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ICBA Vows to Work with Congress on Comprehensive Tax Reform

ICBA NewsWatch Today 02/27/2014

Tax ReformICBA Vows to Work with Congress on Comprehensive Tax ReformICBA said it looks forward to working with Congress to implement comprehensive tax reform to help strengthen the economy and provide relief to community banks and the millions of individuals and small business they serve. Following the release of House Ways and Means Committee Chairman Dave Camp’s (R-Mich.) tax-reform proposal, ICBA said it shares the goal of lower tax rates that incentivize work and investment. Noting that ICBA represents C corporations, S corporations, mutuals and thrifts, the association expressed concerns with several provisions of the tax-reform proposal. In particular, ICBA said it is concerned with proposals that could result in higher taxes on S corporation owners, a tax that exclusively targets financial institutions and changes to the deductibility of FDIC insurance premiums. ICBA said that with more than 2,000 community banks organized under Subchapter S of the tax code, any reforms should not only preserve this model but help strengthen it. The association also said a proposed bank tax on the largest financial institutions sets a dangerous precedent that could inappropriately sweep in community banks and inhibit economic growth. Additionally, ICBA said it opposes changing the existing tax treatment for the expense of FDIC insurance premiums because it is a genuine business expense for all FDIC-insured banks. ICBA also expressed its opposition to an arbitrary tax on financial institutions in a coalition letter with other financial and business groups to Ways and Means Committee members and House leadership. In a separate letter this week, ICBA reiterated its tax-reform principles. ICBA wrote that tax reform should:

  • preserve the ability of businesses to deduct interest on business debt,
  • preserve and strengthen the Subchapter S business model,
  • avoid new commercial banking taxes,
  • promote private savings and investment, and
  • repeal the credit union and Farm Credit System tax exemptions.

ICBA will continue to evaluate the tax-reform proposal and looks forward to continuing to work with lawmakers as the tax-reform debate continues. Read ICBA Release. Read Camp’s Proposal.Volcker RuleICBA Urges Regulators to Broaden Volcker Rule Exemptions for Community BanksICBA called on federal regulators to broaden Volcker Rule accommodations for community bank holdings of collateralized debt obligations backed by trust-preferred securities. In a comment letter, ICBA wrote that the agencies’ interim final rule should exempt all TruPS CDOs and collateralized loan obligations. ICBA noted that a recent ICBA survey found that despite the interim final rule, 6 percent of affected community banks would still have to divest all of their TruPS CDOs and another 16 percent could only partially retain their holdings. “It was never the intent of Congress to cover TruPS CDOs or CLOs as ‘covered funds’ under the Volcker Rule nor was it the intent of Congress for the Volcker Rule to adversely impact community banks,” ICBA wrote. The association also urged the agencies to issue further guidance under the Volcker Rule clarifying that an “ownership interest” in a “covered fund” arises only in the case of an equity interest that allows the investor to share in the income, gains or profits from the fund. Debt-like investments where the bank only receives interest and return of principal should not qualify as an “ownership interest,” ICBA wrote. Prior to the release of the interim final rule, the Volcker Rule would have required, in certain instances, that banks divest their holdings of TruPS CDOs and write down these investments under “other than temporary impairment” accounting standards. For some banks, writing down these securities would have resulted in a permanent loss of capital. The interim final rule permits banks to retain TruPS CDOs they owned as of Dec. 10, 2013, if the CDOs were issued before May 19, 2010, and are backed primarily by TruPS or subordinated debt of bank holding companies that had less than $15 billion in assets when the securities were issued or of mutual holding companies. In its comment letter, ICBA wrote that the agencies’ interim final rule rightfully grandfathers TruPS CDOs held by community banks. The association also urged the agencies to be flexible with institutions that had more than $15 billion in consolidated assets as of the cut-off dates but have since shrunk their asset size to below $15 billion. Read ICBA Comment Letter. Quarterly Banking ProfileFDIC-Insured Institutions Earned $40.3B in Fourth QuarterFDIC-insured banks and thrifts reported aggregate net income of $40.3 billion in the fourth quarter of 2013, a 16.9 percent increase from the previous year, according to the agency’s Quarterly Banking Profile. The improvement in earnings was mainly due to an $8.1 billion decline in loan-loss provisions. According to the data, community banks reported increased loan balances across all loan categories. Net interest margins increased for all but the largest banks, and community bank NIMs were 37 basis points higher than the overall industry average. More than half of the 6,812 insured institutions reporting (53 percent) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable fell to 12.2 percent from 15 percent a year ago. Lower income stemming from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in net operating revenue. The number of banks on the “Problem List” fell for the 11th consecutive quarter, declining from 515 to 467. Two FDIC-insured institutions failed in the fourth quarter, and there were 24 failures in 2013, down from 51 in 2012. The Deposit Insurance Fund balance continued to increase, rising to $47.2 billion as of Dec. 31 from $40.8 billion the previous quarter. Estimated insured deposits increased 0.7 percent, and the DIF reserve ratio rose to 0.79 percent from 0.68 percent the previous quarter and from 0.44 percent a year ago. By law, the DIF must achieve a minimum reserve ratio of 1.35 percent by 2020. The average return on assets rose to 1.10 percent from 0.96 percent a year ago, and the average return on equity increased from 8.53 percent to 9.87 percent. Nevertheless, FDIC Chairman Martin J. Gruenberg said that challenges remain in the industry, such as narrow margins, modest loan growth and a decline in mortgage refinancing activity. Read More from the FDIC.RegulationICBA Backs New Rules on Foreign MegabanksICBA expressed its support for recently approved Federal Reserve Board regulations on systemically important financial institutions, which will help address the problem of too-big-to-fail firms. The Fed recently voted to require large foreign banks to have intermediate holding companies that would be regulated by the Federal Reserve. In a letter to Fed Chair Janet Yellen, ICBA wrote that the vote was a step in the right direction toward regulating large foreign SIFIs, which pose systemic risk to the U.S. financial system. ICBA wrote that it hopes the Federal Reserve will continue its efforts to reduce systemic risk and end the advantages enjoyed by too-big-to-fail banks.ICBA NewsWatch Today is sponsored by FIS:When it comes to serving community banks, FIS is right in your neighborhood.  FIS understands that you’re more than a bank. You’re a vital resource to your community.  That’s why we offer a wide range of integrated solutions that can be tailored to the unique needs of your valued customers.  To stay competitive in an ever-changing banking landscape, you need to be more connected with your customers than ever before and  FIS is focused on connecting the best people, processes and technology to your business to help you succeed.  For more information on FIS’ complete suite of technology solutions, visit If you are attending ICBA’s Community Banking Live event in Honolulu, HI, please visit FIS at booth #216.RegulationCommittees Considering Key Nominations Next WeekSenate committees are scheduled to take up several key agency nominations next week. On Monday, the Senate Small Business Committee is scheduled to mark up ICBA-member community banker Maria Contreras-Sweet’s nomination to head the Small Business Administration. Contreras-Sweet is the founder and chairman of ProAmérica Bank, a community bank in Los Angeles. ICBA has publicly expressed its support for her nomination in a national news release and letter to the committee. On Tuesday, the Senate Banking Committee is slated to hold a confirmation hearing on nominees to join the Federal Reserve Board. The hearing is expected to include testimony from Stanley Fischer, the nominee for vice chairman, as well as Fed nominees Lael Brainard and Jerome Powell.EconomyNew Home Sales Up Nearly 10 PercentNew-home sales rose 9.6 percent in January and were up 2.2 percent from a year ago, according to the Commerce Department. The median sales price of new houses sold in January 2014 was $260,100, and the average sales price was $322,800. The seasonally adjusted estimate of new houses for sale at the end of January was 184,000, a 4.7-month supply at the current sales rate.ConventionWatch Convention General Sessions Live from HomeCommunity bankers not attending ICBA Community Banking Live in Honolulu can still participate virtually in the general sessions. ICBA is providing a live stream of the general sessions at approximately 2 p.m. (Eastern time) this Tuesday and Wednesday. The speaker lineup includes FDIC Chairman Martin Gruenberg, Comptroller of the Currency Thomas Curry, former White House deputy chief of staff Karl Rove and NFL Hall of Famer Jerry Rice. Go online to register for either or both days. Registrants will have unlimited access to the video for up to 24 hours. Learn More and Register.ConventionICBA Debuts #ICBALive Convention Social Media 101 MiniseriesTune in to ICBA’s YouTube Community Bank channel and check out the some social media 101 videos before heading out to the 2014 ICBA Community Banking Live convention. Learn about live tweeting during the event, Twitter chats, tweet-ups and staying connected during the show.PollTake This Week’s Quick PollTake this week’s Quick Poll on proposed accounting restrictions, and view results from the previous poll on recovering defaulted debts. View the Archive.EducationICBA Offers Compliance Checkup MonitoringICBA’s Compliance Checkup is a sound monitoring program that includes checklists for deposit, lending, administrative and security regulations. The program will help community bankers determine if their compliance program is meeting requirements and will highlight areas that need improvement. Learn More.

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