chairman Hensarling is term-limited in his role as chairman of the House Financial Services Committee. After his term ends, it wasn’t clear what position or committee, if any, he was going to try to lead.
“It was already a very strong possibility that (Oklahoma Congressman) Frank (Lucas) was going to make a run at the chairmanship, which would be terrific in several ways. I’m very encouraged and believe he will be a very strong candidate. Congressman Lucas is much easier to get along with than the current chairman.
“Rep. Hensarling is exceptionally bright and talented; he’s just a little difficult to talk to or to make a pitch to on a particular idea that wasn’t his to begin with. Nevertheless, he has worked very hard to advance his beliefs and his vision of what banking should look like going forward.”
Wednesday, the House Ways and Means Committee is scheduled to release a draft of its plan for tax reform, and today there are many rumors floating about regarding its contents.
“We had our monthly legislative conference call on Monday,” OBA President and CEO Roger Beverage said. “All state associations call in for an update from the ABA at least once a month. At this point, no one is certain what the final draft will include or exclude, but there are some key issues that may impact bankers.
“First and foremost, a reduction in corporate tax rates is virtually assured. The question is what will the final rate be, and how will that impact pass-throughs, like Subchapter ‘S’ banks. The 20 percent corporate rate is thought to be in the initial draft, and the pass-through rate is thought to be 25 percent. Whether either number is accurate or will remain there is anyone’s guess.”
Beverage noted the bill will apparently exceed 1,000 pages and, if the rumors are correct, banks as an industry will fare moderately well according to the Washington lobbyists with whom the OBA works.
“ABA President Rob Nichols is set to meet with Ways and Means Chairman Kevin Brady (R-Texas) sometime today to talk about some of the issues that will impact bank customers and banks in a negative way,” Beverage said. “One of our biggest concerns is the ability of bank customers to be allowed to deduct the interest expense on a business loan, as an ordinary and necessary cost of doing business. If that change is finalized, it will put smaller companies and those consumers who run them in a very negative position.
“It’s part of the speaker’s agenda for changing the way business works today from one that’s based on debt, rather than equity. That’s not an insignificant change, especially for smaller businesses. The fact is they don’t have the access to equity markets the same way larger companies do. There may be some other off-setting benefits I’m not thinking of that will make up for this change, but this shift is a very fundamental one.”
Beverage said the Committee has a very aggressive timetable with a markup expected for next week and a vote on the House floor the following week. The intent is to get it through the Senate and on the president’s desk by Christmas, if not by Thanksgiving.
Meanwhile, regulatory reform for community banks is still being held under wraps, based on the latest check with the ABA and the ICBA, according to OBA President Roger Beverage.
“Sen. (Sherrod) Brown (D-Ohio) told us about three weeks ago that a compromise will be coming soon, probably in about three weeks,” Beverage said. “Well, it’s been three weeks, so we anticipate something will be forthcoming soon, perhaps even this week.
“My colleague in Virginia and several key (Virginia) bankers are meeting this week with Sens. Mark Warner and Tim Kane. “Warner is on the (Senate Banking) Committee and Kane still carries some clout with Senate Democrats If those two can support Sen. Brown’s proposed compromise, it should help derail opposition that’s likely to come from Sen. Warren.”
Beverage noted the proposal may include a provision that changes the Systemically Important Financial Institution classification. Currently it includes all banks greater than $50 billion in total assets. To read more about this proposed change, click here.
The proposal that’s been floated by the White House is to create a formula that analyzes individual banks based on how they are structured and what they do. This approach is a better one than simply increasing the current $50 billion ceiling to some other artificial number.
“My concern is Senate Democrats who don’t understand community banks will grudgingly agree to a SIFI change, but will then take the position that such a change is the sum of ‘bank reform.’ To get more will take 60 votes,” Beverage said. “Democrats are incensed that the CFPB’s rule on arbitration was reversed by a 51-50 vote, and that may also come into play here.
“I think we have a good case to make, and I think we’ve made it emphatically to both Republicans and Democrats. The consensus is that the package will not be very big, and amendments are not likely to be approved or entertained in the committee or on the floor.”
There are several additional individual bills ready for consideration by the full House yet this year, but the real action to get something passed into law is going to be in the Senate Banking Committee.
Here’s an update of some statistics on credit unions in Oklahoma we encourage you to share with your senators and your representative, courtesy of the American Bankers Association:
- In 2016, OBA-member banks paid $187,456,000 in taxes. Credit unions paid $0.
- Tinker Federal Credit Union – recently named the best “bank” in Oklahoma by Time and Money magazines – would have paid $7.6 million in taxes during 2016.
- Speaking of Tinker, the state’s largest credit union has $3.6 billion in total assets, which is larger than 98 percent of all tax-paying banks headquartered in Oklahoma – 98 percent!
- Oklahoma credit unions leverage their tax exemption so they can grow deposits. The annualized growth for the 10 years from 2008-2016 shows annualized credit union growth in deposits at 7.98 percent, compared to banks at 4.63 percent.
- Oklahoma Employees Credit Union (with a new location in Edmond and another in north Oklahoma City) has aggressively expanded its member business lending activities at an annual rate of 41 percent over the past eight years.
- TTCU – formerly Tulsa Teachers Federal Credit Union – is the second largest Oklahoma-headquartered depository institution in its market, behind Bank of Oklahoma, but slightly ahead of RCB Bank, BancFirst, and American Heritage Bank.
Oh, and yes – only six percent of mortgages originated by Oklahoma credit unions were made to low- and moderate-income borrowers, while seventy-seven percent were made to middle- and upper-income Oklahomans. Forty-nine HMDA-reporting credit unions did not make a single loan to a low-income Oklahoman. Twenty-six credit unions in Oklahoma only originated mortgages to upper-income individuals.
The past couple weeks in the OBA Update, we’ve asked if your bank was open or closed in observance of Veterans Day on Nov. 11 and/or Nov. 12.
Regarding Friday, Nov. 10, only one bank of those who responded indicated it would be closed.
On Saturday, Nov. 11, more than 88 percent of the respondents indicated they would be closed.
Thanks for your help with these quick surveys!
November’s here, which means we’re in the final sprint toward the holiday season. Before you start focusing on that holiday time off, think about taking in a seminar or webinar from the OBA. Take note of the following:
- Information Security Program Basics: Create and Build Your Program, Nov. 7, webinar — Explore the fundamental building blocks of a repeatable framework for cybersecurity and information security issues.
- Lending 101, Nov. 7, webinar — Explore the fundamental building blocks of a repeatable framework for cybersecurity and information security issues.
- Violence In Your Workplace: Prevention and Response, Nov. 8, webinar — In this presentation, we will analyze recent cases to identify unheeded warnings, and then identify physical security measures and procedures that either were not in place or were ignored.
- Employment Record Retention, Nov. 9, webinar — This program provides information on what records you should keep, for how long, the issues of record creation, storage and the DON’Ts which create major liabilities.
- Loan Participations for Community Banks: Risks & Rewards, Nov. 9, webinar — Gain a thorough understanding of Participation Agreements.
- 7 Habits of Highly Successful Supervisors, Nov. 13, webinar — If you need others to take direction from you to succeed, you will find this program of tremendous value!
- Flood Insurance: Compliance Issues and Enforcement, Nov. 14, webinar — We’ll concentrate on some of the more vexing issues in flood compliance by explaining best practices in keeping your portfolio covered.
- HMDA 2018 Challenges With Taking Applications, Nov. 14, webinar — Attend this session and learn more about application processing for commercial loans under the new rules and gain valuable tips that will help your bank prepare for 2018.
- The UCC for Lenders, Nov. 15, webinar — This program is a comprehensive Uniform Commercial Code secured lending program for persons new to banking and is also recommended as a refresher.
- Controlling the Risks of Power of Attorney Documents, Nov. 16, webinar — This two-hour presentation will provide financial institution personnel with best practices to use when dealing with these complex legal documents.
- Commercial and Industrial Lending, Nov. 17, webinar — This seminar will begin with a brief overview of Commercial and Industrial (C&I) loan products including working capital lines of credit, ABL facilities and equipment financing (loans/leases) and their typical structure.
Also, the dates and locations for the 2018 Senior Management Conference and the 2018 OBA Convention have been set. The 2018 SMC will take place on April 8-10 at the Four Seasons Resort in Las Vegas. The convention will be held on May 21-23 at the Hard Rock in Tulsa. More details will be coming soon!