SDBA eNews

August 9, 2018

IRS, Treasury Propose Regulations on Pass-Through Deduction

The Internal Revenue Service and the Treasury Department yesterday issued proposed regulations implementing the 20 percent deduction that pass-through entities, including Subchapter S corporations, can take under the 2017 tax reform law.

Under the tax law, “specified service trade businesses” such as law firms, accounting firms and medical practices are not eligible for the deduction. However, the law also included “financial services” as a category of SSTB. In letters and in-person meetings, ABA--in partnership with the Independent Community Bankers of America and the Subchapter S Bank Association--emphasized that Congress had intended for banks to be eligible for the pass-through deduction and urged Treasury to clarify that financial services did not include banks in this instance.

“The Treasury Department and the IRS agree with such commenters that this suggests that financial services should be more narrowly interpreted here,” the agencies said in the proposed rule, which “limits the definition of financial services to services typically performed by financial advisors and investment bankers. . . . This includes services provided by financial advisors, investment bankers, wealth planners, and retirement advisors and other similar professionals, but does not include taking deposits or making loans.”

While the clarification is welcome, other aspects of the regulations raise questions about selected activities banks may engage in and qualify for the deduction. There are also de minimis exceptions that may be applicable. Comments on the proposal are due 45 days after it is published in the Federal Register. ABA is in the process of evaluating the package and will providing a staff analysis soon.

FinCEN Extends Beneficial Ownership Relief for CD Rollovers, Loan Renewals

The Financial Crimes Enforcement Network has extended for 30 additional days its temporary suspension of the beneficial ownership requirements for certificate of deposit rollovers and loans that renew automatically. The temporary suspension will now expire on Sept. 8. FinCEN is working to finalize a more permanent solution in response to concerns raised by ABA and others in the banking industry.

As part of the ongoing effort to help banks comply with the customer due diligence rule--which took effect May 11--FinCEN has created an informational webpage that pulls together various documents on the rule.

Website Highlights Banks' Support for America's Farmers and Ranchers

America’s banks provide much-needed credit to America’s farmers and ranchers in the form of loans, lines of credit and other financial products and services. In 2017, the industry had $181 billion in outstanding agricultural loans that support the nation’s farmers from the coasts to the heartland, according to statistics from the new America’s Banks website. “Access to reliable credit is key in any successful business,” remarked one Iowa famer in a video on the site. “In farming, with its ups and downs, we rely on our local bank to keep our operation successful."

To learn more, visit the newly reimagined America’s Banks website, Bankers are encouraged to share the website, facts and figures, stories and videos with their lawmakers and customers and are invited, when sharing on social media, to use the hashtag #AmericasBanks

CFPB Joins Foreign Regulators in Global Financial Innovation Network

The Consumer Financial Protection Bureau on Tuesday announced a new partnership with 11 financial regulators and related organizations around the globe aimed at creating a Global Financial Innovation Network (GFIN). The network is intended to facilitate interactions between regulators and innovators as they seek scale and ubiquity for new technologies.

A joint document published by the agencies outlines the proposed functions of the GFIN, which include serving as a network for sharing experiences between countries, providing a forum for joint policy work and discussions and creating an environment in which firms can test cross-border solutions. The CFPB was the only U.S. financial agency to sign on to the document.

“The major emerging innovation trends within financial services are increasingly global, rather than domestic, in nature,” the GFIN member agencies noted. “Financial services regulators must reconsider existing ways of working and collaborating, in order to balance potential benefits of innovation (for consumers and the financial sector as a whole) with traditional policy objectives, namely financial stability, integrity, financial inclusion, competition and consumer wellbeing and protection.”

The CFPB--as part of the larger working group--is seeking feedback on the consultation document. Comments are due by Oct. 14 and may be submitted through the bureau’s office of innovation. Read the consultation document

Banker Task Force Shares Recommendations on Enhancing De Novo Process

Amid growing interest among investors and bankers in de novo bank charters, ABA Chairman Ken Burgess convened a banker task force to identify current obstacles to de novo formation and recommend solutions. Burgess--who chairs FirstCapital Bank of Texas in Midland, which he founded as a de novo in 1998--and ABA President and CEO Rob Nichols presented the group’s findings to FDIC Chairman Jelena McWilliams in a recent meeting.

Composed primarily of bank leaders with recent de novo experience, the task force identified several regulatory challenges to de novo applications, including a slow and lengthy approval process; perceptions that capital requirements are too high or could change; unrealistic regulatory expectations for deposit funding, along with inhibited deposit-gathering due to the FDIC rate cap; difficulties in getting to scale fast enough to meet regulatory compliance demands; and difficulty in attracting key staff early, in part because of uncertainty from these other challenges.

The task force recommended that the FDIC provide a clear timeline for consideration of applications, reconsider the rate cap as it applies to de novos, clarify that capital requirements will remain in line with those defined in the FDIC’s de novo manual and provide a dedicated de novo team at the agency to handle applications. "We have to make sure that we don’t lose one of the biggest assets we have--a vibrant community bank industry," Burgess said in an American Banker story. "Community banks help fuel entrepreneurship." Read more. For more information, contact ABA's Wayne Abernathy

ABA Members Discuss CRA Reform During Meeting with OCC's Otting

ABA President and CEO Rob Nichols and a delegation of six ABA member banks of various sizes and business models met with Comptroller of the Currency Joseph Otting and other senior OCC officials last week to discuss the ongoing effort to modernize the Community Reinvestment Act. During the meeting, OCC officials said that they plan to request input on CRA reform through an advanced notice of proposed rulemaking, which they expect to release by early September.

The advanced notice of proposed rulemaking (ANPR) will be an important opportunity for banks to weigh in on key issues pertaining to CRA reform, including how CRA performance is measured, what qualifies for CRA credit and how assessment areas should be defined. OCC staff is encouraging input from banks of all charter types, not just OCC-supervised institutions. The results of the ANPR will be shared with the other bank regulatory agencies, with the goal of issuing a proposed rule in 2019. ABA will update members on the details of the OCC meeting during the next CRA working group call. For more information or to join the CRA working group, contact ABA's Krista Shonk

GSBC to Hold Community Bank Investments & Asset Liability Management Workshop

The Graduate School of Banking at Colorado will hold its 13th annual Community Bank Investments & Asset Liability Management Workshop on Sept. 12-14 at Caesars Palace in Las Vegas. The workshop is designed to advise senior managers of community banks on key strategies and opportunities for managing a profitable investment portfolio in an ever-changing interest rate and regulatory environment.

The workshop examines strategic opportunities in managing a community bank’s investment portfolio, asset mix and funding activities. It examines the specific risk and return features of agency securities, residential and commercial mortgage-backed securities, CMOs, municipals and select asset-backed securities in the current economic and political environment. It offers specific strategies to improve your institution’s interest rate risk analytics. Sessions also address corporate governance issues and how to best anticipate common issues raised in regulatory exams.

Learn more and register

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018: A Game Changer for Banks and Local Communities

On May 24, President Donald Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which provides relief from certain rules and regulations for community banks. Among the law’s many provisions, one stands out in importance—most reciprocal deposits are no longer considered “brokered deposits.”

This change benefits banks and local communities across the United States in a number of ways. In particular, it helps Main Street banks to attract and retain a greater amount of deposits that behave like core deposits from local customers by

  • expanding the availability of deposit funding for such banks;
  • providing banks with more funding to make loans available within their communities;
  • potentially lowering the cost of funding for banks over time; and
  • enabling such banks to help customers safeguard deposits above $250,000 and compete for stable funding. Read more...

Compliance Alliance

Question of the Week

Question: Is a loan for a “flipper” property subject to HMDA? This would be a short-term loan to purchase an existing property, renovate it, and then completely pay off the loan with the proceeds of the sale.

Answer: Although the loan may be short-term, if it is for the purpose of renovating an existing home (as opposed to constructing a new home), and if it is not intended to be replaced with later financing, then it would be reportable for HMDA purposes.

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Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call 888.353.3933 or email.

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Contact Alisa DeMers, SDBA, at 800.726.7322 or via email.