Wall Street Reform Act
Victories, Helpful Exemptions and Harmful Measures for Community Banks
Updated July 15, 2010
Independent Community Bankers of America

Overview
Congressional action inevitable. Given public outrage and the demand for a policy response to the financial crisis and economic collapse, major legislative action from Congress was inevitable. While ICBA never supported or opposed the overall financial reform bill, ICBA worked to focus lawmakers on correcting the abuses of Wall Street and the causes of the financial crisis.

Differentiating community banks. ICBA and its state community bank association allies ensured that lawmakers understood how Main Street banks are different from Wall Street banks. The bill enacts into law a major precedent that financial policies should reflect and accommodate the differences between community banks and large, complex financial institutions. ICBA will continue to advocate for legislation and regulations that build on this vital precedent.

Legislation is not perfect. The bill affects every aspect of our nation’s financial services marketplace. The bill contains many constructive measures that ICBA and its state community banking association allies promoted. Nevertheless, some harmful measures could not be modified or eliminated, despite strong opposition. However, ICBA’s active participation led to specific provisions that avoid many negative measures for community banks.

Financial reform process is not over. Passing the bill is just one step in the process of financial reform that will continue to unfold for years to come. ICBA will continue to fight for community banks and Main Street as regulators implement the legislation, and work with Congress wherever possible to correct negative or unintended consequences of the legislation.


Victories
These precedent-setting ICBA-advocated provisions will help level the regulatory and competitive playing field for community banks.

Asset-based deposit insurance assessments—FDIC assessments will be based on bank assets rather than domestic deposits, which will reduce assessment rates by a third and save community banks $4.5 billion over the next three years. Savings will compound for community banks as regular assessments continue.

Too-big-to-fail—The largest financial institutions will face higher capital and liquidity standards, a new systemic risk council and new resolution authority for the largest institutions so that they are wound down instead of propped up when they fail.

Nonbank competitors—The Consumer Financial Protection Bureau will reduce the unfair competitive advantage these firms have long enjoyed as unregulated financial services entities.

Deposit insurance limit increase—Deposit insurance coverage limit is permanently increased to $250,000.

Transaction Account Guarantee extension—Unlimited deposit insurance coverage is extended for non-interest-bearing transaction accounts for two years.

SOX Section 404(b)—Public companies with capitalization of less than $75 million are permanently exempted from the auditor attestation requirements of Sarbanes-Oxley Section 404(b).

Volcker rule—The largest banks are generally prohibited from engaging in proprietary trading or holding or obtaining an interest in a hedge fund or private equity fund, though there is a de minimis exception. Also included are exceptions for securities that community banks typically invest in.

Partial Victory
Industrial loan companies—A three-year moratorium is imposed on new industrial loan company charters. ICBA will work for a permanent closing of the banking-and-commerce loophole.


Helpful Exemptions
These exemptions will help community banks avoid the impact of some of the law’s provisions.

Consumer Financial Protection Bureau (CFPB) exemptions—Banks with less than $10 billion in assets are exempt from primary examination and enforcement by the bureau. Community banks will continue to be examined by their bank regulators for consumer compliance and will not be assessed any fees for any CFPB oversight.

Checks on CFPB rule-writing—The CFPB is required to consult with current banking agencies before proposing a rule and during the comment process. The CFPB will have to respond in writing to any objections raised by prudential regulators. The Financial Stability Oversight Council may set a CFPB rule aside if, upon a two-thirds vote, the council finds that the regulation or provision would jeopardize the safety and soundness or stability of the U.S. banking system.

Trust preferred securities—Proceeds from trust preferred securities are excluded from Tier 1 capital because capital requirements for bank holding companies can’t be any less stringent than those for banks themselves. However, bank holding companies of less than $500 million in assets are exempt from this provision because the Fed’s small bank holding company policy statement remains in effect. Trust preferred securities issued before May 19, 2010, by bank holding companies of less than $15 billion in assets are grandfathered.

Risk-retention rule—Loan originators must retain 5 percent of any loan they sell or securitize, except for mortgages that meet low-risk standards to be developed by regulators. The bill specifically exempts all Federal Housing Administration, Veterans Administration, Farmer Mac and Rural Housing Service loans. Regulators can also exempt commercial loans “that meet certain underwriting standards.”

Mortgage underwriting—A definition of “qualified loans” exempts lenders from new heightened legal liability to ensure that a borrower has the ability to repay a loan. Although balloon loans and loans exceeding a points-and-fees threshold are not exempt, the Federal Reserve has flexibility to adjust the rules for rural and smaller loans.

Derivatives rules—Derivative regulations largely exempt derivatives used by community banks, particularly those used to provide loans to customers or to hedge their own interest rate risk. A de minimis provision also exempts banks and other entities that use swaps infrequently.

Large-bank FDIC premiums—Banks with more than $10 billion in assets will pay higher FDIC premiums to reach a new mandated 1.35 percent Deposit Insurance Fund minimum reserve ratio by Sept. 30, 2020. No funds will be transferred from the DIF to fund other federal programs.

Concentration limits—Federal Home Loan Banks are exempt from federal loan concentration limits. Without this exemption, FHLB advances to community banks might have be been curtailed.


Harmful and Disappointing Measures
These harmful or negative provisions in the financial reform bill that ICBA vigorously opposed will create significant difficulties or impose new burdens for community banks.

Debit interchange—The Federal Reserve is directed to set interchange rates for debit-card issuers with more than $10 billion in assets that will not account for the full cost of supporting debit transactions. Merchants will be allowed to discriminate or discount based on payment type and to set minimum payment amounts for acceptance of debit and credit cards.

Despite the exemption for smaller banks, the provisions will significantly reduce community bank debit interchange income and harm the overall debit payments marketplace. ICBA will work with regulators and seek legislative changes to mitigate the damaging effects of the provisions.

Auto dealer CFPB exemption—Auto dealers are exempt from consumer-protection-bureau regulations, a setback in requiring all nonbank lenders to comply with the same regulations as community banks.

Executive compensation—Shareholders of publicly traded community banks must be given a non-binding vote on executive compensation. The SEC has authority to exempt small companies from the requirement or at least make it less burdensome for them.

BHC risk committees—Publicly traded bank holding companies with more than $10 billion in assets must establish risk committees with independent directors. The Federal Reserve may also require smaller publicly traded bank holding companies to establish such committees.

Expanded affiliate transactions rules—The definition of “covered transaction” in the affiliate transactions rules would be expanded to include repurchase agreements, derivatives transactions and securities borrowing and lending.

Insider transaction rules. Banks would be subject to new Federal Reserve rules governing purchases of assets from, or sales to, insiders.

“Source of strength” rules for BHCs—Bank holding companies would be subject to new “source of strength” rules with regard to their depository institution subsidiary.

FDIC Deposit Insurance Simplification Fact Sheet Updated July 21, 2010 On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, in part, permanently raises the current standard maximum deposit insurance amount to $250,000. The standard maximum insurance amount of $100,000 had been temporarily raised to $250,000 until December 31, 2013. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects the funds depositors place in FDIC-insured institutions. FDIC deposit insurance is backed by the full faith and credit of the United States government. Since the FDIC was established in 1933, no depositor has ever lost a single penny of FDIC-insured funds. There is no need for depositors to apply for FDIC insurance or even to request it; coverage is automatic. FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. FDIC insurance does not cover other financial products that insured banks may offer such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities. The standard insurance amount currently is $250,000 per depositor. To ensure funds are fully protected, depositors should understand their coverage limits. The FDIC provides separate coverage for deposits held in different account ownership categories. The coverage limits shown in the chart below refer to the total of all deposits that an accountholder has in the same ownership categories at each FDIC-insured institution. The chart below assumes that all FDIC requirements are met. (For details on the requirements, go to www.fdic.gov/deposit/deposits.) FDIC Deposit Insurance Coverage Limits Single Accounts (owned by one person) $250,000 per owner Joint Accounts (two or more persons) $250,000 per co-owner Certain Retirement Accounts (includes IRAs) $250,000 per owner Revocable Trust Accounts $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage available with 6 or more beneficiaries subject to specific limitations and requirements) Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association Irrevocable Trust Accounts $250,000 for the non-contingent, ascertainable interest of each beneficiary Employee Benefit Plan Accounts $250,000 for the non-contingent, ascertainable interest of each plan participant Government Accounts $250,000 per official custodian You can calculate your insurance coverage using the FDIC's Electronic Deposit Insurance Estimator at www.myFDICinsurance.gov. For questions about FDIC coverage, call toll-free 1-877-ASK-FDIC or ask a representative at your bank. * Unlimited deposit insurance coverage for noninterest-bearing transaction accounts (as defined in 12 C.F.R Part 370) at institutions participating in the FDIC's Transaction Account Guarantee Program is available through December 31, 2010. Important information about using your Silver Lake Bank Check Card with Florida merchants Effective June 18, 2010 Silver Lake Bank has received notification of suspicious check card transactions in Florida. As a precaution against additional fraudlent transactions, all Signature check card transactons have been blocked. Please note: this action affects those check card holders where the first nine numbers of their card are 435951001. Additionally, cardholders making purchases online with Florida based companies will be affected as well. This action does not affect ATM or PIN point-of-sale purchases in Florida. Please accept our apologies for any inconvenience this temporary disruption my cause. Feel free to call us with any questions at 1.877.232.0102 during business hours, Monday thru Friday 8 am - 6 pm and Saturday 9 am - 12 pm. Congratulations to Patrick Gideon, President of Silver Lake Bank, for being selected as a member of the 2010 Leadership Kansas class! Pat’s Leadership Kansas Diary Entry dtd March 2010 … On a personal note, I am thrilled and honored to have been selected as a member of the 2010 Leadership Kansas Class. Established 30 years ago, the Leadership Kansas Program's mission is to inspire participants to maintain involvement in the social, business and political fabric of Kansas communities. We will be exposed to recognized experts from various professions and engaged in educational and informational training sessions in six different Kansas communities over the next six months. I'll keep you informed of my educational experiences through Silver Lake Bank’s newsletter. Entry dtd May 2010 … The 2010 Leadership Kansas Class gathered in Lawrence for our first get-together, an orientation meeting and precursor of what's to come. I had the opportunity to meet and get to know my new classmates by participating in an ice-breaker whereby we were asked to respond to the following - name one thing your mother doesn't know about you and how will you be remembered by this group? Needless to say, this class is a collection of amazing, unique and memorable individuals. Together, we will learn about the great state of Kansas, observe different leadership styles and ultimately become more effective leaders ourselves. The connections we make will be invaluable as we are a cross-section of backgrounds, experiences and geographic diversity. Stay tuned for a report on my upcoming trip to Garden City where we will tour a meat packing plant. Entry dtd August 2010 … Our 2010 Leadership Kansas Class visited Garden City in May. We toured the Sunflower Electric Plant, a feedlot with 4,000 head of cattle, a cattle dairy with 700 milk cows and a Tyson Meat Packing Plant. The trip provided us with an informative look at the impact of immigration on the agricultural economy in Kansas. (Unfortunately, I made a brief unscheduled visit to the emergency room with two other classmates due to food poisoning!) The month of June took our group to Kansas City, Kansas for a tour of the General Motors Assembly Plant, Boulevard Brewery, Kansas Speedway, the Command Training Center in Leavenworth and the University of Kansas Medical Center. Our focus was the effect of technology, tourism, medical research and military on Kansas. In July, we visited Hays and toured a ranch, Fort Hays State University, Hays Medical Center and K-State University Extension and Research. FHSU has developed a great business model from an alliance with China. The program allows students from China and all over the world to take classes in English online, while remaining in China to live and work on their bachelor degrees. Enrollment of over 11,000 is split between approximately 5,000 students on campus and 6,500 online. Rural health care and Hays was also discussed as well as the reimbursement challenges they face. K-State Extension and Research is a facility that was integral in working with Monsanto to develop the Roundup Ready Seed Hybrids. What a monumental development for agriculture! Watch for my final write-up after trips to Wichita and Hutchinson in the next Silver Lake Bank newsletter. Copyright © 2006 Silver Lake Bank. Member FDIC. Equal Housing Lender site design - voltage creative