MIB Policy Resolutions for 2016-2017

The following constitutes the resolutions of the Montana Independent Bankers Association (MIB), which such resolutions broadly describe the Association’s major policy objectives for the 2016-2017 time period.

REVISION OF STATE OF MONTANA BANKING CODES

  • MIB supports the Department of Financial Institution and their project to update the codes that govern Montana financial institutions.
  • It is important, financial institutions that are regulated by the State of Montana continue to have a voice in the development of the new codes.

RELIEF FROM CRUSHING REGULATORY BURDEN

  • Both the State and National legislatures need to provide meaningful regulatory relief for community banks so that they may meet the credit needs of their customers, serve their communities, and contribute to their local economies.
  • Legislatures and Congress need to expand and refine a tiered regulatory and supervisory system that recognizes the significant differences between community banks and large, complex institutions.

MORTGAGE LENDING REFORM

  • Efforts to protect consumers from abusive lending practices should not prohibit responsible, though unconventional, loan products created to meet the diverse needs of consumers, including lower-income borrowers, borrowers in rural and underserved communities, and first-time homebuyers.
  • All loans originated and held in portfolio by community banks should receive “qualified mortgage” (QM) safe harbor status under the “ability-to-repay” rules.  Community banks should not be subject to mandatory escrow requirements regardless of where the property is located or the pricing of the loan.
  • The CFPB needs to address servicing issues such as the prohibition on initiating foreclosure actions on uncooperative borrowers for loans that are perpetually 90 days delinquent.

CONSUMER FINANCIAL PROTECTION BUREAU

  • Regulations promulgated by the CFPB must provide community banks the flexibility to meet the unique needs of their customers by exempting or tiered regulatory requirements.
  • All firms that offer credit or offer financial products and services should be subject to meaningful supervision and examination, as community banks have long been.

DATA SECURITY AND FRAUD

  • Legislative bodies should be aware of core data security principles with other policy makers and payment card networks.   These core principles include:
    • Costs: The costs of data breaches should be borne by the party that incurs the breach.
    • Data Security Standards: All participants in the payments system, including merchants, should be subject to Gramm-Leach-Bliley Act-like data security standards.
    • Notification Standards: A national data security breach and notification standard should be implemented.
    • Innovation: Banks and card networks must continue to freely innovate in order to effectively protect consumer data and confidence.

CYBERSECURITY

  • MIB supports voluntary information sharing among financial institutions and between federal agencies and community banks for the purpose of identifying, responding to, and mitigating cybersecurity threats and vulnerabilities while appropriately balancing the need to secure customer information.
  • Any legislation in the area of cybersecurity must recognize the existing mandates set forth in current federal and state laws and regulations relating to requiring community banks to protect customer data and maintain a notification plan in the event of a data breach.
  • Any new cybersecurity framework should not burden community banks with another standard.
  • Regulators must recognize community banks’ reliance on third parties and work to ensure community banks are adequately protected.

CURRENT EXPECTED CREDIT LOSS MODEL

  • MIB opposes FASB’s proposal for the implementation of a current expected credit loss (CECL) model for community bank loans and investment securities. It would place costly and undue regulatory burdens on community banks. It would sharply increase reserves, negatively impacting community banks’ ability to support local economic growth through lending.
  • ICBA has proposed an alternative approach for community banks with total assets of $10 billion or less that recognizes credit losses ratably over time based on historical loss experience rather than complex modeling techniques.

FAIR LENDING

  • MIB supports equal access to credit through the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) with -the use of consistent and transparent standards when regulators evaluate a community bank’s fair lending practices.

PAYMENTS SYSTEMS ACCESS AND GOVERNANCE

  • Payment systems should be competitive, progressive, and secure and that offer fair and open access to all community banks so they can meet the existing and evolving global payment needs of their customers.
  • MIB supports industry efforts that encourage greater efficiency and faster payments.
  • Regulations that apply to banks in the areas of privacy, security, and consumer protection should apply equally to non-bank providers.
  • MIB encourages a federal and state regulatory framework for virtual currencies and the virtual wallets, exchange services, and merchant enablers that support these services.   These products must evolve in a way that protects consumer privacy, accommodates bank-centric payments, and allows all financial institutions an equal opportunity to have their cards and accounts at the top of the wallet.
  • MIB supports the Federal Reserve System in its dual role as payment systems provider.
  • MIB supports the important roles private-sector rulemaking organizations – payment card networks, and check and ACH clearing houses – play in developing and maintaining rules supporting fair, open, and efficient access to payment systems.
  • Community banker involvement in payment rulemaking and standards-setting, operations, and governance at the national and state levels.

TAX-EXEMPT CREDIT UNIONS

  • Urge Legislatures and Congress to end the federal tax subsidy of the credit union industry.
  • MIB opposes expanded powers for credit unions, whether pursued by legislation or regulation, particularly the proposal to raise the cap on “member business loans” or otherwise expand commercial lending.
  • ICBA opposes legislation that would allow credit unions to raise supplemental capital, and in effect, cease being exclusively member-owned entities – a condition of their original tax exemption.

TAX ADVANTAGED FARM CREDIT SYSTEM GSE

  • If FCS lenders continue efforts to expand into non-farm lending markets, then Congress needs to abolish the FCS, or restrict the FCS to its historical mission of serving the agricultural marketplace.
  • MIB adamantly opposes the FCS’s expansionist agenda to allow FCS lenders to become the equivalent of commercial banks while retaining their GSE status.
  • The Farm Credit Act (Act) should further define and narrowly target FCS lending activities to refocus on serving bona-fide farmers and ranchers and young, beginning, and small farmers and their farmer-owned cooperatives.
  • Mergers of large FCS entities should be limited to curtail the concentration of financial assets within the System and preserve more localized service.
  • The FCA should require greater transparency of FCS activities.
  • The FCS should be subject to regulations and capital equivalent to those that apply to community banks.

“PAY FORS” TARGETED AT THE BANKING SECTOR

  • Community banks should not be targeted  “pay fors” – taxes, fees, revenue cuts, and tax compliance measures administered by banks – intended to pay for, or offset, the cost of new government spending unrelated to the business of banking.

COMMUNITY BANK ACCESS TO CAPITAL

  • MIB supports legislative and regulatory changes that would improve the ability of community banks to raise capital including allowing S corporation banks to issue preferred stock, increasing their shareholder limits, and allowing new IRA shareholder investments.

TAX POLICY

  • Tax laws should promote robust economic activity and a vibrant community banking sector and foster saving and investment.
  • Tax regulations and reform  need  to protect community banks and secure needed tax relief.
  • The tax-exempt status of interest paid on municipal bonds for all recipients is critical to municipal finance and should be preserved.

ENDING TOO-BIG-TO-FAIL

  • The continued growth and dominance of a small number of too-big-to-fail banks has created an overly concentrated financial system, and systemic risk, and harmed consumers and business borrowers.
  • MIB and ICBA supports legislative and regulatory changes that would curb or end advantages currently enjoyed by too-big-to-fail banks.
  • The U.S. Justice Department must end the double standard with regard to prosecutions.

DEPOSIT INSURANCE

  • Our nation’s federal deposit insurance system is critical to depositor confidence in the banking system, to the protection of small depositors and the funding base of community banks. A strong Deposit Insurance Fund (DIF) is important to maintaining public confidence that the FDIC has adequate resources to protect the nation’s depositors.
  • Banks with assets of less than $10 billion will not be responsible for increasing the DIF reserve ratio from 1.15 percent to 1.35 percent.
  • MIB is concerned about the use of pass-through FDIC deposit insurance in connection with the national distribution of prepaid cards by certain large businesses.

REGULATORY CAPITAL; BASEL III AND THE STANDARDIZED APPROACH

  • Strong capital requirements are needed for all banks.
  • Basel III should be amended to reflect changes to the allowance for loan and lease losses (ALLL) which should be included in additional Tier 1 capital in an amount up to 1.25 percent of risk weighted assets and the remaining balance should be included in Tier 2 capital.
  • Basel III threshold deductions for mortgage servicing assets should be raised from 10 percent of common equity tier 1 capital to 100 percent of tier 1 capital. Mortgage servicing assets that are not deducted, the risk weight should be restored to 100 percent from the overly punitive 250 percent under Basel III.
  • Basel III should be amended to exempt community banks from the harsh provisions of the capital conservation buffer. Subchapter S banks should not be restricted from paying dividends to cover shareholders’ pro-rata tax liability. The buffer also has an adverse impact on mutual banks as well as any bank that relies on retained earnings to build capital.
  • Capital standards should not disadvantage community banks relative to credit unions.

SUPERVISORY ENVIRONMENT

  • MIB is concerned about overly conservative safety and soundness and compliance exams.   Overall, there needs to be a more flexible supervisory approach to community banking.
  • Community banks are concerned that certain restrictions or practices that apply to the largest banks will come down to their level as “best practices

ACCOUNTING AND AUDITING

  • When accounting standards are developed, provisions should be made for smaller financial institutions and businesses so that the cost of implementing the standards does not outweigh their benefit to financial statement users.
  • MIB opposes the FASB’s proposed disclosures regarding liquidity and interest rate risk for community banks.

BANK SECRECY ACT AND ENFORCEMENT

  • MIB strongly urges state and federal regulators to find and timely implement solutions for reducing community banks’ mounting costs and regulatory burdens associated with compliance with anti-money laundering and terrorist financing laws and regulations.
  • MIB strongly supports Treasury’s efforts to develop risk-based examinations for Bank Secrecy Act (BSA) compliance and identify low risk transactions and accounts.
  • MIB through ICBA urges the federal government to better inform bankers of what specific methods of terrorist financing and money laundering they are trying to prevent.
  • Nonbank institutions that offer comparable financial services should be subject to the same anti-money laundering and BSA laws and regulations as banks.

DEPOSIT ACCOUNT AND OVERDRAFT SERVICES

  • MIB supports a legal and regulatory framework for deposit account services, including various overdraft payment services, which allows community banks flexibility to provide a variety of services to meet consumers’ financial needs.
  • MIB supports a consistent legal and regulatory framework for deposit and deposit-alternative accounts, such as prepaid cards, for banks and non-bank providers. Consumers opting for deposit and deposit-alternative products offered by non-banks are entitled to the same transparency and protections as they would receive from banks.
  • MIB opposes any new overdraft legislation, rule or guidance that would:
    • Fail to distinguish between discretionary or ad hoc overdraft payment and automated overdraft payment programs;
    • impose fee restrictions, caps or price controls;
    • mandate a particular order in which community banks post transactions to a consumer’s checking account;
    • dictate unreasonable and burdensome customer contact requirements;
    • impose underwriting requirements and regulate the service as a credit product;
    • or result in unintended consequences such as an increase in the number of returned check and/or ACH debit transactions for consumers.

GSE LENDING: OPERATIONAL CONCERNS

  • MIB through ICBA will engage the Federal Housing Finance Administration (FHFA) and the GSEs regarding overly burdensome policies, including underwriting guidelines, appraisal requirements, and servicing requirements that increase the cost, operational burden, and difficulty of using the GSEs and thereby impact access to credit in rural or small town communities.
  • Key focus items are:
    • Underwriting and property appraisal guidelines and policies should not discriminate against properties and borrowers in rural or small town markets.
    • Mortgage servicing requirements from the GSEs should not conflict with the community bank business model and cost structure.
    • Quality control policies and requirements are overly complex and add considerable cost to the process making it harder for smaller lenders to be able to sell directly to the GSEs.
  • The Federal Housing Finance Agency, the housing GSEs, the Department of Housing and Urban Development, the Federal Housing Administration, and the CFPB should not develop or implement any rule or practice that by design or in effect would limit participation by community banks in the mortgage market or in government programs intended to promote housing.

HOME MORTGAGE DISCLOSURE ACT REFORM

  • Recent revisions to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), will greatly increase the reporting burden for many community banks.
  • MIB strongly supports expanding the exemption for reporting under HMDA by increasing the 25 first-lien mortgage threshold in the revised Regulation C.
  • MIB opposes the expansion of HMDA reporting requirements beyond what is required by statute.
  • MIB through ICBA urges the CFPB to carefully consider consumer privacy as it contemplates the public release of additional data collected under the revised Regulation C.
  • Given the increased reporting requirements, MIB supports greater tolerances for HMDA reporting errors to help community banks with the growing compliance burden.
  • CFPB should closely monitor the marketplace to ensure that implementation issues are resolved and that vendors provide needed software and systems updates needed to comply with HMDA in a timely manner.

OVERTIME PAY REGULATION

  • MIB is concerned that the Department of Labor will adopt final regulations under the Fair Labor Standards Act (FLSA) that would inappropriately expand the number of employees subject to overtime pay.
  • DOL needs to clarify the various FLSA exemptions from overtime pay.
  • Any commissioned employee, including mortgage originators, should be exempted from overtime pay pursuant to the commissioned sales exemption under FLSA.

QUARTERLY CALL REPORT

  • Community banks that are highly rated and well capitalized should be permitted to file abbreviated short-form call reports with only key financial information for the first and third quarters of the calendar year. At mid-year and year-end, these banks would file the full form call report.
  • Recent expanded use of the community bank call report as an information gathering tool for consumer protection regulation damages the effectiveness of the information provided and diminishes the use of the call report as an effective safety and soundness measurement metric.

PATENT REFORM

  • MIB urges Congress to amend current law to provide immediate relief for community banks from “demand letters” sent by patent assertion entities (PAEs) or patent trolls.
  • MIB supports anti-patent troll legislation passed by state legislatures as a means of curbing frivolous claims brought by PAEs. Any federal legislation to address “demand letters” should not preempt state laws.

PAYMENT CARDS

  • Payment cards should be subjected to the same legal and regulatory framework and supervisory oversight as traditional checking accounts.
  • MIB through ICBA strongly opposes efforts that, while theoretically intended to prevent unfair, deceptive or abusive payment card acts or practices, would adversely affect community bank payment card issuers and agents as well as their customers.
  • MIB opposes efforts to extend consumer protection provisions to small business payment cards.
  • MIB supports consumer choice in payment card offerings through enhanced transparency, education and fairness.
  • MIB supports efforts to better improve payment card security by: migrating from magnetic strip technology to chip technology; developing and using tokenization; improving end-to-end encryption; and improving usage of consumer authentication.
  • MIB opposes efforts to have the government set or limit payment card interchange or other fees, mandate interchange fee disclosure to consumers, or create antitrust exemptions allowing merchants to “negotiate” or “operate” in anti-competitive and collusive ways to the detriment of community banks and their customers. Government intervention should not provide one payment card type advantages over other payment card types.
  • A strong payments card operating environment governed primarily by network rules to ensure a well-functioning and balanced payment card system will provide tremendous benefit for community banks, their customers and millions of merchants of all sizes.

TECHNOLOGY

  • MIB supports a legal and regulatory framework, coupled with a supervisory process and operational environment, that allows community banks to deploy technologies without impeding innovation and that permits community banks to fairly compete against other bank and non-bank financial services entities.
  • MIB supports the use of data analytics to help community banks identify and eradicate fraud and provide customers with better, cheaper services.
  • MIB supports a regulatory, oversight and enforcement framework for financial technology (FinTech) firms that mirrors the banking system framework and protects customer funds, information and privacy preferences, while maintaining federally mandated consumer protections.
  • MIB supports initiatives to improve and enhance banking and payments technological infrastructure to meet the expectations of millennials and other customers.

DE NOVO COMMUNITY BANK FORMATION

  • MIB supports a flexible and tailored supervisory policy with regard to de novo banking applicants. Capital standards, exam schedules, and other supervisory requirements should be based on the pro forma risk profile and business plan of the applicant and not on a standard policy that applies to all de novo bank applicants.

DUAL BANKING SYSTEM; REGULATORY CHOICE

  • MIB strongly supports the dual banking system where bank chartering and supervision is divided between the federal government and the states.
  • ICBA strongly supports the independence of each bank supervisor but encourages enhanced and improved cooperation and consultation among the agencies.
  • A new office in the Treasury Department – Assistant Treasury Secretary for Community Financial Institutions – should be created to coordinate federal policy for our nation’s community banks.

HOUSING FINANCE REFORM AND REGULATION OF THE GOVERNMENT SPONSORED ENTERPRISES (GSES)

  • MIB supports housing finance reform which is needed to preserve market liquidity, protect taxpayers, encourage the return of private capital, and ensure a stable national mortgage market for all stakeholders.
  • The Federal Housing Finance Agency (FHFA) must ensure that the GSEs operate in a safe sound manner.
  • Community banks must be able to sell loans on a single loan basis for cash and offer rate-locks at low cost.
  • Secondary market sales must be relatively simple.
  • Appraisal and underwriting guidelines must be flexible enough to accommodate the unique characteristics of these markets.
  • The recent financial crisis demonstrated that some type of government tie to the secondary market is needed to ensure the continued flow of credit

THE FEDERAL HOME LOAN BANK SYSTEM

  • The Federal Home Loan Banks (FHLBs) with its regional structure, must remain a strong, stable, reliable source of funding for community banks.
  • Many community banks rely on the FHLBanks’ mortgage programs for access to the secondary market, this access point should be preserved.
  • The vast majority of community banks are FHLB members and are active advance users or look to them as an alternative source of liquidity. Throughout the financial crisis, the FHLBs continued to provide advances to their members without disruption, while other segments of the capital markets ceased to function.

MINORITY BANKS

  • Legislatures need to support the promotion, creation, preservation and ownership of minority financial institutions consistent with Section 308 of the Financial Institution Reform Recovery Enforcement Act (FIRREA).

MUTUAL AND SAVINGS INSTITUTIONS

  • MIB strongly supports and defends the choice of mutual ownership before all regulatory and legislative bodies. Mutuality is a viable charter alternative that should be accorded parity in all respects with other charter forms.
  • All mutual institutions should be equally represented and accorded parity in all respects with other charter forms. Any proposed new laws or regulations should consider the impact on the mutual bank business model and its viability.
  • A financial institution has the right to choose the type of charter and business model under which it operates whether it is a mutual institution.
  • No regulatory agency should obstruct the right of a financial institution, including a credit union, to convert to a mutual institution charter.
  • MIB supports the authorization of mutual banks to issue Mutual Capital Certificates (MCCs) that would qualify as Tier 1 common equity capital.
  • MIB supports the right of a mutual or savings institution to assert a private right of action under the Savings and Loan Holding Company Act.

ONLINE MARKETPLACE LENDING

  • MIB supports the creation of a regulatory framework for nonbank online lenders that is no less stringent than the framework that applies to community banks with regard to safety and soundness and consumer protection.
  • All online marketplace lenders should be assigned a primary federal regulator as recommended by the Government Accountability Office (GAO).

POSTAL SERVICE BANKING PROPOSAL

  • MIB opposes allowing the U.S. Postal Service to provide financially-related services.
  • The USPS’s financial challenges should restrain, not facilitate, expansion of USPS activities.

PUBLICLY HELD COMMUNITY BANKS AND THE SECURITIES AND EXCHANGE COMMISSION

  • The SEC should use its authority to permanently exempt smaller public companies like community banks from the say-on-pay and the golden parachute requirements of the Dodd-Frank Act.
  • Small publicly held banks and bank holding companies should be exempt from the internal control attestation and audit requirements of Section 404(b) of Sarbanes-Oxley Act as well as some of the reporting requirements of the Securities Exchange Act of 1934.

THE SEPARATION OF BANKING AND COMMERCE

  • ICBA supports the separation of banks and commerce. Allowing corporate conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce.
  • Now that the ILC moratorium in the Dodd-Frank Act has expired, Congress should permanently close the industrial loan corporation (ILC) loophole in order to keep banking and commerce separate.
  • ICBA supports restricting employees of big box retailers who are not supervised or managed by an insured depository institution from opening insured deposit accounts or offering other traditional banking products to customers.

STATE-OWNED OR PUBLIC “PARTNERSHIP” BANKS

  • MIB strongly opposes the establishment of state-owned or public “partnership” banks. Such banks would directly compete with community banks, diverting deposits from local communities.

CFPB SMALL DOLLAR LOAN RULEMAKING

  • Efforts to protect consumers from abusive small dollar lending practices should not prohibit responsible community banks from making small dollar loans to meet the diverse needs of their customers.
  • MIB opposes “one size fits all” regulatory requirements for small dollar lending that would significantly increase community banks’ compliance burden and costs and reduce access to consumer credit.
  • MIB through ICBA strongly encourages the CFPB to distinguish between the responsible lending practices of community banks and other lenders.

THE FARM AND RURAL SAFETY NET

  • Community banks are vital to the financial success of rural America and have historically financed a majority of commercial bank lending in rural areas. These programs support the activities of community banks and their farm, ranch and rural customers.
  • The new bill’s significant enhancements for crop and revenue insurance programs will enhance producers’ risk management strategies and help ensure their ability to repay bank loans.
  • The bill’s removal of term limits on USDA-guaranteed farm operating loans will allow community banks to continue working with borrowers who would not otherwise qualify for commercial credit.
  • ICBA urges Congress to remove volume caps on guaranteed farm loans and rural development (Business & Industry) loans.
  • Placing concentration limits on community bank portfolios of agricultural loans, as some banking regulators have proposed, would needlessly curtail lending relationships with many agricultural customers whose loans represent solid credits.
  • Programs designed to spur rural America’s economic growth should be user-friendly for community banks and their customers.
  • Farmer Mac should continue improving its secondary market for agricultural loans.

FINANCIAL EDUCATION AND AFFORDABLE SMALL-DOLLAR FINANCIAL PRODUCTS FOR UNDERSERVED AND UNBANKED

  • Community banks offer many affordable loan and deposit products and services to their customers.
  • Guidelines developed for loan products and services for underserved and unbanked individuals should be easily understood by bankers and flexible enough to be adaptable to various markets and operations.
  • Increasing financial literacy protects consumers, fosters financial stability and benefits individuals, underserved communities, and our nation as a whole.
  • MIB supports community bank’s development and use of technology to more effectively and efficiently provide access to financial services and education.

SMALL BUSINESS LENDING

  • MIB promotes the Small Business Administration loan programs and federal policies that foster a vibrant small business sector.
  • SBA One must preserve quality loan underwriting and thorough borrower assessment.

COMMUNITY BANKER REPRESENTATION

  • To ensure community bank views are considered by key policy bodies, MIB supports the appointment and election of community bankers to public and private sector boards, advisory groups and task forces that influence the development of regulations and policies affecting the banking industry.

MONTANA INDEPENDENT BANKERS POLITICAL ACTION COMMITTEE (MIBPAC)

  • MIB directors, officers, and employees of all member banks and associate members to contribute to MIBPAC.
  • MIB encourages CEOs, directors, officers and employees to contribute to ICBPAC. All banks that achieve 100 percent PAC participation from their board of directors are eligible for membership in ICBPAC’s Directors Club.

STRENGTHENING MEMBERSHIP

  • Through banker-to-banker recruiting, MIB magazine, and member benefits, MIB is desiring to increase its strong membership base.
  • MIB supports and encourages all community banks to join ICBA, the nation’s voice for community banks, exclusively represents community banks of all sizes and types. ICBA is dedicated to maintaining the highest value membership available to community banks.

INCREASING COMMUNITY BANK COMPETITIVE ADVANTAGE

  • MIB encourages community banks to identify and develop new sources of revenue, control costs, and maintain profitable investments in order to compete effectively and serve their communities.
  • Through the strength of associate members, MIB supports exclusive value-added products and services designed to enhance the competitive position of community banks.

BANK EDUCATION

  • MIB in conjunction with and ICBA provide timely, high-quality and relevant educational programs and services designed to promote community bank growth and prosperity.
  • MIB and ICBA provide timely, high-quality and relevant educational programs and services designed to promote community bank growth and prosperity.
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