In This Issue…
• Greetings from Guy
• Powell’s nomination recommended to the full Senate
• Poll: Majority of voters support taxing credit unions
• Just in: The Senate Banking Committee just voted to advance S. 2155 to the full Senate
• Senate votes to approve major tax reform
• OBA soliciting CD bids
• OBA education corner …
Greetings from Guy
By Guy Sims
While the tax reform debate dominated the media this past week there were some positive developments for the community banking industry.
The change in leadership of the regulatory agencies continues with the swearing in of Joseph Otting as Comptroller of the Currency. I like the fact that Mr. Otting is a banker and not a bureaucrat. At his confirmation hearing he discussed his desire to ease regulations on community banks. In addition, 43 Democrat Senators voted against his confirmation. All of the above are positive signs in my view!
The appointment of Mick Mulvaney as interim Director of the CFPB has been both entertaining and refreshing. I like the fact that he immediately put a 30-day freeze on any new regulations.
If you read some of Mr. Mulvaney’s past statements it is obvious he is not a big fan of CFPB and its regulatory role. In addition, Sen. Elizabeth Warren was very vocal against this appointment. Again, both facts are positive signs for the community banking industry.
In addition, Jelena McWilliams has been nominated to serve as the next FDIC chairman. She previously served as senior counsel for Sen. Shelby when he was chairman of the Banking Committee. Jelena should be well aware of community bankers’ concerns.
Ever since the election, State Banking Commissioner Mick Thompson has said repeatedly that the appointments to head the regulatory agencies would be crucial for getting meaningful regulatory reform. Based on the appointments to date, I’m hopeful we will see some positive reforms from our regulators in the not too distant future.
Earlier this morning the Senate Banking Committee voted 23 – 1 to approve Federal Reserve Governor Jerome Powell’s nomination by the President to chair the Fed’s Board of Governors. If approved by the full Senate, Powell will replace the current Fed Chairman, Janet Yellin.
Sen. Elizabeth Warren (D-Mass.) was the lone dissenting vote against Powell’s nomination. That and her opposition to S. 2155, the regulatory relief act intended for community banks, makes one wonder, what’s really going on with the Senator?
S. 2155 is the only legislation intended to provide meaningful regulatory relief for community banks we’ve been able to get to through the committee hearing process in seven years. We understand her opposition to be based on the sections that deal with changes to the Systemically Important Financial Institution (SIFI) formula, specifically as those changes relate to increasing the SIFI threshold from $50 billion to $250 billion by the end of next year. Those proposed changes are of no threat to community banks, in spite of her contentions to the contrary.
According to a recent poll by Morning Consult conducted on behalf of the American Bankers Association, U.S. voters are overwhelmingly unaware that credit unions pay no federal income taxes. When these voters are told that fact, more than half would support a tax reform plan that eliminates the credit union tax exemption to limit deficit increases. The federal tax subsidy to credit unions with more than $1 billion in assets amounts to $27 billion over 10 years.
According to the national poll, 51 percent of voters said they would support eliminating the credit union tax exemption if it helped minimize the impact of tax reform on the deficit. Fifty-six percent of voters agreed that it is inappropriate for credit unions to use their tax exemption to buy multimillion-dollar sports sponsorships, such as the Golden 1 Credit Union Center, where the NBA’s Sacramento Kings play, and the San Diego County Credit Union Holiday Bowl.
Just in: The Senate Banking Committee just voted to advance S. 2155 to the full Senate for consideration. It was a bi-partisan vote of 16-7.
Please watch for more information tomorrow about next steps. It’s advance indicates we may get regulatory relief yet this year!
The Senate Banking Committee is currently considering amendments to a compromise measure intended to provide regulatory relief primarily for community banks. It contains a number of concepts of importance to OBA-member banks, including:
- Banks and other lenders with less than $10 billion in total assets to get back into the mortgage business. Under this section, any mortgage loan originated and retained by a bank will be considered as a “Qualified Mortgage” under the Truth in Lending Act. What that does is eliminate both the legal and regulatory risk associated with making non-QM loans.
- Modifying mortgage escrow requirements for many banks that are less than $10 billion and make only a handful of residential mortgage loans.
- Banks are exempt from appraisal requirements on real property located in rural areas.
- Banks of $5 billion or less in total assets qualify for an expanded utilization of short-form call reports.
- Basel III capital standards are set aside for banks of $10 billion or less in total assets by establishing a leverage ratio of tangible equity to average consolidated assets of not less than 8 percent and not more than 10 percent.
- The threshold for designation as a Significantly Important Financial Institution (SIFI) is increased to (ultimately) $250 billion in total consolidated assets.
Committee Chairman Mike Crapo (R-Idaho) made the following statement in support of the legislation:
“The bill we are marking up today, the Economic Growth, Regulatory Relief and Consumer Protection Act, is the outgrowth of the feedback and input garnered from this process, previous Congressional hearings, and discussions and input from members of this committee.
“I thank each member of this committee for their interest and involvement in the many discussions, hearings and personal conversations to help improve this bill.
“For community banks and credit unions, we: extend QM safe harbor status to loans held in portfolio by small lenders; provide substantial relief from HMDA reporting requirements; simplify the capital regime for highly-capitalized community banks; and exempt banks with less than $10 billion in total assets from the Volcker rule.
“For mid-size and regional banks, we: tailor regulations and prudential standards of banking organizations by changing the $50 billion SIFI threshold. Banks with less than $100 billion in assets, who do not pose the same risks as globally systemic banks, are exempt from enhanced prudential standards. Banks between $100 and $250 billion are presumed exempt 18 months after enactment, but the Federal Reserve retains authority to apply enhanced prudential standards if appropriate. In addition, the Fed will still be required to conduct periodic supervisory stress tests of such banks.
. . .
“Financial regulation should promote safety and soundness while enabling a vibrant and growing economy.
“The bill we are marking up today is the product of a thorough, robust process, and honest, bipartisan negotiations.
“All of the sponsors (including 9 Democrats and 1 Independent) have worked in good faith to include provisions from those who have offered them, including those who do not support the bill. And we will continue to do so after this markup.
“The reforms in this bipartisan bill help tailor the current regulatory landscape, while ensuring safety and soundness and relieving the burden on American businesses that are unfairly being treated like the largest companies in our economy.”
Late Dec. 1 (or early Dec. 2), the U.S. Senate passed its version of major tax relief. Banks and their customers will see some significant changes, most notably a reduction in the top tax rate for corporations from 35 percent to 20 percent.
“Some have challenged the idea that this particular bill is a good thing,” OBA President Roger Beverage said. “I think the jury is still out, particularly on some of the concerns we had going into the process – deductibility of net interest expense, pass-through rates for Sub S corporations, LLCs and so forth, and the failure to repeal the tax exemption for the nation’s largest credit unions (those in excess of $1 billion).”
The ABA’s response was somewhat more positive:
“The Senate vote moves the nation another major step closer to enacting the most significant tax changes in a generation,” ABA President and CEO Rob Nichols said. “We particularly appreciate the provisions in this bill and the House legislation that lower business tax rates. Those changes will boost the economy and benefit all Americans.”
The final bill sets the tax rate for C-corporations at 20 percent, although this is not effective until 2019.
As best we can tell, pass-through entities will see an effective top tax rate of 29.6 percent. The House version was much worse for these entities. The way the Senate version is intended to work treats Sub S/LLC organizations differently than the House version, and does so in a positive way.
According to the ABA, the changes significantly improve the treatment of S-corps and other pass-through entities in the initial bill. ABA, ICBA and other financial industry lobbying firms took the lead in getting the original provisions clarified during the negotiations leading up to the Senate’s compromise.
“We appreciate that senators were willing to address the treatment of pass-through businesses in the legislation,” Nichols said. “Lowering the rate for these small businesses, including many community banks, will benefit the economy.”
Late in the process numerous concerns were raised about a proposed change dealing with mortgage servicing rights. The OBA was extensively involved in discussing proposed language changes with Sens. Lankford and Inhofe and helped clarify why those changes were necessary.
“Of course we’re disappointed the Senate didn’t have the courage to do the right thing and make it clear that large, bank-like credit unions have far outgrown the justification for their tax exemption,” Beverage said. “An effort was made in the Senate Finance Committee, but incumbent Republicans rejected it because of political concerns about the blowback they would receive for election purposes. It’s a myth. It’s an excuse, but more importantly taxing large credit unions is the right thing to do.”
The OBA will be purchasing several Certificates of Deposit for investment soon. All interested banks are encouraged to complete our bid form.
The due date is soon, but we hope to give all our banks a chance to make a bid, if they’re interested.
You can download the bid form by CD Bid Form 12-2017.
The holidays are fast approaching but don’t forget to plan ahead for continuing education, courtesy of the OBA through our seminars, schools and webinars. Take note of the following:
- Commercial Real Estate Lending, Dec. 11, webinar — Learn to assess the important qualitative or non-financial factors that influence CRE performance over time.
- Notary Public, Dec. 12, webinar — Notaries and others will learn best practices for dealing with issues unique to the financial industry.
- Excel Explained: Introduction to Spreadsheets, Dec. 12, webinar — Learn the basics of Excel spreadsheets, getting the knowledge needed to create functional spreadsheets and manipulate large lists of data.
- RESPA Section 8 Violations, Dec. 13, webinar — This program reviews the RESPA/Regulation X rules that prohibit unearned fees and kickbacks and many of the recent consent decrees brokered by the CFPB.
- E-Sign Compliance, Dec. 13, webinar — What steps must be followed to be in compliance with E-Sign?
- EFT, Dec. 14, webinar — Dissecting the Regulation E, VISA and MasterCard error resolution requirements.
- Onboarding Your New Hire, Dec. 18, webinar — This dynamic program will help raise the bar when it comes to engaging and training new employees from the start.
- Writing Business Account Procedures – New CDD Rules, Dec. 19, webinar — Learn from A to Z the best practices for opening business accounts, documenting the authority and changing signers in the new regulatory environment.
- FATCA and Tax Reporting, Dec. 19, webinar — During this program we will do a line-by-line review of the new forms and the subsequent tax reporting to the IRS.
- 2018 Intermediate School, Session I: Feb. 5-9; Session II: June 4-8, Oklahoma City — The school provides excellent training for bank leadership and management development. This school offers an intense curriculum that exposes participants to the overall banking functions.
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!