Amy Ledig: Setting Deregulatory Priorities to Help Community Banks

The new administration is taking a hard look at the regulatory framework across the whole of government. Community banks have a unique opportunity to advocate for agencies to solve long-standing issues and streamline the regulation while maintaining the safety and soundness of the banking system.

This year, President Trump has issued a series of executive orders focusing on reducing costly federal regulations. As part of this effort, the Office of Management and Budget (OMB) asked the public to provide feedback on regulations that are unnecessary, unlawful, unsound or unduly burdensome. At the same time, agency heads have been directed to review their existing regulations and identify those that should be rescinded or modified. 

ICBA has long advocated for policies ensuring a safe and sound banking system that enables community banks and their customers to thrive. After reviewing the top concerns raised by our members in recent decades, we developed a set of high-impact deregulatory recommendations. These suggestions prioritized practical, straightforward reforms that can be easily implemented. 

We also focused on addressing rules that fell outside of an agency’s legal authority, reforming regulations whose costs fall disproportionately on community banks without providing commensurate benefits to the public, and updating or removing outdated regulations to support innovation and economic growth. 

Below are five of the suggestions ICBA submitted to OMB. If enacted, each could provide immediate, meaningful relief to community banks and help them better serve their local communities. 

1. Requirements related to Section 1071 of the Dodd‑Frank Act

Section 1071 of the Dodd-Frank Act directed financial institutions to collect and submit data on credit applications from women-owned, minority-owned and small businesses to the Consumer Financial Protection Bureau (CFPB). We believe the rule CFPB issued to implement this requirement significantly exceeded the agency’s statutory authority, placing undue burdens on community banks without delivering sufficient public benefit. 

ICBA formally requested that the CFPB rescind this rule as part of its ongoing efforts to streamline CFPB-related regulations. Meanwhile, ICBA continues to challenge Section 1071 in the courts, through the legislative process and through advocacy directed at the CFPB.

2. Bank Secrecy Act thresholds

The Suspicious Activity Reporting (SAR) and the Currency Transaction Report (CTR) requirements are an example of how regulations can become outdated; their thresholds have been in place since the 1970s. The current low thresholds create a lot of unnecessary reporting, much of which is unhelpful to law enforcement. 

That is why we requested that the Treasury’s Financial Crimes Enforcement Network raise the current SAR threshold from $5,000 to $10,000. We also request that it raise the CTR threshold from $10,000 to $30,000 and link future increases to inflation. These updates would streamline banks’ compliance efforts and give law enforcement more useful information.

3. Short-form call reports

ICBA is advocating that the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) implement a true “short-form call report.” While we have seen efforts to reduce reporting requirements for certain institutions, the current short-form call reports still require a lot of information and place a significant burden on community banks to generate quarterly reports. 

We recommend introducing a true short-form call report containing the financial statements and key capital metrics in a concise set of schedules that would maintain safety and soundness by providing important data to regulators while reducing unnecessary diversion of resources and compliance costs.

4. FDIC Part 363 thresholds

Part 363 of the FDIC’s rules governs annual independent audits and additional reporting requirements for banks. It’s another example of a regulation with thresholds that haven’t been adjusted in years. 

ICBA used this opportunity to reiterate its recommendation to raise the thresholds for the annual audited financial reporting requirement and the requirement for management’s and external auditors’ assessment of internal controls over financial reporting. 

These changes would alleviate unnecessary compliance costs while maintaining the safety and soundness of the banking system. The FDIC Board recently issued a proposal to raise these thresholds, an example of how consistent advocacy efforts by ICBA and community bankers can make a difference.

5. Asset threshold tailoring

ICBA encouraged the federal banking agencies to tailor asset thresholds across the entire banking regulatory framework. Thresholds in rules should be appropriately tiered to account for an institution’s risk profile. 

Community banks should have a lesser regulatory burden than “too big to fail” banks, which pose significant risks to consumers and the financial system. ICBA recommends that agencies act to adjust outdated and excessive thresholds whose costs outweigh the benefits, emphasizing common sense changes that can be accomplished without negatively affecting the public interest.

Getting involved and taking action

These are just a few of the recommendations ICBA made in response to the call for deregulatory suggestions. They represent just a small portion of ICBA’s broader effort to work with the administration and federal regulators to right-size regulations and ensure they are appropriately tailored to the actual risk that institutions pose to consumers and the financial system. 

ICBA is also actively engaging with all banking agencies and the CFPB to review existing rules and recommend additional changes, ranging from rescinding or revising outdated regulations and thresholds to revisiting guidance and other regulatory requirements.