“Fiscal Cliff” Debate Focuses on Impact of Tax Increases, Spending Cuts
The unofficial buzzword of this fall’s lame duck Congress—“fiscal cliff”—has generated considerable noise inside and outside of Washington because of the impact of the issue on the nation’s nascent economic recovery. With the 2012 elections over, Congress and the White House have begun grappling with the combination of expiring Bush-era tax rates and automatic cuts in federal spending slated for the New Year. Unless policymakers can reach a deal on tax and spending reforms, the new rates will take effect on Jan. 2.

The chief concern with going over the cliff is that higher taxes and reduced government spending will drain the momentum from the nation’s recovery. As yesterday’s ICBA NewsWatch Today reported, trillions of dollars in tax increases and spending cuts over the next decade are at stake. If a deal isn’t struck, Americans would pay approximately $400 billion more in federal taxes next year and the federal government would have $200 billion less to spend.

Even to staunch budget hawks, this is bad news. The Congressional Budget Office estimated that allowing these tax increases and budget cuts to proceed would send the economy into another recession. The CBO outlook found that shrinking the deficit by approximately $500 billion would lead to a 0.5 percent decline in the real gross domestic product and a 9 percent unemployment rate in the second half of 2013.

Of course, on the spending side, this grim outlook was entirely the point. Policymakers agreed to automatic spending cuts in August 2011 to compel a deal to reduce federal budget deficits. While the automatic spending cuts and new revenues certainly would help decrease deficits, there is little taste in Washington for such drastic fiscal policies.

Nevertheless, partisan differences are preventing a deal from being reached. While Republicans generally are pushing for reduced revenues to quell surging budget deficits, Democrats are leaning toward higher tax rates for upper-income taxpayers. With Congress back in Washington through the end of the year, avoiding the fiscal cliff will be priority No. 1.

In the next part of ICBA NewsWatch Today’s series on the fiscal cliff, tomorrow’s edition will focus on how policymakers are working to reach a deal and what community bankers can expect from Washington.

ICBA Submitting Comments for Basel III Hearing
The Senate Banking Committee is scheduled to meet today on the potential impact of proposed Basel III capital rules. In a letter to the committee, ICBA reiterated its support for exempting U.S. financial institutions with consolidated assets of $50 billion or less from the regulatory capital guidelines.

ICBA also wrote that it supports calls for the federal banking agencies to perform a quantitative impact study on the impact of the Basel III proposed rules on the housing market. The association wrote that it expects that the study, if carried out properly, would lend further support for its call to exempt community banks from the Basel III regulations.

ICBA today will submit to the Senate Banking Committee a statement for the record reiterating the association’s comprehensive views on the Basel III proposal.

The federal banking agencies recently announced that they do not expect that any of the proposed Basel III rules would become effective on Jan. 1 in light of the volume of comments received and the wide range of views expressed during the comment period.

ICBA: Ensure Thrift Access to New Deregistration Threshold
ICBA urged the Securities and Exchange Commission to use its authority under the Securities Exchange Act of 1934 to allow thrift holding companies to deregister under Title VI of the JOBS Act in the same manner as bank holding companies. Nearly 100 banks and bank holding companies have deregistered as SEC filers since the shareholder threshold for deregistration was raised from 300 to 1,200 shareholders by the ICBA-advocated JOBS Act.

In its letter to the SEC, ICBA noted that although Title VI refers to “banks and bank holding companies,” the agency has broad enough authority to interpret the statute as also including thrift holding companies. The banking agencies have already interpreted the statute as broad enough to include thrifts that are registered with the agencies under the Exchange Act. Further, the House Appropriations Committee included language in its report accompanying the Financial Services and General Government Appropriations bill that clearly outlines the intent of Congress to apply Title VI of the JOBS Act to thrift holding companies.

Because thrift holding companies are regulated just like bank holding companies, ICBA said, there is no justification to distinguish between these two types of financial institutions. Read ICBA Letter.

ICBA Opposes Farm Credit Administration Proposal
ICBA filed a comment letter opposing the Farm Credit Administration’s proposed rule to provide flexibility to Farm Credit System entities to form unincorporated business entities. ICBA noted that the Farm Credit Act does not authorize the formation of such entities. ICBA also stated its opposition to allowing FCS lenders to form such entities for the purpose of providing crop insurance and tying crop insurance to loan products.

FSOC Proposes Money Fund Reforms
The Financial Stability Oversight Council proposed structural reforms to reduce risks posed by money market mutual funds. The FSOC proposed three alternatives that would:
  • Require MMMFs to have a floating net asset value (NAV) per share so that their shares would not be fixed at $1.
  • Require MMMFs to have a NAV buffer with a tailored amount of assets of up to 1 percent to absorb day-to-day fluctuations in the value of the funds’ portfolio securities.
  • Require MMMFs to have a risk-based NAV buffer of 3 percent to provide explicit loss-absorption capacity that could be combined with other measures to enhance the effectiveness of the buffer.

The FSOC also is seeking public comment on other potential reforms to address the structural vulnerabilities of MMMFs and mitigate the risk of runs. Comments are due within 60 days.

FDIC Outlines How To Help Customers Affected by Sandy
The FDIC encouraged depository institutions to consider all reasonable and prudent steps to help customers in communities affected by recent storms. The agency said that when consistent with safe-and-sound banking practices, assistance efforts may include waiving fees, increasing ATM cash limits, easing credit card limits, allowing loan customers to defer or skip payments and delaying the submission of delinquency notices to credit bureaus.

In a financial institution letter, the FDIC encouraged depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents. It said that prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism.

Agencies Reminding Borrowers of Foreclosure Reviews
The federal banking agencies said that they are advertising to remind eligible borrowers of the Dec. 31 deadline to request a free review of mortgage foreclosures by 14 large mortgage servicers. The print, radio, television and online advertising will target the communities hardest hit by mortgage foreclosures, the agencies said.

The agencies required the large mortgage servicers to retain independent consultants to review foreclosure activity in 2009 and 2010 to identify borrowers who may have been financially injured due to errors, misrepresentations or other deficiencies in the foreclosure process. Borrowers may receive remediation such as lump-sum payments, suspension or rescission of a foreclosure, loan modifications or other assistance if the review finds that financial injury occurred.

Longtime Montana Community Banker Retires
ICBA Wishes Jack and Almeda Well
ICBA Past Chairman A.J. “Jack” King retired as executive vice president of Valley Bank of Kalispell, Mont., after decades in the community banking industry. King was involved in Montana community banking for 61 years, founding two community banks in the state and working at several others over the years.

King was instrumental in helping to organize the Montana Independent Bankers association in 1967 and served as its president in 1974-75. He also served on the Montana State Banking Board. At the national level, King served as ICBA chairman in 1984-85 and also was a member of the Federal Reserve’s Consumer Advisory Council.

ICBA Bancard Announces V.me by Visa Service to Members
ICBA Bancard announced that a new agreement allows its clients to streamline the online payments process through Visa’s new digital wallet service, V.me by Visa. Once online banking customers enroll their existing Visa and other payment card accounts, they will be able to pay online by simply entering a user name and password. This will allow them to forgo standard information currently required at checkout, such as an account number and billing and shipping information.

As V.me acceptance continues to grow, Visa will work closely with ICBA Bancard and its members to more broadly deliver the service to its online banking customers. Read ICBA Release.

Take This Week’s Quick Poll
Take this week’s Quick Poll on the Go Local holidays campaign, and view results from the previous poll on the new format of ICBA NewsWatch Today. View the Archive.

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