Taking another crack at the economic nutshell
By SHAWN P. MITCHELL
I'm writing in response to the July 26 column, "Taking a crack at the economic nutshell," by Mary Hart-Detrixhe. As the president and CEO of the Community Bankers Association of Kansas, I work on behalf of the state's community banks and know all too well the troubles they face when it comes to regulatory burden.
Believe me, when a community bank has to spend more on onerous and redundant compliance it has less time and resources to spend on what our local community needs it to do most -- lend. This, in turn, hurts our local economies right here at home. This isn't Wall Street we're talking about; it's Main Street -- the local cities and town squares that I and other residents across this great state know and love.
It's important to note that community banks are the largest supplier of small-business loans throughout the entire country, in Kansas and throughout the Hays area. Those Kansas employers that are growing, adding jobs and helping local economies grow need access to credit from their local community bank, which is a small business itself. When you attack the local community bank you are also attacking a local small business. Fortunately, Sen. Jerry Moran, R-Kan., gets this and has introduced the Community Lending Enhancement and Regulatory Relief Act of 2013 (CLEAR Act), S. 1349, along with Sens. Jon Tester, D-Mont., and Mark Kirk, R-Ill. This legislation aims to change this trend.
Notably, this is a bipartisan effort and is focused on community banks who's owners and employees live and work and worship in the same communities with their customers. The bill advances provisions in the Independent Community Bankers of America's Plan for Prosperity legislative platform to promote a regulatory environment that will help community banks to continue serving their communities.
In responding to the July 26 piece, it's important to recognize that community banks are being forced to pay for the sins of Wall Street in the form of grossly increased regulatory burden. Large banks have extensive resources to deal with more regulations--the community bank down the street doesn't have that luxury.
That's exactly why Sen. Moran's CLEAR Act would go a long way to help. It targets key elements of community banks' regulatory burdens, including:
* Exempting community bank portfolio loans from a variety of new mortgage rules to support the housing recovery. Consumer Financial Protection Bureau regulations released this year threaten to drive this stabilizing force from the housing market. The rules establish new underwriting standards for determining a consumer's ability to repay a mortgage loan. The problem is that by setting a narrow or temporary definition of the "qualified mortgages" that are exempt from the new regulations, government rule-writers could force many community banks to exit the residential mortgage market, leaving potential homebuyers in the lurch.
The CLEAR Act would provide "qualified mortgage" status for community bank mortgages held in portfolio for at least three years--loans in which community banks have a vested interest in succeeding. The bill would also exempt community bank mortgages held in portfolio from rules requiring banks to set aside funds for taxes and insurance in escrow accounts for higher-priced mortgages. Maintaining these escrow accounts would be a costly and impractical burden for community banks. Making these accounts optional for smaller institutions will allow community banks to better serve consumers who need mortgage credit.
* Supporting additional capital opportunities for small bank holding companies. Policymakers should learn from and expand on the kinds of regulations that distinguish between community banks and larger financial institutions. The Federal Reserve already exempts smaller institutions from some of its more onerous and complicated capital rules. The agency's Small Bank Holding Company Policy Statement applies simpler rules to institutions with $500 million or less in assets. Expanding that threshold to $5 billion for institutions that pass debt-related tests and that do not engage in nonbanking financial activities would reduce regulatory burdens for more Main Street community banks and provide them with broader capital-raising options without posing new risks. This step would build on the increasingly tiered regulatory system that recognizes community banks should be subject to less complex rules than larger institutions.
* Providing exemptions for community banks from Sarbanes-Oxley Act internal-controls assessment mandates. While the Sarbanes-Oxley act was designed to improve the accuracy and reliability of disclosures provided by public companies, it failed to account for its own potential impact on small public companies. Requiring outside auditors to attest to the internal controls of publicly held companies poses outsized burdens and costs on Main Street institutions that cannot access or afford these reviews. Because community banks have their internal control systems continually monitored by bank examiners, they should not have to sustain the unnecessary and redundant expense of paying an outside audit firm to prepare these reports. Sarbanes-Oxley did recognize the potential impact of this provision on small institutions by establishing a permanent exemption for companies with a market capitalization of less than $75 million. The problem is that this exempts virtually no one. Raising that threshold to include more community banks--as the CLEAR Act would do--would ensure these rules protect the kinds of institutions that keep Main Street in business.
All of this is a step in the right direction for our communities here in Kansas. I want to thank Sen. Moran for his support in introducing this bipartisan legislation.
The Community Bankers Association of Kansas will continue to advocate for it, especially as the issue heats up again this fall when Congress is back to work in Washington.
Shawn P. Mitchell is president and CEO of the Community Bankers Association of Kansas in Topeka.