Powerful Community Banks Submit ‘Wish List’ To Congress

By RYAN TRACY. Originally posted on the Wall Street Journal.

Updated Jan. 14, 2015 8:19 p.m. ET

Lately, Washington has been awash in debates over policies that could benefit Wall Street banks. But quietly it’s been smaller, locally focused community banking sector racking up policy wins.

Community bankers backed a preferred candidate nominated to the Federal Reserve Board – and the White House picked him. They joined opposition to a Treasury Department nominee with Wall Street ties – and won again when the nominee withdrew his name from contention earlier this week.

Now, the Independent Community Bankers of America, the sector’s main trade group, is submitting an aggressive wish list to the new Congress. The Wall Street Journal got a look at the document, which was distributed Wednesday to staffers on Capitol Hill. It’s long and broad, containing pent up requests in the years after the 2010 Dodd-Frank law, which affected banks both large and small.

“We’re just not going to take it anymore,” said Paul Merski, executive vice president of congressional relations at the ICBA. “The community banking sector is being strangled by regulation and it’s really crushing the industry.

Regulators dispute that claim, saying community banks have been resilient during and since the financial crisis. And some of the bankers’ policy proposals – like exempting a broad swath of banks from the oversight of the Consumer Financial Protection Bureau – appear unlikely to become law. But it’s worth paying attention to them, given community bankers’ clout and Republican leaders’ promises of regulatory relief. Such proposals could also put pressure on regulators to take their own step to make banks’ lives easier, so as to lessen the chance that Congress will move to restrain the agency’s authority.

Here are some highlights:

  1. Exemptions from bank capital rules.The community bankers propose changing how Basel III, a set of capital rules that international regulators agreed to after the financial crisis, would apply to them, for instance by exempting them from a requirement to build extra buffers of loss-absorbing capital even when the economy is performing well.
  2. Exemptions from parts of Dodd-Frank.The group proposes that any bank with under $50 billion in assets shouldn’t have to apply with the Volcker rule, a central tenet of Dodd-Frank that restricts how banks can trade with their own funds (The rule currently contains exemptions for banks under $10 billion). ICBA also says small banks shouldn’t have to meet certain new criteria for mortgage lending as long as they are holding the mortgages on their own books.
  3. More clout in policy making.Fresh off convincing Congress to require that the Fed board have someone with community bank experience, the ICBA is pushing for more. It asks Congress to create a new Assistant Treasury Secretary for Community Banks to ensure their voice in policy-making decisions. The Treasury usually doesn’t write regulations, but it has influence over the agencies that do because it usually speaks with the backing of the president.
  4. Paring back the influence of the Consumer Financial Protection Bureau.With Republicans expected to scrutinize the new consumer watchdog created under Dodd-Frank, community bankers prioritize three provisions designed to give the CFPB less autonomy and limit its reach: Creating a five-member board to oversee the agency rather than a sole director, giving a separate council of regulators the ability to veto CFPB rules with a simple majority, and exempting all banks with assets under $50 billion examination and enforcement by the CFPB. All three, the latter especially, are certain to be viewed with skepticism by Democrats and consumer groups. Most analysts say the bureau is likely to emerge unscathed — as the CFPB’s creation is one of President Barack Obama’s signature achievements and the White House is likely to veto measures that would curtail its authority.
  5. Changes to the bank examination process.The group proposes giving community banks who have already received good grades from regulators a respite from annual examinations by requiring the exams every two years instead of annually. It would also change some reporting requirements and create a new, independent body to investigate complaints from bankers who say their examiners are overstepping their bounds, for instance by micromanaging business decisions.

Together, the changes are a menu of sorts for Republicans who have expressed interest in a bill that would help the small lenders who have offices in congressional districts across the country.

“Last Congress a number of bills passed the full House [but] they sort of withered on the vine in the Senate,” said Mr. Merski. “There should be more opportunity” this time around.

Alan Zibel and Andrew Ackerman contributed to this article.

ICBA’s Plan for Prosperity can be found herehttp://www.icba.org/files/ICBASites/PDFs/icbaplanforprosperity.pdf