In This Issue…
• Sandy’s salutations
• Could your bank take brief survey on armed guards/bank entrances?
• CRA comments still needed
• SBA proposes to eliminate poultry loans?
• Oklahoma Bankers Hall of Fame ceremony set for Dec. 4
• OBA education corner …
By Sandy Werner
The Federal Reserve Board of Governors is seeking public input on what actions the Federal Reserve should take to facilitate real-time inter-bank settlement of faster payments.
The “big” banks are already utilizing this settlement system (RTP). What’s clear to me is the move toward real-time is going to happen. To remain competitive, community banks will have to have this capability. It is my opinion the Federal Reserve needs to be a payment operator to level the playing field for community banks.
The time is now, and I encourage you to respond to the Federal Reserve via email at firstname.lastname@example.org, and include docket number OP-1625 in the subject line, or fax your comments to (202) 452-3819, or mail your comments to Ann Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W. Washington, DC 20551.
Together, we are the OBA!
Could your bank take brief survey on armed guards/bank entrances?
We’re wanting to get information on banks’ usage of armed guards and the number of entrances at each bank branch. If each bank CEO could fill out this VERY brief survey (three total questions) for each of their locations based in an area with less than 100,000 in total population, we’d appreciate it.
Please, only one response per bank location, please!
CRA comments still needed
As we’ve noted in earlier editions of the “Update,” the Comptroller of the Currency has issued an Advance Notice of Proposed Rulemaking asking for banks to comment on the best ways to modernize the Community Reinvestment Act and the regulatory framework pursuant to which it has been implemented. The ABA has put together the following outline for banks to use as they prepare their comment letter.
All federal banking regulators are involved in this modernization effort, not just the OCC. As such, it’s important to make sure your comment letter goes to your bank’s primary federal regulatory agency.
- Remember that it’s not necessary to comment on each of the 31 questions contained in the ANPR. We encourage you to select 1 or 2 of the issues that are particularly important and relevant to your bank.
- Provide 1 or more specific examples of the CRA challenges your bank has encountered.
- Remember to tell your bank’s story, simply and clearly. It doesn’t have to be done in “legalese.”
- Simple and direct language is preferred.
- Specific illustrations make comment letters effective.
- If you have a recommendation for improving the regulatory and supervisory framework, tell them what they are.
- All ideas – large and small – should be on the table.
Comments due: Monday, Nov. 19.
- Go to www.regulations.gov.
- Enter ‘‘Docket ID OCC–2018–0008’’ in the Search box and click ‘‘Search.’’
- Click on ‘‘Comment Now’’ to submit public comments.
- Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments.
- Send the OBA a copy of your letter to email@example.com.
Here are some of the basics of what we’re asking of you in terms of providing comments about this proposed revision to the CRA rules and how it’s being enforced:
Draft a comment letter that follows the CRA-related issues important to your bank.
Legislative and Regulatory Activities Division
Office of the Comptroller of the Currency
400 7th Street SW, Suite 3E–218
Washington, DC 20219
Re: Reforming the Community Reinvestment Act Regulatory Framework
Docket ID OCC–2018–0008
Dear Madam or Sir:
Thank you for this opportunity to offer suggestions to improve the CRA’s regulatory framework.
[Now – tell them about your bank, short and sweet:]
1. History, assets, location(s), population of those communities, number of employees at your bank, its basic business model, primary regulator.
2. A list of CRA problems bankers across the country have identified is listed below. Pick one or more items from this list and use specific examples from your bank’s experience to describe how these problems occur in practice.
• Existing CRA Tests. Banks must meet each of the CRA tests. This practice artificially dictates how banks invest in their communities. “For example, . . .”
• Unspecified Expectations. Regulators have adopted “unofficial” CRA goals (e.g., CRA activities should total a certain percentage of assets or Tier 1 capital). [Do your examiners seem to have CRA goals that are not shared with the institutions they supervise? Describe.]
• Strategic Plans. Regulators have discouraged some community banks from submitting strategic plans because that option was intended for larger or non-traditional institutions. All banks could benefit from the certainty that strategic plans can provide.
• What Counts. It’s unclear which activities count for CRA credit. “For example, . . .”
• Assessment Areas. Tying Assessment Areas to branches is outdated. Branches are one means by which banks generate deposits, but they are no longer the only means. [Describe an experience you have endured.]
• Peer Comparison. Many banks are being compared to institutions that are not really “peers.” The process used must to be consistent in asset size, business models, and products offered to provide an accurate and meaningful peer comparison. [Has this happened to your bank? “For example, . . .”]
• CRA Ratings. There must be a consistent and transparent process of assigning CRA ratings. What is considered “Excellent, Good, Adequate, or Poor” is much too subjective and often depends on which examiner conducts the exam.
• Anything else your bank has identified or experienced?
These are just some of the ideas you can review and consider the extent to which, if at all, they apply to your bank. Please go to our website for a quick review of other areas to consider in finalizing your comment letter.
Here are some of the areas to think about:
CRA Performance Standards
- Performance Criteria.
- Creation of a CRA Metric. A metric-based performance measurement system containing thresholds or ranges (benchmarks) that correspond to the four statutory CRA rating categories. The current approach, for example, artificially forces banks to engage in certain activities. Out of Assessment Area Activity. Community Impact. How would a metrics-based approach take community impact into account? Low-dollar/high-value activities can have a significant impact on a bank’s community, but they wouldn’t move the needle on a metric. Capital. Capital will vary by bank, business model. Also, every bank has a different capital structure. It is bad policy to increase regulatory compliance burden on highly capitalized banks.
- The concept is too rigid and outdated. In addition, as the CRA modernization process moves forward, it is critical that regulators contemplate how any revisions to the Assessment Area framework will impact the potential creation of a CRA ratio.
- The Changing Role of Branches.
- Branches will continue to be a channel, but not the only or primary channel through which customers conduct banking business. “For example, . . .”
- Potential Options/Approaches.
- Weight Assessment Area Activities. Use the existing Assessment Area construct and give banks credit for all CRA loans and investments nationwide, but provide a CRA multiplier to activities in the bank’s Assessment Area.
- The Internet. This approach alone will not update the Assessment Area concept to address internet banks and traditional banks that are moving toward a fintech-like model.
- Depositor Location. Base Assessment Areas on where depositors are located. (Look at deposit units, not dollar amounts.)
- Transparency. Would provide transparency regarding where deposits are located and where banks are lending.
- Balances Branches and Online Activity. Could provide a dynamic and long-lasting approach as banking migrates from brick and mortar to digital.
- Combine Assessment Areas. Banks should have the option to combine counties within a state. Separate counties should not have to be standalone Assessment Areas.
- Regulators should provide a list of qualifying activities to enhance clarity about which activities will receive positive CRA consideration. “For example, . . .”
- Community Benefit. Many opportunities to participate in community development initiatives that would benefit a bank’s entire community do not receive community development credit. That is because current regulatory practices only recognize such initiatives if they are “targeted to” LMI individuals or have benefits of revitalizing or stabilizing disaster areas or underserved or distressed middle-income areas. Policymakers should revisit the definitions of community and economic development to recognize bank efforts to fund projects that benefit the entire community, including LMI individuals and neighborhoods. Examples: workforce development; financing the construction of infrastructure and community service establishments, such as hospitals; financial literacy.
- Small Business Lending. The $1 million cap excludes many loans to small businesses in high-cost areas from being counted as a CRA loan. This amount needs to be increased.
- Small Farms. The threshold limit for a small farm needs to be increased. Farm loans in many areas exceed the $500,000 threshold.
- And others.
Examiners have inconsistent expectations regarding documentation standards. In addition, these unofficial standards are ever-changing. “For example, . . .” [What’s happened in your bank.?].
Any list of “pre-approved” CRA activities should provide streamlined documentation standards. Regulators should also provide an optional template for banks to use in documenting their community development activities.
SBA proposes to eliminate poultry loans?
The Small Business Administration has proposed an amendment to their rules that impact poultry loans, and we’re not yet certain whether it would apply to other kinds of agriculture loans covering cattle, swine and turkeys.
The essence of the proposal “Identity of Interest” rule is that if a small producer who applies for an SBA loan to fund his or her operation – and receives more than 85 percent of its revenue from another (larger) poultry-related business – the SBA would conclude that the applicant is economically dependent on the other company and, as such, the applicant is “affiliated” with the larger. If that happens, (SBS-financed) poultry would become an ineligible industry for SBA lending purposes.
This issue is flying below the radar both within the ABA and Congress. It’s also barely known outside of the poultry financing arena, and comments are due in late November.
Over the past 20 years or so the SBA’s role in financing small poultry farmers and providing access to capital for these farmers has been significant. If the SBA in essence gets out of this business, the access to this sort of capital will be lost.
“This issue just recently popped up on our radar here at the OBA,” OBA President and CEO Beverage said. “Several of my colleagues in other states are also just becoming aware of this proposed new rule and we are all seeking to raise its visibility with member banks. So please, don’t hesitate to call me or send me an email to discuss what options we have to have SBA reconsider the new rule and its impact on Oklahoma banks.”
If your bank is involved in helping with access to SBA-finance in these kinds of loans, or for other kinds of SBA-related farming loans (for cattle, swine or turkeys, for example) please call or email Roger Beverage (firstname.lastname@example.org; 405-424-5252) and discuss how this new rule may impact your bank’s operation.
Oklahoma Bankers Hall of Fame ceremony set for Dec. 4
The Oklahoma Bankers Hall of Fame will induct its first-ever class on Dec. 4 at the Oklahoma History Center in Oklahoma City. Shawnee banker Larry Briggs, Altus banker Ken Fergeson and Oklahoma City banker Gene Rainbolt will make up the inaugural class.
If you are interested in attending the event, please RSVP by Nov. 21 to the OBA’s Nancy McKinnis at (405) 424-5252 or email@example.com. The cost for an individual seat is $65 and $500 for a table of eight.
The ceremony will take place from 11:30 a.m. to 1 p.m. at the Oklahoma History Center, which is located at 800 Nazih Zuhdi Dr., in Oklahoma City.
OBA education corner …
Can anyone believe the holidays are just around the corner and there’s only a few weeks left in college football season?! These past few months have just FLOWN by! With that in mind, don’t let continuing education opportunity through the OBA fly by you and your fellow bankers! Take note of the following:
- Controlling the Risks of Power of Attorney Documents, Nov. 13, webinar — This presentation will provide financial institution personnel with best practices to use when dealing with these complex legal documents.
- Customer Identification Programs and Customer Due Diligence Update, Nov. 14, webinar — This program will look line-by-line at the regulation and point out avenues of change to explore in 2016.
- Living Trust Documents, Nov. 15, webinar — This presentation will provide financial institution personnel with best practices to use when dealing with these complex legal documents.
- Outsourced Third Party (Vendor) Management, Nov. 19, webinar — Outsourced Third Party (Vendor) Risk Management is a top priority with the regulators.
- Writing Deposit Operations Procedures, Nov. 27, webinar — This webinar covers Reg D, E, CC and DD. A special look at ODP and everything but loans from the back of the house.
- 2018 Asset/Liability Management Seminar, Nov. 28, Oklahoma City — Learn about handling assets and liability in this informational seminar.