Staff Visit to Washington Reinforces Support for Community Bank Initiatives

November, 2012

CBAI's David Schroeder, Vice President of Federal Governmental Relations, recently called on lawmakers in Washington, D.C. to strongly urge every member of the Illinois Congressional delegation to support CBAI’s positions on legislative and regulatory initiatives. As the 112th Congress nears the end, the laser focus is on what legislation must pass, what must be stopped, and what else Congress must do to support community banks in their efforts to encourage additional small business lending, fuel job creation, and help create economic stability.

Support a Five Year Extension of the Transaction Account Guarantee (TAG) Program

Oppose Credit Union Expansion of Powers (H.R. 1418 / S. 2231)

Urge Regulators to Exempt Community Banks from Basel III

Support a Five Year Extension of the Transaction Account Guarantee (TAG) Program
Congress must act quickly to advance legislation to extend full FDIC insurance coverage for non-interest-bearing deposits before the December 31, 2012 expiration date. Failure to continue full coverage of these accounts would create disruption and uncertainty in the banking system for small business and municipal depositors.

During the depths of the financial crisis in 2008, the FDIC established coverage for these accounts to support liquidity and stability in the banking system and prevent the sudden migration of deposits from community banks to too-big-to-fail banks. Congress modified and extended the coverage through 2012.

The banking system and economic recovery remain fragile. If the expanded insurance coverage is not extended insurance coverage will revert to $250,000.00. An important consideration is that this insurance coverage is fully paid for by banks with their deposit insurance premiums.

Oppose Credit Union Expansion of Powers (H.R. 1418 / S. 2231)
Credit unions are pushing aggressively to pass H.R. 1418 / S. 2231. This legislation would raise their statutory cap on member business lending (MBL). An increase in MBL will give credit unions the opportunity to stray even further from their congressionally mandated mission and operate in a way that was never intended by Congress when they were granted their tax-exempt status. An increase in MBL would further tilt the playing field in favor of credit unions and against taxpaying community banks. The only members of the Illinois delegation who are cosponsoring this legislation are Rush (D-1st), Jackson (D-2nd), Lipinski (D-3rd), Davis (D-7th) and Schakowsky (D-9th). This legislation unfortunately has 139 House cosponsors and 21 Senate cosponsors.

Urge Regulators to Exempt Community Banks from the Basel III Capital Requirements
CBAI was extremely disappointed when the regulators proposed rules that would impose new capital requirements on community banks. These proposed new rules are not required under the Basel III capital agreement. Basel III was originally designed to prevent another financial crisis and to only apply to the largest, systemically important, and internationally active banks.

Community banks did not engage in the reckless behavior that contributed to the financial crisis and subsequent economic downturn. The proposed rules are misguided and would significantly disadvantage community banks.

Community banks have lower risk profiles because they operate under a relationship-based business model. Their less complex business model and lack of significant interrelationships are not reflected in the one-size-fits-all approach to the capital standards and asset risk-weighs in the proposed rules. Individual community banks pose no systemic risk whatsoever. Therefore, these new requirements should not apply to community banks.

CBAI strongly urged our delegation to contact the various banking regulators and ask them to exempt community banks from the proposed implementation of Basel III and allow community banks to continue to operate under Basel I capital requirements.