How Congress Can Help People and Places Grow

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1 How Congress Can Help People and Places Grow Together, America s banks employ more than 2 million women and men whose work helps to create jobs and generate economic growth. Our fundamental mission is to ensure the security and prosperity of the people and communities we serve. Our ability to fulfill that mission in recent years has been compromised by thousands of pages of increasingly prescriptive rules and competition from less-regulated financial players. We urge you to help America thrive by helping banks deliver jobs, growth, safety and convenience.

2 Require Tailored Regulation Going Forward Rules aimed at the most complex institutions have indiscriminately trickled down to all banks, regardless of size, risk or applicability to a bank s business model. This impedes banks ability to meet business and individual customers needs, restricts local business expansion, limits job growth and frustrates consumers. We support H.R. 1116, the TAILOR Act of 2017, introduced by Rep. Scott Tipton (R-CO), and the Senate companion bill, S. 366, the TAILOR Act of 2017, introduced by Sen. Mike Rounds (R-SD), that acknowledges a bank s risk is not measured by size alone, and accounts for the variety and resilience of the different segments of the banking industry. These bills empower regulators to tailor regulatory actions so that they apply only when required by the bank s business model and risk profile. Instead of one-size-fits-all regulation, this more thoughtful, analytical approach would make for a safer and sounder financial system while freeing billions of dollars in capital for investment in good-paying American jobs. Fix Current, Ill-fitting Rules Ill-fitting rules hinder economic growth while contributing little, if any, to a bank s safety and soundness. Communities pay the price for this. For example, excessive capital requirements and increasing compliance demands have forced some community banks out of product lines or out of business, exacerbating a disturbing trend in consolidation that must be reversed in order to ensure communities particularly rural ones, where a community bank is often the only provider have access to vital financial services. We support legislation that would fix such ill-fitting rules and advance ABA s Blueprint for Growth. These include bills to: increase or eliminate arbitrary asset thresholds, such as those that trigger CFPB supervision or a SIFI designation; streamline Currency Transaction Reports by eliminating unnecessary filings and increasing thresholds; raise the threshold for small bank holding company relief from $1 billion to $5 billion; and permit highly-rated and well-capitalized depository institutions to file a short-form call report in two quarters, rather than four quarters. One bill incorporating many of these provisions is the Financial CHOICE Act, sponsored by House Financial Services Committee Chairman Jeb Hensarling. We urge lawmakers to support this measure, along with Financial Institutions Subcommittee Chairman Blaine Leutkemeyer s measures to address issues within the Dodd-Frank Act.

3 Repeal the Durbin Amendment s Government Price Controls Consumers have ended up on the wrong end of a deal that was struck in 2010 when big box retailers persuaded Congress to intervene in the marketplace and establish government price controls on the interchange fees they pay banks for facilitating debit card purchases. In exchange, retailers promised to pass their savings onto consumers. That hasn t happened. Not only have consumers missed out on the $42 billion that big-box retailers have pocketed since the so called Durbin Amendment took effect, many have also lost access to low-cost checking and card rewards benefits that had been funded by bank interchange revenues. While the fee cap applies only to banks above $10 billion in assets, new complicated transaction routing provisions that impede revenue apply to all banks. Since the Durbin Amendment has failed to produce any measurable benefit to consumers while imposing great costs, it must be eliminated. We urge Congress to repeal the Durbin Amendment. Support Expansion of Safe, Traditional Portfolio Lending Portfolio lending is among the most traditional and lowest-risk lending in which a bank can engage. Loans held in a bank s portfolio are well underwritten because if a loan is to be held in the portfolio, the bank carries all of the credit and interest rate risk of that loan until it is repaid. Therefore, it must be sufficiently conservative to protect the safety and soundness of the bank. However, existing mortgage rules are too restrictive and have made it difficult, and in some cases impossible, for creditworthy borrowers especially low-income families to obtain safe and sound loans from portfolio lenders. We support the Portfolio Lending and Mortgage Access Act, previously introduced by Rep. Andy Barr (R-KY). This legislation, which the House passed in the 114th Congress, would treat any loan made by an insured depository and held in that lender s portfolio as compliant with the Ability to Repay and Qualified Mortgage requirements and would provide an important and much needed correction to the unnecessarily restrictive standards that now exist.

4 Provide Flexibility for Thrifts and Mutual Banks Federal savings associations (also known as thrifts ) are taxpaying institutions chartered under the Home Owners Loan Act (HOLA) with specific lending and investment powers encouraging them to provide housing credit safely and soundly. Current HOLA limits prevent federal savings associations from engaging in additional activities to better serve their communities. For example, under existing law, a federal savings association must convert to a bank charter in order to expand its commercial or consumer lending. We support H.R. 1426, the Federal Savings Association Charter Flexibility Act, sponsored by Reps. Keith Rothfus (R-PA) and Jim Himes (D-CT), and its Senate companion bill S. 567, sponsored by Sens. Heidi Heitkamp (D-ND) and Jerry Moran (R-KS). These bills provide thrifts with additional flexibility to adapt to and better meet the needs of changing economic conditions and business environments of their communities. The House Financial Services Committee approved this measure by voice vote in the 114th Congress. Additionally, we support the Mutual Bank Capital Opportunity Act, previously introduced by Rep. Rothfus, which provides taxpaying mutual institutions with a new investment tool to raise tier one capital. Such a tool is essential for mutuals, which have no shareholders and are limited to retained earnings to increase capital levels a slow process that requires long-term planning. Protect Consumers by Imposing Strong Data Security Requirements Breaches of sensitive consumer information at dozens of major retailers have made it clear that some connected to the payments system do not adequately protect Americans personal financial information. Data breaches impose risks and costs on consumers, banks, the payments network and our economy. While banks must comply with federal requirements to protect data and notify customers of breaches, merchants are not subject to comparable requirements. Legislation that imposes a strong national standard for data security and breach notification is critically needed now. We strongly support the reintroduction and enactment of the Data Security Act, introduced in the last Congress by Sens. Thomas Carper (D-DE) and Roy Blunt (R-MO) and a similar bill introduced in the House of Representatives which would ensure that all involved in the payments system are protecting customers personal information. The House version of the bill passed the House Financial Services Committee by an overwhelming bipartisan vote of 46-9 in the 114th Congress.

5 Make Bank Examinations Consistent, Balanced and Transparent Regulators ensure that the banks they supervise comply with all rules and regulations by having examiners visit banks on a regular basis to review their books. Although the details vary by the size and complexity of the institution, a bank examination consists of a detailed scrutiny of bank assets, liabilities, income, and expenses. It ensures that the bank is safe and sound, maintains accurate financial statements, and is following all applicable laws and regulations properly. Regulation, whether federal or state, is a fact of life for every bank across the country, but in some cases the inconsistent application of regulations by bank examiners has created problems. We support legislation, such as the Financial Institutions Examination Fairness and Reform Act introduced in the 114th Congress by Sens. Jerry Moran (R-KS), Joe Manchin (D-WV) and Shelley Moore Capito (R-WV) and similar legislation introduced in the House of Representatives by former Rep. Lynn Westmoreland (R-GA) and Rep. Carolyn Maloney (D-NY). This legislation would significantly improve the examination process and hold regulators accountable for their actions by ensuring that banks receive both timely examination reports and the rationale for the decisions of the examiners. It also establishes an Office of Independent Examination Review to create a fair process for banks to appeal examination. The House Financial Services Committee approved the bill with bipartisan support in the last Congress. Remove Depression-Era Credit Union Tax Rules Many credit unions particularly the larger ones are now indistinguishable from banks, yet they still pay no federal income taxes. The credit unions tax exemption, estimated by the Department of Treasury at $35 billion over 10 years with just 5 percent of the industry enjoying nearly 75 percent of the tax benefits, represents an outdated, poorly-targeted and wasteful government subsidy program. Congress established federal credit unions in the 1930s to provide small-dollar loans to people of modest means, with membership limited to individuals with a common bond. Today, there are 281 credit unions with over $1 billion in assets, making them larger than 90 percent of taxpaying banks, yet these large credit unions enjoy government price supports without policy justification. The National Credit Union Administration also has acted as a captive regulator for the credit union industry, further expanding credit union lending authority and membership rules without Congressional involvement, and in the process expanding the government subsidy. We urge Congress to remove this $1 trillion industry s Depression-era exemption from federal income taxes

6 Eliminate the Farm Credit System s Outdated Tax-Preferred Status The Farm Credit System (FCS) is a $314 billion government-sponsored enterprise (GSE) that competes directly with banks, making farm, ranch, consumer, housing, business and energy loans. If the FCS were a bank, it would be the ninth largest in the country. But as a GSE, it does not pay taxes at the same rate as banks. The Farm Credit System was created in 1916 when farmers had limited options available to finance their operations. That is no longer true in rural America. Thanks to a robust banking industry, rural Americans today enjoy the same credit opportunities as their urban counterparts. Because the FCS lacks a specific statutory mission to do anything other than compete with taxpaying institutions, it often lends to farmers who least need subsidized credit. Less than 11 percent of all FCS loans in 2015 went to young farmers, less than 16 percent to small farmers, and less than 15 percent to entrylevel farmers and ranchers the three categories that would be the most appropriate to receive the FCS s subsidized credit. We urge Congress to consider why community banks must compete against a GSE. With $261 billion in assets and more than $4.5 billion in profits annually, the FCS is capable of paying its fair share of taxes. As Congress engages in its tax-reform debate, we urge members to eliminate the FCS s tax subsidy. It does not help the economy, nor does it make the tax code fairer or promote an important policy goal.

7 BANKS OF ALL SIZES play key roles in the economy while delivering safety and convenience for customers. Safeguard $12.7 TRILLION in deposits $2.4 TRILLION in home loans originated by banks $328 BILLION in loans to small businesses $175 BILLION in loans to farmers and ranchers Banks fraud protection measures have stopped more than $11 BILLION in attempted fraud aba.com/americasbanks #AmericasBanks Sources : FDIC and ABA Deposit Account Fraud Survey Report

8 ABA, the following state bankers associations and the members we represent appreciate your support. Alabama Bankers Association Alaska Bankers Association Arizona Bankers Association Arkansas Bankers Association Asociacion de Bancos de Puerto Rico California Bankers Association Colorado Bankers Association Connecticut Bankers Association Delaware Bankers Association Florida Bankers Association Georgia Bankers Association Hawaii Bankers Association Idaho Bankers Association Illinois Bankers Association Illinois League of Financial Institutions Indiana Bankers Association Iowa Bankers Association Kansas Bankers Association Kentucky Bankers Association Louisiana Bankers Association Maine Bankers Association Maryland Bankers Association Massachusetts Bankers Association Michigan Bankers Association Minnesota Bankers Association Mississippi Bankers Association Missouri Bankers Association Montana Bankers Association Nebraska Bankers Association Nevada Bankers Association New Hampshire Bankers Association New Jersey Bankers Association New Mexico Bankers Association New York Bankers Association North Carolina Bankers Association North Dakota Bankers Association Ohio Bankers League Oklahoma Bankers Association Oregon Bankers Association Pennsylvania Bankers Association Rhode Island Bankers Association South Carolina Bankers Association South Dakota Bankers Association Tennessee Bankers Association Texas Bankers Association Utah Bankers Association Vermont Bankers Association Virginia Bankers Association Washington Bankers Association West Virginia Bankers Association Wisconsin Bankers Association Wyoming Bankers Association