SDBA eNews

March 28, 2019

Bill Would Level Playing Field for Banks on Farm Real Estate Loans

Rep. Steve Watkins (R-Kan.) on Tuesday introduced the Enhancing Credit Opportunities for Rural America Act (H.R. 1872), which would end taxation of interest earned from agricultural real estate loans. This ABA-advocated bill would provide rural bankers with the same tax status as Farm Credit System lenders when making loans secured by ag real estate, thus leveling the playing field between banks and the tax-advantaged FCS.

“Small town lenders are crucial to the viability of rural America. Community banks and their ag customers have unfortunately had to adjust to years of weak commodity prices while family farm debts have become increasingly highly-leveraged. In fact, farm delinquencies are sadly at their highest rate in nine years. This timely legislation would give greater certainty to small town folks by enhancing and expanding rural access to credit,” said Congressman Watkins.

Agencies Encourage Banks to Help Customers Affected by Midwest Flooding

Recognizing the serious effects of flooding in the Midwest and Great Plains, federal and state financial regulatory agencies on Monday issued a joint statement reminding banks of supervisory expectations related to disaster recovery. Regulators encouraged banks to work constructively to meet the financial needs of their communities.

The statement addresses supervisory expectations related to lending activities, operating temporary bank facilities, publishing requirements, regulatory reporting requirements, activities that are eligible for Community Reinvestment Act credit and investments. The agencies also provided links to previously issued examiner guidance for institutions affected by major disasters. Read the agencies’ statement.

ABA Urges House Committee to Support Cannabis Banking Bill

Ahead of Tuesday's markup of the bipartisan Secure and Fair Enforcement Banking Act—which would address the issue of providing financial services to cannabis-related business—ABA wrote to members of the House Financial Services Committee on Monday in support of the bill.

ABA noted that the bill, which is sponsored by Reps. Ed Perlmutter (D-Colo.), Denny Heck (D-Wa.), Steve Stivers (R-Ohio) and Warren Davidson (R-Ohio), is “an important first step” to addressing the discrepancies between state and federal law by providing a safe harbor for banks that serve businesses in the 33 states where cannabis is currently legal.

“Providing a mechanism for the cannabis industry to access the banking system would help those communities reduce cash-motivated crimes, increase the efficiency of tax collections, and improve the financial transparency of the cannabis industry,” ABA wrote. “It would also subject cannabis businesses to increased oversight of their financial activities.”

ABA also submitted a joint letter with the Credit Union National Association in support of the bill. “Although we do not take a position on the legalization of marijuana, our members are committed to serving the financial needs of their communities—including those that have voted to legalize cannabis,” wrote ABA President and CEO Rob Nichols and CUNA President and CEO Jim Nussle. Read ABA’s memo. Read the joint letter.

State Associations Raise Concerns About National Rate Cap 

ABA joined a group of 51 state bankers associations in a letter to FDIC Chairman Jelena McWilliams last Thursday voicing concerns that the national rate cap—which is intended to prevent struggling banks from offering excessively high rates—is being used as a proxy for volatile deposits in examinations of healthy banks. The groups noted that FDIC’s calculation methodology has not kept pace with interest rates and does not account for differences in local markets and competition between banks.

As the agency reconsiders its brokered deposit framework, the groups urged the FDIC to also work to ensure that the national rate cap is not being applied to healthy banks through the supervisory process. “Supervisory use of an artificially low national rate cap is discouraging healthy banks from raising or holding what would otherwise be considered stable deposits,” the groups noted. Read the letter. For more information, contact ABA’s Alison Touhey.

IRS Issues Proposed Regulations on BOLI Transfers

The Internal Revenue Service and the Treasury Department last Friday issued proposed regulations related to new reporting rules for certain transfers of life insurance policies that were included in the 2017 tax reform law.

Among other things, the regulations provide needed clarity regarding circumstances in which bank-owned life insurance polices are transferred as part of a bank merger or acquisition. In general, the guidance provides that tax-free transfers of policies between C corporations that do not have more than 50 percent of their assets in BOLI policies are not subject to the new reporting and income inclusion rules.

ABA welcomed the guidance, noting that prior to its issuance, there was concern that tax benefits associated with the receipt of proceeds from transferred BOLI policies may not be eligible for exclusion from income. As M&A activity continues to pick up across the country, banks will benefit from having greater clarity in this area, ABA added. The association is in the process of reviewing the guidance and will work closely with its members to provide feedback. View the proposed regulations. For more information, contact ABA’s John Kinsella or Curtis Dubay

Members Appointed to SD's Local Bankruptcy Rules Committee

The following individuals have been appointed to three-year terms, beginning April 1, on the Local Bankruptcy Rules Committee for the U.S.  Bankruptcy Court for the District of South Dakota: Stan H. Anker, Laura L. Kulm Ask,  Stephanie C. Bengford, Roger W. Damgaard, Patrick T. Dougherty, Keith A. Gauer, Gregory P. Grajczyk, Ronald J. Hall, John H. Mairose, Jesse J. Ronning and Dale A. Wein. Three individuals will serve as ex officio nonvoting members of the committee: Frederick M. Entwistle, Kay Cee Hodson and James L. Snyder.

The goal of the U.S. Bankruptcy Court for the District of South Dakota is to provide an impartial and accessible forum for the just, timely and economic resolution of bankruptcy proceedings within its jurisdiction. Read the general order.

Webinar: GLBA Safeguards Rule Proposed Changes

Over 17 years ago, the Gramm-Leach-Bliley Act (GLBA) and the Federal Trade Commission (FTC) issued the Safeguards Rule and the Privacy Rule, requiring financial institutions to document and implement an information security program to protect customer information.

Now, in one of the biggest proposed regulatory changes to the currently vague requirements of GLBA, the FTC proposes including the following controls: formal incident response plan, designated CISO, least privileges model and use reviews, physical access restrictions, encryption of customer data at rest and in transit, multifactor authentication, change management, detection of unauthorized access and more. The FTC also proposes to broaden the scope of covered entities to include critical vendors, fintech companies, universities, tax preparers, accountants and more.

Join GSB's hot topic webinar "GLBA Safeguards Rule Proposed Changes" on April 15 to review the proposed changes to the safeguard controls, scope of covered entities, how you can make comments on the proposed changes, and insight into the impacts on our banks, critical vendors and business in our communities. The presenter will be Jon Waldman with SBS CyberSecurity.

 The 90-minute webinar will begin at 2 p.m. CDT. The cost of the webinar is $189. Learn more and register

Podcast: The Emotional Roots of Relationship Banking

Micah Bartlett’s views on “relationship banking” are formed by a fundamental insight: most people have a fraught emotional relationship with money. For most customers, he says in the latest ABA Banking Journal Podcast, finances cause anxiety, not empowerment. “There’s a big emotional component to money in people’s lives, and that’s helped inform how we approach our relationships with our customers.”

Meanwhile, community banks thrive on expertise about their customers, adds the president and CEO of Town and Country Bank in Springfield, Ill. “When we’re delivering products and solutions to our customers, it’s based on specific knowledge of their business, their industry, their needs.” To help build that expertise — and lay a foundation for a supportive relationship — Town and Country bank staff make thousands of outreach calls each year, not to pitch products but to understand how customers are doing.

“The majority of our customers don’t regularly come in the bank. If you’re through the onboarding process and you don’t have any program to reach out to those customers, their connection with you is really nothing more than the digital experience,” says Bartlett. “We want to take that a step further and make sure we’re staying in connection, even with customers we don’t see on a regular basis.” Listen to the episode.

Compliance Alliance

Question of the Week

Question:  Does the bank have to comply with the appraisal independence requirements even if an appraisal is not required?

Answer: While not an explicit requirement if the appraisal itself is not required, we advise that the bank should ensure independence in the appraisal ordering process even if the appraisal was not required by the appraisal regulations. Note that the bank should also follow the same independence requirements for evaluations as well. The independence requirements can be found in the Interagency Appraisal and Evaluation Guidelines here:

Not a member? Learn more about membership with Compliance Alliance by attending one of our live demos:

Compliance rules and regulations change quickly. For timely compliance updates, subscribe to Compliance Alliance’s email newsletters.

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 Bousa, SDBA, at 800.726.7322 or via email.