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ICBA Policy Resolutions for 2013
ICBA Priorities for 2013
EXAMINATION ENVIRONMENT
Position
- ICBA will continue to warn regulators that excessively tough safety and soundness and compliance exams that result in potentially unnecessary loss of earnings and capital can have a dramatic and adverse impact on the ability of community banks to lend and therefore impair their ability to support economic growth. To prevent unnecessary bank failures, the examiners must exercise some restraint.
- ICBA will also resist efforts by the regulators to impose hard concentration limits on any type of lending.
- Examiners should take a longer term view of real estate held by banks as collateral for loans and should not demand aggressive write-downs and reclassifications of loans based on forced sale values of real estate during illiquid or dysfunctional markets. Community banks should be allowed flexibility regarding appraisal requirements on properly underwritten performing loans and not be required by examiners to obtain unnecessary and expensive subsequent appraisals.
- Community banks are concerned that certain restrictions or practices that apply to the largest banks will come down to their level as “best practices.” Examiners should not apply large bank practices to community banks since community banks operate from a different, less complex and more conservative business model.
- ICBA supports legislation that would reform the appellate process for agency decisions or actions and allow bankers to appeal to an independent council or ombudsman office an adverse determination made by an examiner in an exam report.
Background
Community Banks and Overzealous Examiners. Community banks continue to encounter overzealous and ultra-conservative examiners who are requiring write-downs or reclassification of performing loans due to the value of collateral irrespective of the income or cash flow of the borrowers and are demanding that banks increase their capital significantly above the minimum regulatory levels established for well-capitalized banks. Examiners are also criticizing the use of certain types of non-core funding such as Federal Home Loan Bank advances and brokered deposits including CDARs reciprocal deposits. Regulatory agreements that limit a bank’s ability to declare dividends harm shareholders and make it more difficult for the bank to raise capital. Compliance exams are also becoming more difficult as examiners are scrutinizing a wide range of loans and disclosures for fair lending, UDAP and Truth-in-Lending violations.
ICBA Will Continue to Warn Regulators About Excessively Tough Exams. ICBA leadership and staff have repeatedly met with the heads of the banking agencies to warn them that excessively tough exams could result in an adverse impact on the ability of community banks to lend and therefore impair their ability to support economic growth. Community banks are significant small business lenders, and any contraction of commercial lending will exacerbate the current economic downturn and will impede economic recovery efforts. To prevent unnecessary bank failures, the examiners must exercise some restraint. ICBA will continue to monitor community bank examinations and communicate its concerns to regulators about examinations. ICBA will also resist any effort by the regulators to impose hard concentration limits on any type of lending, including CRE, agricultural, or residential mortgage lending.
Appeals Process for Exams Needs to be Reformed. ICBA supports legislation that would reform the way bankers can seek a review of an agency decision or action resulting from an exam including a classification of a loan, an exam rating, or the adequacy of loan loss reserve provision. Currently, bankers can seek review of these actions or decisions internally or through the ombudsman’s office. However, these appeals are usually not successful. Furthermore, community bankers often don’t appeal out of fear of retaliation. ICBA supports legislation that would allow bankers to appeal to an independent council or ombudsman office and that would prohibit any sort of retaliation against the bank for exercising its right of appeal.
Long Term View of Real Estate Values. Examiners should take longer term view of real estate held by banks as collateral and should not demand aggressive write-downs and reclassifications of loans based on forced sales of real estate that occur during illiquid or dysfunctional markets. Also, community banks should be allowed flexibility regarding appraisal requirements. Too often, examiners have required banks to obtain expensive subsequent appraisals on loans that have been properly underwritten and that continue to perform.
Applying “Best Practices” to Community Banks. Community banks are concerned that certain restrictions or practices that apply to the largest banks will come down to their level, through the examination process, as encouraged or expected “best practices.” Examiners should not apply large bank practices to community banks since community banks operate from a different, less complex and more conservative business model. Examiners also should not criticize community banks in their final written examination reports for not complying with “best practices” unless the criticism involves a violation of bank policy or regulation. Industry “best practices” should be transparent enough and sufficiently known throughout the industry before they are cited in an examination report.
Staff contacts: Chris Cole, Ann Grochala
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