REGULATORY Review

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Top regulatory issues in 2006 and beyond

Regulatory burden issues will again be front and center in 2006 as ICBA advocates for community banks before federal bank regulators and other policy makers.

ICBA will continue its efforts to build on the significant successes of 2005. These included: streamlined Community Reinvestment Act (CRA) examinations for banks up to $1 billion in assets and an expanded list of eligible community development activities for distressed and underserved rural and disaster areas; relaxation of costly internal control audit requirements for privately held banks up to $1 billion in assets; and extended SEC compliance deadlines for non-accelerated filers for internal control attest ation requirements.

This will also be the first full year with new faces atop each of the bank regulatory agencies. With Ben S. Bernanke's installation as Federal Reserve Chairman, the changing of the guard at the agencies begun last August is complete.

Eyes will be on the FDIC as it considers Wal-Mart's controversial pending application to enter the banking business by chartering an FDIC-insured Utah industrial loan company (ILC). ICBA will continue its staunch opposition to the application and lead the fight to keep Wal-Mart out of banking to preserve the separation of banking and commerce (see "Legislative Forecast," Independent Banker, February 2006).

The following articles outline the history and outlook on key regulatory issues for 2006. ICBA will continue to vigorously promote community bank interests in each of these areas.

* Deposit Insurance Reform: Once deposit insurance reform passes the Congress, the FDIC must write rules to implement the provisions of the legislation including indexation of coverage limits and a new risk-based premium system.

* Regulatory Burden Review: Bank regulators will complete their three-year, soup-to-nuts review of bank regulations to identify those that are outdated, unnecessary or unduly burdensome and make recommendations to Congress on burden reduction measures.

* Risk-Based Capital Rules: Regulators will consider changes to risk-based capital rules for Basel I banks to increase risk-sensitivity and address competitive disparities with rules for large Basel II banks.

* Bank Secrecy Act (BSA): A heightened focus on anti-money laundering and anti-terrorist financing compliance under the BSA and the USA Patriot Act will continue.

* Credit Quality: Regulators will increase their scrutiny on the quality of bank lending portfolios and complete new guidance on prudently managing non-traditional mortgage and commercial real estate portfolios.

* Sarbanes-Oxley Act (SOX) Relief: The Securities and Exchange Commission (SEC) will consider the recommendations of the SEC Advisory Committee on Smaller Public Companies for securities law relief for small issuers, including relief from the internal control attestation requirements of the Sarbanes-Oxley Act.

* Accounting Issues: The Financial Accounting Standards Board (FASB) and other accounting standards setters will continue work on several issues that impact community banks' business including accounting for loan participations, allowance for loan losses, and fair value accounting.

* Credit Card Disclosures: The Federal Reserve will issue rules to implement new customer disclosures about minimum payments as required by the bankruptcy reform law of 2005.

* Online Banking Security: Banks are required to have more robust customer authentication measures, so-called "multi-factor authentication," in place by year-end to protect online banking customers.

Deposit Insurance Reform Looms

Once deposit insurance reform passes the Congress, the Federal Deposit Insurance Corp. (FDIC) will be busy writing implementing rules. The agency will have nine months to complete the rulemakings, all of which are subject to public comment. Issues that must be tackled include:

Coverage Increases. …