A Battle Won

During the past few weeks, a series of events occurred that ended favorably for a small subset of community bankers. When the Volcker Rule of the Dodd-Frank Act regulations was released on Dec. 10, 2013, it quickly was discovered that one provision would require divestiture of collateralized debt obligations backed by trust preferred securities. Immediately an all-out lobbying effort was organized, aimed at the five federal regulators that issued the regulations. Initially the regulators admitted that the provision was an oversight, and that they were working on a fix. However time was of the essence, with many accounting firms advising clients to sell these assets by year-end, at the cost of significant write-offs.

While a few banks did sell at a loss, most put their faith in the bank trade associations acting on their behalf. The next development was that the regulators issued, as a “fix,” a three-page document of frequently asked questions. Needless to say, this tepid response did little to assuage those community banks — 275 in all, with 16 based in Indiana — that owned these assets.

While many of us were involved in discussions about next steps, the American Bankers Association and three of its members filed suit against the regulators. This action was the turning point, as it attracted the attention of the regulators. Consequently, on Jan. 14, the regulators issued guidance that made those assets legal to own, subject to the Collins Amendment of the Dodd-Frank Act.

During this process, the congressional delegations from Indiana and Mississippi issued joint letters to these regulators, reminding them that the Volcker Rule never was intended to apply to community banks. When Congress returned from its winter break, bills were introduced in both the House and the Senate to remedy the situation. We are particularly thankful for the leadership of Rep. Marlin Stutzman, a member of the House Banking Committee, to garner the signatures of a large majority of the House members from Indiana. Others sent their own letters, for which we also are grateful.

While we appreciate the final actions of those regulators, clearly they should have drafted the regulations properly to start with or, at least upon finding an unintended result, should have remedied it promptly. I am reminded of Winston Churchill’s quote: “The United States invariably does the right thing, after having exhausted every other alternative.”

The lessons learned are that the national and state bank trade associations do wield power, that regulators can act quickly when they must, and that community banks are well respected by legislators and ably represented by their trade associations. Many thanks to the American Bankers Association, the Independent Community Bankers of America and all of the state associations that engaged in this important battle.

S. Joe DeHaven, 01/22/14

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