Wednesday, April 21, 2010

Community Banks Would Be Crushed By Senate Bill

The Senate bill, S.3217, would subject community banks – which had nothing to do with the financial crisis – to crushing new burdens. These traditional banks are struggling with difficult local economies and with regulatory pressures to write down loans and increase capital. At the same time, they are dealing with an already crushing level of regulatory burdens. To put this burden in perspective, the typical (median-size) bank in this country has 34 employees, and yet banks are now subject to 1,700 pages of regulations and guidelines in the consumer area alone. That is 50 pages of small print for each employee in the typical community bank.

Below are several dozen areas where there would be new or expanded regulations that would stem from the bill in its current form, and many more regulations are likely to follow in the implementation of the bill if it were to be enacted.

Many of these new regulations have nothing to do with solving the problems that led to the crisis, but they do raise the cost for banks and their customers.

See Ed Yingling, ABA's CEO, discussing these points on CNBC's "The Kudlow Report" by clicking the picture below.

New or Expanded Regulations in the Senate Bill:
  • Mandated “risk committee” with staffed risk management expert.
  • Expanded affiliate transactions to include repurchase and derivative transactions, as well as securities borrowing or lending.
  • Expanded lending limit rules on derivatives, repurchase transactions, and securities lending.
  • Lower lending limits for state banks.
  • New insider transaction rules.
  • New capital rules for holding companies.
  • “Source of strength” rules for holding companies.
  • 5% credit risk retainment of any securitized asset.
  • Extensive new information collections about consumer loans.
  • Prohibition of mandatory arbitration clauses.
  • New rules on “unfair, deceptive, or abusive” practices.
  • Expanded disclosures to consumers about risks of transactions.
  • New TILA and RESPA mortgage disclosures.
  • Electronic disclosures about existing customer transactions.
  • Disproportionate penalty for violations of Consumer Financial Protection Bureau rules.
  • More state laws applicable as federal preemption eliminated.
  • Annual detailed disclosures on deposit accounts.
  • Disclosure indentifying women- or minority-owned business loan applications.
  • Prohibition of prepayment penalties.
  • Daily disclosures on remittance transfers available in foreign languages.
  • At least 13 new Home Mortgage Disclosure Act requirements.
  • Mandatory “Say on Pay.”
  • Required independent compensation committees.
  • New compensation and performance disclosures.
  • Claw-back provisions.
  • Rules regarding director elections.
  • Rules regarding compensation plans.

Details of each point are available here and in the "Documents of Interest" column on the right.

As written, the legislation will impose new costs and regulatory burdens on traditional banks that will make it more difficult for them to serve their communities and make more loans. I urge you to send a letter to your Senators to stop this bill from moving forward until a balanced and sensible approach can be crafted.

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