For much of the media, the focus has been on the law's biggest measure, a provision that would raise the "systemically important financial institution" threshold for banks to $250 billion from $50 billion. (The law immediately raises it to $100 billion, and regulators will look at the next asset tier over the next 18 months to see if any of those institutions should be considered SIFIs.)
Most of the bill, however, is aimed not at helping those large regional banks, but banks and credit unions with less than $10 billion of assets. Those provisions, which are far less controversial, have received much less press. But they may total up to a big impact for community banks.
“This hard-fought, long-awaited community bank regulatory relief legislation will put community banks in an enhanced position to foster local economic growth and prosperity,” said Rebeca Romero Rainey, president of the Independent Community Bankers of America. “By unraveling some of the suffocating regulatory burdens community banks face, they are better able to unleash their full economic potential to the benefit of their customers and communities.”
From tackling qualified mortgages to capital rules to the Volcker Rule, there are several measures of the law that may make a sizable difference. Following is a look at nine provisions of the new law that will help small banks.
QM
Under the law, certain mortgages originated and retained in portfolio by institutions with less than $10 billion of assets will be deemed QMs. The law has some restrictions in it, but it would effectively mean that most mortgages made by smaller institutions would face less legal liability if they are challenged in court later.
Capital simplification
Under the law, regulators will create a community bank leverage ratio of tangible equity/average assets between 8% and 10%. Banks that maintain a higher ratio would be automatically deemed to be in compliance with capital and leverage requirements.
What this effectively means is that banks with assets of less than $10 billion could escape the various parts of the relatively complex Basel III capital regime put in place after the crisis so long as they maintain the new community bank leverage ratio, thus simplifying the capital regime for smaller institutions.
Along the same lines, the law also raises the eligibility for the small bank holding company policy statement to $3 billion of assets from $1 billion. That will make capital formation easier for banks under the revised level.
Volcker Rule
Community banks had complained that even though the rule wasn't meant to target them, they still had to prove to examiners that they were in compliance with it, thus creating an added regulatory burden.
New exam schedule
Shortened call report
The revised call report can be used in the first and third quarters by well-rated community banks below that $5 billion level.
HMDA exemption
This provision has been the subject of controversy since the left argues it will make it harder to detect discrimination at banks while the right argues it posed a significant burden on small banks. In effect, it will exempt roughly 85% of banks from the new mortgage disclosure requirements, but at the same time it will not impact the vast majority of the mortgage market, given that most mortgages are made by larger institutions and nonbanks.
Escrow exemption, appraisal easing and waiting period
It also eases appraisal requirements in rural areas where appraisers are harder to find.
Additionally, the law removes the three-day waiting period for the combined TILA/RESPA mortgage disclosures if a lender makes a second offer of credit with a lower rate.
Reciprocal deposits
Previously, such deposits, in which deposits from one bank are traded to another in order to ensure they are federally guaranteed, have been treated the same as brokered deposits by the FDIC, meaning higher deposit insurance assessments for banks that held them.
But the regulatory relief law changes that. A well-capitalized bank with a Camels rating of 1 or 2 will be able to hold the lesser of $5 billion or 20% of its total liabilities in reciprocal deposits without them being treated as brokered.
Effectively, that means lower deposit insurance premiums for well-capitalized banks that are part of networks like Promontory Interfinancial Network's CDARS program.
CRE loans
Under the law, a loan does not qualify as a HVCRE if development or construction is complete and cash flow is sufficient to support the debt service and operating expenses to the satisfaction of the lender.