FILLING IN the BLANKS

Article excerpt

HOW WILL THE FINANCIAL REGULATION PUZZLE END UP? ICBA EXPERTS OFFER SOME IDEAS

Following passage of the historic Dodd-Frank Wall Street Reform and Consumer Protection Act in July, the federal regulatory agencies lost no time in getting the law's rule-writing and implementation process under way. The law requires hundreds of new rules and dozens of studies-the majority directed at Wall Street institutions, systemically risky banks and nonbank financial institutions-and leaves the regulators much flexibility as they write rules that will put more flesh on the bones of the legislation. Accordingly, this year's rule-writing to implement the law will play a key role in determining its ultimate effect on the financial system in general and on community banks in particular.

The FDIC was quick out of the gate in late September to propose new rules for liquidation and resolution of large nonbanks that get into trouble and to change deposit-insurance rules to shift about one-third of community bank premium costs to larger banks. As the regulatory implementation under the law moves ahead, community banks will be affected by the operations of the new Consumer Financial Protection Bureau and new mortgage lending rules. Publicly held community banks will be affected by new corporate governance rules to be written by the Securities and Exchange Commission.

Other regulatory and policy-making activity is expected to continue. Issues to watch in the coming months include fair-value accounting, capital rules and the operation of the $30 billion Small Business Lending Fund, which will provide capital to community banks to support small-business lending.

Read on for a recap and a forecast from ICBA regulatory experts on these and other important regulatory issues for community banks for 2011.

-Karen Thomas

CONSUMER FINANCIAL PROTECTION BUREAU

Under the Wall Street Reform Act, Congress mandated the creation of the Consumer Financial Protection Bureau, an independent entity under the Federal Reserve that will assume rule-writing authority for consumer financial services regulations and examination authority over nondepository financial institutions and depository institutions with more than $10 billion in assets. The Federal Reserve will provide the CFPB's base funding but may not intervene with its operation or activities.

The new agency will have rule-writing authority over various consumer compliance regulations including the Truth in Lending Act, Truth in Savings Act, Equal Credit Opportunity Act and the Electronic Fund Transfer Act. Nevertheless, prudential regulators may comment on CFPB rules before they are proposed, and the CFPB must respond to these comments in writing. Furthermore, the Financial Stability Oversight Council, made up of the prudential regulators, may set aside a CFPB regulation if two-thirds of the council's members vote to do so.

President Obama will appoint the CFPB's director to a five-year term. It will take time to nominate and have the Senate confirm a director and transfer existing personnel from other regulatory agencies. The official transfer date for all new duties under the CFPB is July 21. Until then, the CFPB is working under the leadership of Professor Elizabeth Warren, special adviser to the president.

-Elizabeth Eurgubian

FAIR-VALUE ACCOUNTING

The Financial Accounting Standards Board received nearly 3,000 comment letters on its highly controversial exposure draft, "Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities," the majority from banks-particularly community banks. ICBA strongly opposed the proposed accounting changes, and the banking regulators have officially opposed some key concepts.

While the fair-value requirements gained most of the attention, the draft contains other elements that would affect community banks, such as the treatment of impairments and a new continuous statement of comprehensive income. …