In May 2018, the President signed into law The Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA or Public Law No: 115-174). This Law will require federal banking agencies to implement numerous changes to banking regulations, many of which are intended to provide regulatory relief to smaller, community banks. Congress believes this Law will support community banking and lead to increased economic activity and lending in local communities. While the Bill also provides relief to larger institutions, the community banking provisions led to the Bill achieving bipartisan support that was necessary to pass it into Law. This is the first major change to banking regulations since the passage of the Dodd-Frank Act in 2010.
Through the 2019 Community Bank Case Study, CSBS hopes to learn how community banks will benefit from the new law. Participating students will be asked to answer a series of questions that will guide students in their case study of a local community bank. Ultimately, through this Case Study Competition, CSBS hopes to learn if and how community banks, which comprise most our banking sector, and the communities they serve are positioned to benefit from EGRRCPA.
Questions - 2019 Community Bank Case Study Competition
Part I, Financial Analysis
Students should analyze the following, using the FFIEC 041/051 Call Report, Uniform Bank Performance Report (UBPR), and other publicly available data sources:
- Earnings Performance
- Loan Portfolio Composition, broken out by loan type (e.g. consumer loans, mortgage loans)
- Asset Growth
- Capital Levels
To facilitate uniform analyses amongst teams, this financial analysis should be completed on a year over year basis covering five years.
Part II, Regulatory Compliance/Burden Assessment
Please answer the following question:
- Prior to passage of EGRRCPA, which regulations/regulatory requirements have been most difficult/burdensome for the bank to comply with? Please be specific and quantify cost of regulatory compliance if possible.
- Please describe the bank’s resources dedicated to regulatory compliance. How many full-time employees are focused on regulatory compliance and what are their job functions? Does the bank rely on any third-parties to satisfy regulatory requirements?
Part III, Review of Relevant EGRRCPA Provisions and Impact on Case Study Bank
The law contains major changes impacting community banks, as highlighted below.
- Simplified Capital Rules: Banks with assets of less than $10 billion that exceed the “community bank leverage ratio” are “well capitalized” and effectively exempt from all risk-based capital requirement.
- Holding company threshold change: The Federal Reserve’s Small Bank Holding Company Policy Statement, which eases limitations on the issuance of debt (Previous threshold limitation was $1 Billion, now $3 Billion.)
- HVCRE: High Volatility Commercial Real Estate, Definitions pertaining to HVCRE loans are clarified. Only certain loans with increased risk are subject to a higher risk weight.
- Qualified Mortgages: Banks with assets less than $10 Billion automatically qualify for automatic “qualified mortgage” status for certain mortgages they originate and hold in portfolio.
- Escrow: Banks with assets of less than $10 billion that make fewer than 1,000 first lien mortgages annually on principal dwellings will be exempt from Truth in Lending Act escrow requirements.
- HMDA: Banks with “satisfactory” CRA rating and that originate fewer than 500 closed-end mortgage loans or fewer than 500 open-end lines of credit will be exempt from the new Dodd-Frank HMDA data fields.
- Waiting periods on credit offers: Removal of the three-day waiting period when the lender extends a second offer of credit with a lower APR.
- Exam cycle: Creates an 18-month exam cycle for well-managed, well-capitalized with up to $3 billion in assets. The current asset threshold for the 18-month exam cycle is $1 billion.
- Volcker: Banks with assets of less than $10 billion and with total trading assets of less than five percent of total assets are exempt from the Volcker Rule.
- Call report: The agencies are required to create a short form call report for banks with assets of less than $5 billion. The short form would be filed in the first and third quarters of each year.
There are numerous public resources that summarize the law’s provisions. An internet search will identify documents from national trade associations and law firms who specialize in financial services. Students should also consider contacting the bankers' association located in the case study bank’s state.
- Complete the provided chart of major items and include in your case study. The columns of the chart list whether the item applies to the bank and expected impact on the balance sheet and income statement. The students should use the chart to discuss the provisions with the banker. This will be a useful in identifying areas to address in the next part of the assignment.
- The students should identify at least three specific provisions within EGRRCPA and indicate the type of impact the bank can expect to see from the changes. Alternatively, if the bank is not taking advantage of at least three of the specific provisions, describe why and provide a recommendation on how they can benefit from the provisions.
- Will these changes give the opportunity to serve new customers? What economic impact do you foresee in your community?
Part IV, Looking Forward
Are there areas in which Congress and the banking agencies should focus their efforts to achieve additional regulatory right-sizing/burden reduction for community banks?
Describe and quantify the potential economic impact on the community from these ideas.
How does the bank compete for customers within its markets, and what are the main sources of competition? Is there a potential for the recently enacted changes to introduce new or changing competition with community banks in the bank's market?