A Washington Perspective on Regulatory and Legislative Developments - - PowerPoint PPT Presentation

A Washington Perspective on Regulatory and Legislative Developments

E ric M. Ma rio n Silve r, F re e dma n, T a ff & T ie rna n L L P

PACB 137th Annua l Co nve ntio n | Ame lia I sla nd, F lo rida Se pte mb e r 5-8, 2014

Topics of Discussion

Regulations in Perspective

• Renewed focus on community banks
• Basel III
• Effects of QM Rules
• BSA/AML
• FDIC Guidance on S Corp Dividends

Developments on Capitol Hill

• Bills likely to Pass this Term
• Prospects for GSE reform and the

Future Senate

• Mutual Capital Certificates

Future of Community Banks

• Resilience of Community Banks
• Economies of Scale
• Prospects For De Novos

2

Renewed Focus on Community Banks

T he supe rviso ry a nd re g ula to ry e nviro nme nt re ma ins c ha lle ng ing , b ut the re a re ho pe ful sig ns tha t b o th re g ula to rs a nd le g isla to rs a re a tte mpting to a ddre ss issue s impo rta nt to c o mmunity b a nks. Initia tive s ha ve b e e n unde rta ke n b y the F DIC, F RB, F F IE C, CF PB a nd OCC to pro vide g uida nc e a nd a tte mpt to ta ilo r re g ula tio ns.

• T

he F

e de ral De posit Insuranc e Corp. e xpa nde d its q ua rte rly b a nking pro file fo r the first q ua rte r o f 2014

to inc lude a ne w se c tio n o n the pe rfo rma nc e o f c o mmunity b a nks - https:/ / www2.fdic .g o v/ q b p/ 2014ma r/ q b p.pd f. In the first q ua rte r o f 2014, the F DIC pro duc e d a re po rt

• n c o mmunity b a nk c o nso lida tio n -

https:/ / www.fdic .g o v/ b a nk/ a na lytic a l/ q ua rte rly/ 2014_vo l8_2/ a rtic le .pdf fo llo wing o n its Co mmunity Ba nking Study re le a se d in De c e mb e r 2012 - https:/ / www.fdic .g o v/ re g ula tio ns/ re so urc e s/ c b i/ re po rt/ c b i- full.pdf. In 2009, the F DIC c re a te d the F DIC Adviso ry Co mmitte e o n Co mmunity Ba nking . T he Co mmitte e ha s he ld re g ula r me e ting s thre e time s pe r ye a r.

• T

he F

e de ral Re se rve Bank (“F

RB”) of Kansas City re le a se d a b ulle tin in Ma y with de ta ils o n the ne w c a pita l rule fo r c o mmunity b a nks, whic h ta ke s e ffe c t o n Ja nua ry 1, 2015, inc luding ke y c ha ng e s a nd a re a s o f supe rviso ry fo c us. http:/ / www.c o mmunityb a nking c o nne c tio ns.o rg / fe dlinks/ 2014/ Ma y2014.pd f

• T

he F

RB of Minne apolis ha s unde rta ke n to study the e ffe c ts o f inc re a se d b a nking supe rvisio n a nd

re g ula tio n o n c o nso lida tio n a mo ng c o mmunity b a nks a nd q ua ntifying the c o sts o f the a dditio na l re g ula tio n. https:/ / www.minne a po lisfe d.o rg / pub lic a tio ns_pa pe rs/ pub _displa y.c fm? id=5102&&

• T

he Consume r F

inanc ial Prote c tion Bure au c re a te d the Co mmunity Ba nk Adviso ry Co unc il (“CBAC”).

T he CBAC’ s Cha rte r e stima te s fo ur me e ting s pe r ye a r. T he la st me e ting wa s he ld in Oc to b e r 2013. http:/ / www.c o nsume rfina nc e .g o v/ a d viso ry-g ro ups/ a dviso ry-g ro ups-me e ting -de ta ils/

• T

he F

e de ral F inanc ial Institutions E xamination Counc il (“F

F IE C”) he ld a we b ina r in Ma y, whic h is a va ila b le o n the F F IE C’ s we b site , o n c yb e r se c urity pre pa re dne ss fo r c o mmunity fina nc ia l institutio ns. http:/ / www.ffie c .g o v/ pre ss/ PDF / CCIWG_Cyb e rse c urity_Dra ft18fo rIndustry_Ma y7we b ina r.pdf

3

Regulatory Relief

• I

n the c urre nt e nviro nme nt, it is like ly tha t le g isla tive re lie f ma y still pro ve to b e q uite mo de st.

• Pro spe c ts fo r re g ula to ry re lie f re ma in c o nstra ine d b y

the re q uire me nts o f the Do dd-F ra nk Ac t a nd the c o nc e rns o f b a nking a g e nc y po lic yma ke rs tha t the y ne e d to b e re a so na b ly vig ila nt in pre ve nting a no the r fina nc ia l c risis.

4

Status of Dodd-Frank Rulemaking

67% 19% 14%

*Includes Dodd-Frank Rulemaking as of May 31, 2014.

Complete In Progress Not Started

5

Bloomberg Brief, Financial Regulation Community Banking & Credit Unions, Special Edition June 2014.

Sources : Federal Register, BGOV analysis

Almost one-third of Dodd-Frank rules are incomplete after four years.

Basel III

Co mme nts fro m c o mmunity b a nks re sulte d in thre e ma jo r c ha ng e s fro m the pro po se d c a pita l rule . T he se c ha ng e s inc lud e :

• Re side ntia l Mor

tg a g e E xposur e: T

he pro po se d rule c a lle d fo r hig he r risk we ig hts a pplie d to c e rta in re sid e ntia l mo rtg a g e e xpo sure s. No ne o f the pro po se d inc re a se s in we ig hts a re fo und in the fina l rule . T hus, re ma ining unc ha ng e d is the 50 pe rc e nt risk we ig ht fo r “prud e ntly und e rwritte n” first-lie n mo rtg a g e lo a ns tha t a re no t pa st d ue , re po rte d a s no na c c rua l o r re struc ture d , a nd a 100 pe rc e nt risk we ig ht fo r a ll

• the r re sid e ntia l mo rtg a g e s.
• Gr

a ndfa the r e d Ca pita l Instr ume nts a nd T ie r 1 Ca pita l: T

he initia l pro po sa l wo uld ha ve re q uire d trust pre fe rre d se c uritie s a nd c umula tive pe rpe tua l pre fe rre d sto c k to b e pha se d o ut o f tie r 1 c a pita l. T he fina l rule e xe mpts d e po sito ry institutio n ho ld ing c o mpa nie s with le ss tha n $15 b illio n in to ta l c o nso lid a te d a sse ts a s o f De c e mb e r 31, 2009, o r o rg a nize d in mutua l fo rm a s o f Ma y 19, 2010, fro m this re q uire me nt. Gra nd fa the re d c a pita l instrume nts, c o nsiste nt with c urre nt tre a tme nt, a re limite d to 25 pe rc e nt o f a d juste d tie r 1 c a pita l e le me nts.

• Ac c umula te d Othe r

Compr e he nsive Inc ome (AOCI) F ilte r: T

he initia l pro po sa l wo uld ha ve inc lud e d mo st AOCI c o mpo ne nts in re g ula to ry c a pita l. In the fina l rule , c o mmunity b a nking o rg a niza tio ns a re g ive n a o ne -time e le c tio n to filte r c e rta in AOCI c o mpo ne nts, simila r to c urre nt tre a tme nt. T he AOCI

• pt-o ut e le c tio n must b e

ma d e o n the first re g ula to ry re po rt file d a fte r Ja nua ry 1, 2015.

6

Held to Maturity Portfolios Increase

• Unde r the Ba se l I

I I rule s, c ha ng e s in the va lue o f AF S po rtfo lio s wo uld flo w thro ug h re g ula to ry c a pita l a t institutio ns with mo re tha n $250 b illio n in a sse ts.

• HT

M po rtfo lio s g re w to ne a rly 18% o f se c uritie s po rtfo lio s a t the e nd o f the first q ua rte r o f 2014 fro m just unde r 10% two ye a rs a g o .

• Prima rily la rg e r b a nks ha ve inc re a se d the ir HT

M po rtfo lio s. L a rg e r b a nks a re no t o nly trying to pro te c t tho se liq uid se c uritie s fro m ma rk-to -ma rke t a djustme nts tha t c o uld ne g a tive ly impa c t ta ng ib le c o mmo n e q uity b ut a lso c la ssifying a s HT M ma ny o f the liq uid se c uritie s the y ha ve a c q uire d to pre pa re fo r ne w pro visio ns suc h a s the "liq uidity c o ve ra g e ra tio ," o r L CR.

• Still, sma lle r institutio ns ha ve b uilt the ir HT

M po rtfo lio s a s we ll, with b a nks unde r $1.0 b illio n in a sse ts b uilding tho se po rtfo lio s to $38.96 b illio n a t the e nd o f the first q ua rte r, up 13.3% fro m o ne ye a r e a rlie r.

7

Held to Maturity Portfolios Increase

8

FDIC Guidance on S Corp. Dividends

• On July 21, 2014, the F

DI C issue d g uida nc e o n ho w it will e va lua te re q ue sts b y S Co rpo ra tio ns to ma ke divide nd pa yme nts tha t wo uld o the rwise b e pro hib ite d unde r the Ba se l I I I c a pita l c o nse rva tio n b uffe r.

• T

he c a pita l c o nse rva tio n b uffe r will b e pha se d in during 2016-2018 a nd fully e ffe c tive in 2019.

• T

he F DI C g uida nc e pe rmits b a nks tha t ha ve ma de a n S Co rp. e le c tio n to a pply to the F DI C fo r a divide nd wa ive r if the y a re no t o the rwise pe rmitte d to pa y divide nds.

• T

he re is c o nc e rn a b o ut the unc e rta inty o f whe the r a divide nd wa ive r will b e g ra nte d.

9

QM Rules Expected to Cause Higher Operational Costs

Ac c o rd ing to F a nnie Ma e ’ s June Mo rtg a g e L e nd e r Se ntime nt Surve y, the QM rule s a re e xpe c te d to re sult in hig he r c o sts. In the q ua rte rly surve y c o nd uc te d b y F a nnie Ma e ’ s E c o no mic a nd Stra te g ic Re se a rc h Gro up a nd with se nio r mo rtg a g e e xe c utive s a s pa rtic ipa nts:

• 85% o f the le nd e rs re po rte d tha t c o sts fo r q ua lity-c o ntro l-re la te d a c tivitie s ha ve

inc re a se d o ve r the pa st 12 mo nths.

• 74% e xpe c t o pe ra tio na l c o sts to inc re a se a s a re sult o f the QM rule s.
• 80% o f the le nd e rs ha ve no pla n to pursue no n-QM lo a ns, with la rg e r le nd e rs mo re

like ly to re po rt tha t the y pla n to a c tive ly pursue suc h lo a ns.

• 84% re po rte d tha t the y e xpe c t a t le a st 90% o f the ir sing le -fa mily mo rtg a g e
• rig ina tio n d o lla r vo lume to b e c o nsid e re d q ua lifie d mo rtg a g e s und e r the ne w QM

rule s.

• 74% o f a ll le nd e rs surve ye d a g re e tha t “the q ua lity c o ntro l inve stme nts will re d uc e

the ir re purc ha se risk,” with sma lle r le nd e rs le ss like ly to a g re e .

• An e stima te d 95% o f the mo rtg a g e lo a ns b e ing ma d e in the c urre nt ma rke t fit the

QM c rite ria , a c c o rd ing to Ric ha rd Co rd ra y, d ire c to r o f the CF PB.

10

Bank Secrecy Act and Anti-Money Laundering

• Re g ula to rs ha ve b e e n ra mping up sc rutiny o f

c o mplia nc e with Ba nk Se c re c y Ac t a nd Anti-Mo ne y L a unde ring pro visio ns fo r so me time during the e xa m pro c e ss. T he b a r ke e ps g e tting ra ise d hig he r, pa rtic ula rly whe n a b a nk is lo o king to e xpa nd.

• Ba nks suc h a s Ba nc o rpSo uth I

nc ., T upe lo , MS, F ulto n F ina nc ia l Co rp., L a nc a ste r, PA, Ba nc o rp I nc ., Wilming to n, DE , a nd o the rs ha ve re c e ntly b e e n fla g g e d fo r BSA/ AML issue s.

• Ba nc o rpSo uth re c e ntly withdre w two me rg e r

a pplic a tio ns a s a re sult o f BSA c o mplia nc e issue s.

11

Legislative Developments

Be twe e n no w a nd the mid-te rm e le c tio ns thre e ite ms

• f b a nking le g isla tio n a re e xpe c te d to pa ss:
• E

x-I m Ba nk Re a utho riza tio n

• T

e rro rism Risk I nsura nc e Ac t (“T RI A”)

• Co llins Ame ndme nt Co rre c tio n

12

Ex-Im Bank Reauthorization

On July 30 2014, U.S. Se na to rs Jo e Ma nc hin (D-W.Va .), Ma rk K irk (R-IL ), Ro y Blunt (R-MO), Jo e Do nne lly (D-IN), Ma rk Wa rne r (D-VA), Ma ria Ca ntwe ll (D-WA), Ba nking Cha irma n T im Jo hnso n (D-SD), a nd T im K a ine (D-VA) intro d uc e d le g isla tio n to re a utho rize the E xpo rt-Impo rt Ba nk, whic h is se t to e xpire o n Se pte mb e r 30, 2014. T he five -ye a r re a utho riza tio n pa c ka g e wo uld :

• Inc re me nta lly inc re a se the Ba nk’ s spe nd ing a utho rity to $160 b illio n fro m $140 b illio n
• ve r a fo ur-ye a r pe rio d ,
• Re q uire the Ba nk to sub mit re po rts to Co ng re ss d e ta iling its b usine ss pla n a nd risk

e xpo sure , a nd

• E

nsure the Ba nk’ s lo a n lo ss ra tio is le ss tha n two pe rc e nt fo r a ny q ua rte r in tha t fisc a l ye a r.

• T

he b ill wo uld a lso re q uire a Go ve rnme nt Ac c o unta b ility Offic e (GAO) stud y to b e c o mple te d within o ne ye a r to id e ntify the risk to ta xpa ye rs o f the Ba nk’ s Me d ium- T e rm Pro g ra m. In the Ho use , Re pre se nta tive He nsa rling , Cha irma n o f the Ho use F ina nc ia l Se rvic e s Co mmitte e , ha s pub lic ly sta te d his c o nc e rns o ve r the E x-Im Ba nk. One po ssib ility is the Ho use c o uld pa ss a six-mo nth e xte nsio n a nd re visit the issue ne xt ye a r in the e ve nt Re pub lic a ns ta ke o ve r the Se na te in No ve mb e r’ s e le c tio n.

13

Terrorism Risk Insurance Act

T he T e r r

• r

ism Risk Insur a nc e Ac t (T RIA) is pa r t of a F e de r a l pla n for e c onomic c ontinuity a nd r e c ove r y a fte r a se ve r e te r r

• r

ist a tta c k on the Unite d Sta te s. E na c te d following the Se pte mbe r 11th a tta c ks, the pla n sta bilize d the c omme r c ia l insur a nc e ma r ke t. T RIA r e quir e s insur e r s to offe r c ove r a g e for te r r

• r

ism to polic yholde r s in c e r ta in c omme r c ia l insur a nc e line s.

• On July 17, 2014, the U.S. Se na te pa sse d the T

e rro rism Risk Insura nc e Ac t re ne wa l b ill, S. 2244 re a utho rizing T RI A fo r a dditio na l se ve n ye a rs a nd inc re a sing the de duc tib le a nd the re c o upme nt thre sho ld.

• T

he Ho use b ill, T RI A Re fo rm Ac t o f 2014, H.R. 4871, ha s b e e n vo te d o ut o f the F ina nc ia l Se rvic e s Co mmitte e b ut no t ye t vo te d o n b y the full Ho use . T he b ill wo uld e xte nd T RI A fo r five ye a rs thro ug h c a le nda r ye a r 2019 a nd wo uld b ifurc a te te rro rism re la te d da ma g e s into tho se c a use d b y c o nve ntio na l me a ns (a $500 millio n trig g e r) a nd tho se c a use d b y NBCR – nuc le a r, b io lo g ic a l, c he mic a l a nd ra dio lo g ic a l so urc e s ($100 millio n trig g e r), a s we ll a s o the r c ha ng e s to the e xisting pro g ra m: inc re a sing the insure r de duc tib le ; the industry a g g re g a te de duc tib le ; the thre sho ld a b o ve whic h da ma g e s a re pa id; a nd a llo wing sma ll insure rs to “o pt-o ut”

• f the pro g ra m.

14

Collins Amendment

Collins fix: S. 2270, the Insura nc e Ca pita l Sta nd a rd s Cla rific a tio n Ac t o f 2014 a nd the

c o mpa nio n Ho use b ill, H.R. 4510, c la rifie s tha t the F e d c a n a pply insura nc e -b a se d c a pita l sta nd a rd s to the insura nc e po rtio n o f a b usine ss, while still ke e ping b a nking c a pita l sta nd a rd s fo r the b a nking po rtio n o f the b usine ss. It wo uld re vise Se c . 171 o f the Do d d -F ra nk Ac t, the so -c a lle d “Co llins Ame nd me nt.”

• T

he Se na te Ba nking Co mmitte e d e c id e d no t to inc lud e the Co llins Ame nd me nt in its T RIA-e xte nsio n b ill, o pting inste a d to “ho tline ” S. 2270, to g e t Se na te a ppro va l und e r e xpe d ite d pro c e d ure s.

• It wo uld impa c t insure rs suc h a s Ame ric a n Inte rna tio na l Gro up a nd Prud e ntia l

F ina nc ia l tha t ha ve b e e n d e sig na te d a s syste mic a lly impo rta nt fina nc ia l institutio ns (SIF I), a nd e ve ntua lly Me tL ife , whic h is b e ing e va lua te d a s a po te ntia l SIF I , fro m b a nk-like c a pita l re g ula tio n b y the F RB.

• It wo uld a lso impa c t insure rs suc h a s Sta te F

a rm a nd USAA, whic h the F RB o ve rse e s a s the ir c o nso lid a te d re g ula to r b e c a use the y o pe ra te sa ving s a nd lo a n ho ld ing c o mpa nie s. T he F RB ha s no t d isc lo se d a list o f o the r insure rs it o ve rse e s in this c a pa c ity.

15

Prospects for GSE reform and the Future Senate

• T

he two Se na te GSE re fo rm b ills a nd o ne in the Ho use a re like ly no t to g o fo rwa rd this te rm.

• While the c o mpo sitio n o f the Se na te is ye t to b e de te rmine d, if

Re pub lic a ns we re to win a ma jo rity it wo uld impa c t the b a nking c o mmitte e .

• Se na to r Ric ha rd She lb y, a n Ala b a ma Re pub lic a n who pre vio usly

c ha ire d the Se na te Ba nking Co mmitte e , is fa vo re d to le a d the c o mmitte e . Re pre se nta tive Ca pito , a me mb e r o f Ho use F ina nc ia l Se rvic e s Co mmitte e , is fa vo re d to win a We st Virg inia Se na te se a t.

• T

he c ha ng e in Ho use le a de rship ma y a lso ha ve a n impa c t o n the future o f GSE re fo rm.

16

Mutual Capital Certificates

• H.R. 4252: Mutua l Ba nk Cho ic e a nd Co ntinuity Ac t o f 2014,

a me nds the F DI A to a utho rize a mutua l de po sito ry to issue mutua l c a pita l c e rtific a te s tha t q ua lify a s c o mmo n e q uity T ie r 1 c a pita l.

• Autho rize s the OCC to c ha rte r mutua l na tio na l b a nks e ithe r de

no vo o r thro ug h c o nve rsio n o f a n insure d de po sito ry institutio n

• r insure d c re dit unio n.
• T

his is the se c o nd time suc h b ills we re intro duc e d a nd the y ha ve a stro ng lo b b y (Se e H.R. 4217 (112th Co ng re ss)).

• Mutua l c a pita l c e rtific a te s wo uld pro vide a me a ns fo r ra ising

c a pita l witho ut c o nve ying sha re ho lde r rig hts, ho we ve r, the c o sts o f suc h c a pita l ma y de te r the ir use .

17

Resilience of Community Banks

Cha ng ing de finitio n o f “Co mmunity Ba nk”

• Co mmo n pra c tic e ha d b e e n to de fine c o mmunity b a nks in

te rms o f a sse t size , usua lly b e lo w $1.0 b illio n.

• T

he F RB o f Minne a po lis studie s fo c use d o n institutio ns unde r $10 b illio n, a sub sta ntia l inc re a se o ve r the $1.0 b illio n thre sho ld.

• T

he F DI C ha s ta ke n a mo re nua nc e d a ppro a c h a nd de fine d c o mmunity b a nks b a se d o n a b a nk’ s b usine ss mo de l with a fo c us o n le nding a nd de po sit g a the ring a nd a limite d g e o g ra phic sc o pe o f o pe ra tio ns.

• At ye a r e nd 2013, unde r the F

DI C’ s de finitio n o f “c o mmunity b a nk” 330 b a nks e xc e e de d the $1.0 b illio n size limit b ut me t the de finitio n o f a c o mmunity b a nk.

18

Assessing Community Bank Consolidation

19

Bank Survival 90% Confidence Band Actual Data Prior Forecast Current Forecast Upper Lower 2014 Q3 6,337 6,302 2014 Q4 6,185 6,337 6,337 6,337 2015 Q1 6,067 6,175 6,338 5,968 2015 Q2 5,950 6,014 6,339 5,598 2015 Q3 5,852 6,339 5,229 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2011 2012 2013 2014 2015 2016 Number of Banks

Number of United States Community Banks: 2011 to 2015

Current baseline estimate as of April 2014 90% confidence band Prior baseline estimate as of January 2014 Actual number of banks

(Baseline Estimates Using Bank Survival Model)

For details on this baseline estimate, see "Assessing Community Bank Consolidation" (Minneapolis Fed Economic Policy Paper 14-1)

In a Consolidating Industry, Community Banks Remain Significant

• Ho we ve r yo u de fine a c o mmunity b a nk, the

numb e r o f c o mmunity b a nk c ha rte rs ha s de c line d dra ma tic a lly sinc e its pe a k in 1985.

• Altho ug h, the F

DI C finds tha t c o mmunity b a nks a s a pe rc e nta g e o f a ll b a nks ha ve inc re a se d.

• As o f ye a r-e nd 2013, unde r the F

DI C de finitio n 93%

• f a ll F

DI C-insure d b a nking c ha rte rs me t the de finitio n o f a c o mmunity b a nk.

20

Share of Industry Assets in Decline

• No twithsta nding the inc re a se in the pro po rtio n o f b a nk c ha rte rs

he ld b y c o mmunity b a nks, the ir sha re o f industry a sse ts ha s c o ntinue d to de c line .

• I

n 1985, c o mmunity b a nks he ld 37% o f industry a sse ts b ut b y 2013 tha t sha re ha d de c line d to 14%.

• T

he de c re a se in sha re o f industry a sse ts mirro rs the de c line in sha re o f b a nking o ffic e s whic h de c re a se d fro m 53% o f to ta l b a nking o ffic e s in 1985 to 35% in 2013.

• Co mmunity b a nks a re a lso mo st c o nc e ntra te d in rura l a re a s.

While no nc o mmunity b a nks ha ve so ug ht o ut fa ste r g ro wing urb a n a re a s, c o mmunity b a nks ha ve re ta ine d the ir histo ric a l pre se nc e in rura l no n-me tro p o lita n a re a s. Mo re tha n 70% o f the

• ffic e s a nd de po sits in rura l a re a s a re he ld b y c o mmunity b a nks.

21

Economies of Scale

• T

he F RB studie s ha ve sho wn tha t it is inc re a sing ly diffic ult fo r sma lle r fina nc ia l institutio ns to o pe ra te pro fita b ly.

• Da ta sug g e sts tha t fina nc ia l institutio ns with mo re tha n

$100 millio n in a sse ts ha ve re a c he d a le ve l o f e c o no mie s

• f sc a le a t whic h the y c a n mo re e ffe c tive ly a ddre ss the

a dditio na l c o sts o f re g ula tio ns.

• As e vide nc e fo r this, the numb e r o f b a nks with a sse ts

b e twe e n $100 millio n to $1.0 b illio n inc re a se d 7% fro m 1985 to 2013. Ove r the sa me pe rio d, the numb e r o f institutio ns with a sse ts le ss tha n $100 millio n de c re a se d b y 85%.

22

Costs of Regulation

• As furthe r e vide nc e tha t size ma tte rs, the F

RB o f Minne a po lis a na lyze d the po te ntia l c o sts o f inc re a se d re g ula tio n o n b a nks o f va rio us a sse t size s with a fo c us o n b a nks with a sse ts unde r $50 millio n.

• T

he a na lysis a ssume d tha t hiring a dditio na l e mplo ye e s is a pro xy fo r the a dditio na l c o sts o f re g ula tio n.

• In the c a se o f b a nks with le ss tha n $50 millio n in a sse ts, re turn o n a sse ts

wo uld de c re a se b y 23 b a sis po ints a nd 13% o f the b a nks wo uld b e c o me unpro fita b le .

• T

he a sse ssme nt did no t pla c e a va lue o n a dditio na l te c hno lo g y e xpe nse .

• T

he F DI C study, "Co mmunity Ba nks Re ma in Re silie nt Amid Industry Co nso lida tio n“ no te d the diffic ulty o f se pa ra ting re g ula to ry a nd no n- re g ula to ry e xpe nse a s a pro xy fo r a dditio na l c o sts o f re g ula tio n.

23

Regulatory Costs Calculator

24

The FRB of Minneapolis posted a regulatory cost calculator on its website. https://www.minneapolisfed.org/banking/data/regcostcalc/index.cfm

De Novo Activity

25

De Novo Chartering

• Ba nk o f Bird-in-Ha nd, whic h o pe ne d in No ve mb e r,

2013, is the o nly ne w b a nk e sta b lishe d in the U.S. sinc e 2010.

• T

he o rg a nize rs ra ise d a b o ut $17 millio n in initia l c a pita l fro m a b o ut 200 sha re ho lde rs.

• Da ta sho ws tha t a sse t size ma tte rs. So me whe re o ve r

$100 millio n yo u b e g in to g e t e no ug h sc a le to a b so rb c o sts.

26

Future of Community Banking

• I

t g o e s witho ut sa ying tha t c o mmunity b a nks se rve a n impo rta nt ro le b y pro viding c re dit to sma ll b usine sse s a nd se rving c o mmunitie s tha t a re unde rse rve d b y la rg e fina nc ia l institutio ns.

• I

t se e ms fa irly sa fe to pre dic t tha t in the future c o mmunity b a nks will b e la rg e r a nd fe we r in numb e r.

• T

he c o mmunity b a nks tha t le a rn to a da pt to the ne w no rma l will b e a b le to thrive in the a re a s in whic h the y spe c ia lize . Undo ub te dly mo re ro b ust o pe ra tio ns a nd sta ffing will b e a pre re q uisite fo r future suc c e ss.

27

Questions

F

• r furthe r info rmatio n c o ntac t:

E ric M. Ma rio n, E sq . Silve r, F re e dma n, T a ff & T ie rna n L L P 3299 K Stre e t, N.W., Suite 100 Wa shing to n, DC 20007-4444 Pho ne : (202) 295-4500 F a x: (202) 337-5502 E ma il: e ma rio n@ sfttla w.c o m We b site : http:/ / www.sfttla w.c o m

28

file :/ / / L :\Ma rio n\PACB%20c o nfe re nc e \E M14-Slide s-PACB-h26.pptx