April 10, 2019
Community Bank Services

Argent Money


8% Community Bank Leverage Ratio 
Senate Banking Committee Chairman Mike Crapo (R-Idaho) and committee member Jerry Moran (R-Kan.) last week called for the banking agencies   to set the community bank leverage ratio (CBLR) at 8%. The agencies have the discretion under the S. 2155 regulatory reform law to set a CBLR of 8 to 10%; community banks with that leverage ratio may elect to be exempt from Basel III capital requirements and calculations.
While the agencies earlier proposed setting the CBLR at 9%, Crapo and Moran pointed out that this is "well above the current Tier 1 leverage requirement for well-capitalized banks." They added that setting the CBLR at 8% would "result in banks receiving relief under the CBLR while maintaining significant capital."

SEC Queried on CECL Effects 
House Financial Services Committee senior member Blaine Luetkemeyer (R-Mo.) and Ranking Member Patrick McHenry (R-N.C.) expressed concerns to Securities and Exchange Commission Chairman Jay Clayton about the coming CECL loan loss accounting approach and its effects on markets and investors.
CECL, which refers to the current expected credit loss model for loan loss accounting developed by the Financial Accounting Standards Board, is considered the biggest change ever in bank accounting. Luetkemeyer and McHenry wrote that they are worried CECL implementation-which begins in 2020 for publicly traded banks-could have unanticipated effects on the financial and housing industries with questionable benefit.
The lawmakers asked Clayton whether the SEC has solicited or received feedback on CECL's effectiveness, whether privately and closely held banks will benefit from CECL, what effects CECL may have on housing GSEs Fannie Mae and Freddie Mac and whether the SEC would welcome a quantitative study of CECL before implementation.

Bipartisan Bill Aims to Address Marijuana Problem 
Sens. Cory Gardner (R-Colo.) and Elizabeth Warren (D-Mass.) and Reps. Earl Blumenauer (D-Ore.) and David Joyce (R-Ohio) introduced a bipartisan bill that aims to resolve the conflict between state and federal laws on marijuana. The States Act would amend the Controlled Substances Act so that it no longer applies to persons acting in compliance with state or tribal laws on cannabis, and the proceeds of any compliant transaction would not be deemed unlawful under anti-money laundering statutes or other federal laws.
For the States Act to apply, state and tribal laws must continue to include basic protections. The bill keeps in place Controlled Substances Act bans on: endangering human life while manufacturing a controlled substance; employing minors in marijuana operations; distributing cannabis at transportation safety facilities like rest areas and truck stops; and distributing or selling marijuana to people under 21 except for medicinal purposes.

Examiners Find Gaps in Tech Provider Contracts 
The FDIC issued a Financial Institution Letter with examiner observations about gaps in financial institution contracts with technology service providers. Some contracts may not adequately define rights and responsibilities regarding business continuity and incident response or provide sufficient detail to allow financial institutions to manage those processes and risks.  Specifically, some contracts did not require the vendor to have a business continuity plan, establish recovery standards, define remedies if a vendor misses a standard, detail a vendor's post-incident notification duties or define key terms related to business continuity and incident response.

The letter reminded banks of the interagency guidelines setting information security standards, which were issued under the Gramm-Leach-Bliley Act and the notification requirements under Section 7 of the Bank Service Company Act. The FDIC also said that long-term contacts and those that automatically renew "may be at higher risk" for coverage gaps and that banks should assess and manage risks around contract gaps.  
The FIL  >> 

Community Banks Competitive Advantage:  Relationship Lending
Community banks have a competitive advantage in small business lending due to their relationships and personal attention, finds a recent research paper by two noted economists.
All banks use relationships in addition to hard data such as financial statements when lending to small businesses. But large banks focus on professional referrals and are more likely to use business credit scores.
Small banks, by comparison, focus on community involvement and personal attention. That allows them to grant exceptions in underwriting policies based on existing loan and depositor relationships. Further, they have a speed advantage in approving small business loans, finds the paper, authored by Temple University professors William C. Dunkelberg and Jonathon A. Scott.
The paper examined the CSBS 2018 Community Banking Survey and compared its findings to recent studies by the FDIC and National Federation of Independent Business. It is one of a series of papers that take an in-depth look at the results of the CSBS annual survey, which this year included 521 community banks from 37 states.
Small banks do have a disadvantage when it comes to ancillary products and services. While community banks tend to offer deposit services, larger banks are more likely to offer advice on strategy, product development, operations and management succession due to their scale. That may even out over time as community banks expand their technology-based services.
Competition on small business loans relies on geography, however. Rural community banks view other banks of the same size as competition, while in urban areas, community banks are also competing with banks between $1 and $10 billion in assets. And those banks are growing concerned about the competitive threat of fintech firms, the paper finds.
The Paper  >>

Compliance Conference  -  September 10 & 11