Standing Up to a Reckless Regulator

regulationEvery now and then we have the chance to stand up for what’s right against powerful forces. As the legacy of a group of colonists who stared down and defeated the world’s greatest empire, it’s virtually our birthright as Americans. So in some ways ICBA’s federal lawsuit against the National Credit Union Administration for its unlawful lending rule feels like the extension of a longstanding national tradition.

ICBA’s suit challenges the NCUA’s rule allowing tax-exempt credit unions to exceed commercial lending limits set by Congress. In a nutshell, federal law defines credit union “member business loans” to include any and all commercial loans on a credit union’s balance sheet. But the NCUA’s final rule unlawfully allows nonmember commercial loans and purchased loan participations to be excluded from the statutory limits.

Regulatory Rubber Stamp
If this issue sounds familiar, that’s because credit unions have been trying to push it through Congress for more than a decade. But lawmakers have repeatedly declined to expand credit union lending loopholes. What is a tax-exempt industry to do?

Well, if you’re the credit union industry, you simply wait for your captive federal regulator to rewrite the law for you. And that is precisely what the NCUA has done—unilaterally sidestep the legislative branch. You know, the branch of government those scrappy American provincials later enshrined in Article I of the U.S. Constitution.

The only problem for the credit unions is that ICBA was watching. Indeed, we’ve seen more than enough. After years of evolving from a regulatory agency to a cheerleader for its tax-exempt industry, the NCUA has finally gone too far. In attempting to serve as the regulatory rubber stamp for a handful of growth-oriented credit unions seeking to expand at all costs, the NCUA has overstepped its legal bounds.

Bad Faith, Bad Policy
Quite simply, the NCUA’s business-lending rule contradicts federal law, which expressly limits the amount of member business loans that may be held on credit union balance sheets. The NCUA has absolutely no authority to concoct its own exceptions to the “member business loan” definition. Indeed, the agency itself has acknowledged that it “does not have authority to amend the MBL definition through regulation.”

Not only is the NCUA rule unlawful, it’s also bad policy. The agency’s plan places undue risk on U.S. taxpayers, expands government-sponsored advantages for credit unions, and jeopardizes the safety and soundness of these institutions. Our tax dollars should not be used to promote reckless lending practices at these tax-exempt companies.

So here we are—taking a stand. ICBA’s volunteer board of community bankers has elected to confront a heedless federal agency and hold it accountable. We might not be Washington, Jefferson and Adams, but the NCUA isn’t exactly the British Empire, either.

So I encourage community bankers, our allies, and consumers everywhere to go to ICBA’s “Stop the CU Grab” website to learn more about the lawsuit and how to help through the ICBA Credit Union Litigation Fund. After all, we’re taking action not only because the law is on our side, but because it’s the right thing to do.

Taking the Reins of Leadership

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“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”

General Colin Powell

Good leaders aren’t born, they’re forged. They are inspired, shaped and mentored. They are indebted to the individuals who have coached them through both obstacles and successes, and they are obliged to pay that debt forward to the next generation.

During my more than 30 years in community banking, I’ve learned valuable lessons about preparation, perseverance and commitment from many leaders of this beloved industry. I have worked to repay that debt by fighting for the future of community banking through ICBA. And I highly encourage community bank executives across our nation to support the next generation by sending their future leaders to this year’s LEAD FWD Summit.

This collaborative forum, set for Sept. 11-14 in Denver, offers numerous opportunities for tomorrow’s leaders to interact with industry veterans and gain insights on how to achieve long-term success. The interactive sessions and speakers were selected to inspire promising leaders to realize their potential and return to your bank with renewed drive and actionable strategies to meet the needs of customers for years to come.

I’ll be there at the LEAD FWD Summit to offer my account of what it takes to thrive in today’s competitive market. And I hope community banks from coast to coast will be represented as well.

At this year’s convention, ICBA Chairman Rebeca Romero Rainey spoke of the wisdom, strength and determination she gained from community bankers who came before her—those who thought big and weren’t afraid to take risks. Rebeca challenged all of us to think about our role as a mentor and what we can do to empower the next generation of community bank leaders.

So I ask community bankers: what will you do to support tomorrow’s leaders and carry our industry forward? Providing the opportunity for them to learn from successful innovators and trailblazers is a great place to start.

Community Bankers Achieve Vital Changes to Accounting Rules

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It took years of hard work, but community bankers once again showed they can make a positive impact on new regulations through engaged grassroots advocacy. The latest industry success came with the release of the Financial Accounting Standards Board’s final updated standard on credit losses.

This Current Expected Credit Loss standard is by no means perfect, requiring all banks to account for credit losses at the point of origination. But community bankers and ICBA have singlehandedly achieved numerous and important revisions to the standard that will make it more workable for Main Street institutions and avoid potentially disastrous consequences for our industry.

Key Concessions

Compared with what was originally proposed, FASB has completely departed from a standard that would have required complex modeling systems for institutions large and small. Instead, it now explicitly allows community banks to continue using their personal understanding of local markets to determine loan-loss reserves. That means community banks will be able to continue using qualitative factors, historical losses and spreadsheets to calculate their loan-loss reserves when the standard is implemented in 2020-21.

Federal regulators showed they are on board with this approach, announcing in formal guidance that community banks will be able to meet the new standards without complex models or third-party service providers. This is complete reversal from a year ago, when a regulator-led webinar suggested banks should consider investing in third-party modeling systems.

Years of Outreach

Why the change of heart? It’s due entirely to the tenacity of community bankers, our affiliated state associations, and ICBA, the only national trade association that stood up exclusively for our industry. ICBA led grassroots outreach on the standard since it was introduced nearly six years ago—including a 2011 petition signed by roughly 5,000 bankers. Meanwhile, ICBA community bankers have worked directly with FASB to explain the unique community bank business model, resulting in these important changes.

ICBA community bankers Greg Ohlendorf, Lucas White and Tim Zimmerman deserve special congratulations and thanks for their efforts. All three volunteered hundreds of hours of their precious time to work with FASB and communicate community banker concerns. Most recently, Zimmerman, ICBA’s vice chairman, has served as the sole community bank representative on FASB’s Transition Resource Group. The TRG will continue to play a key role in assuring the standard is implemented as intended, with the much-needed industry-advocated improvements.

Real-World Impact

The impact of these changes cannot be overstated. As originally proposed, FASB’s impairment proposal would have crippled community banks and their ability to serve local communities across the nation. Now, community banks will be able to continue accounting for loan losses in a more scalable manner, using their own systems and first-hand knowledge of their local customers and communities.

Indeed, the evolution of the CECL standard warrants congratulations all around. These changes simply could not have been achieved without the input of an entire industry of community bankers. Hats off to my community bank colleagues from coast to coast for fighting this important battle and accomplishing so much.

A Voice That Must Be Heard

“You say it again, and you say it again, and you say it again, and you say it again, and you say it again, and then again and again and again and again, and about the time that you’re absolutely sick of saying it is about the time that your target audience has heard it for the first time.”

Frank Luntz, political strategist

Community bankers aren’t the type to hold back an opinion, whether it’s offering advice to a small-business customer or weighing in on how to promote local economic activity. But in this age of short news cycles and even shorter attention spans, community bankers have to be willing to tell their story time and time again to connect with policymakers and the broader public.

The future of the industry depends on our ability to speak out passionately and directly. And with ICBA Community Banking Month and the countdown to the ICBA Washington Policy Summit underway, now is the time for community bankers to make their voice heard loud and clear. That’s why ICBA is offering a variety of resources to help community bankers spread the industry’s message.CheckOutInfographic

The ICBA Community Banking Month website offers resources that community bankers can use to espouse the benefits of community banking, including a custom news release and op-ed, sample social media updates, and an infographic. It also offers a custom letter to Congress that community bank customers can use to advocate on behalf of the industry to their lawmakers.

Meanwhile, community bankers can continue the industry’s push for regulatory relief and other important policy goals at this month’s ICBA Washington Policy Summit. Scheduled for April 24-27 in the nation’s capital, the summit allows community bankers to meet directly with their members of Congress and regulators to advance smarter banking policies.

As ICBA Chairman Rebeca Romero Rainey said at last month’s ICBA Community Banking LIVE convention, each community bank has a unique story of how they serve their local communities and make an individualized impact on their customers. Our industry’s success depends on our ability to share that story—to the people in our communities, to the news media, to the policymakers who establish the laws we live by, and to the next generation of community bankers.

So let’s tap into that and tell the community banking story—again and again. While you might get tired of repeating the benefits of banking locally and the need for policymakers to allow this system to thrive, we owe it to our communities, our economy and the future of our industry to make sure our voices are truly heard.