Banks’ pursuit of regulatory relief has already been fraught, but now even an apparent legislative success is sparking fears about a potentially painful side effect of the reg reform package.
On Thursday, the House passed an appropriations bill that on the surface advanced several key regulatory relief provisions that the industry has sought. But a closer look reveals a measure that many say could open the door to higher examination fees, particularly for state-chartered banks that still must answer to a federal supervisor.
The bill would subject the federal bank regulators to congressional appropriations, a reform that would place new restrictions on the agencies’ budgeting and could force them to have to seek higher revenue. While there is some debate over just how explicit the bill is about charging exam fees, and the Senate is still unlikely to take up any regulatory relief bill, state regulators and community banks have sounded the alarm.
“I’m totally opposed to any new type of regulatory fee,” said Mick Thompson, Oklahoma's state banking commissioner.
Exacerbating concern is that the House bill appears to exempt credit unions from any fee hike, since credit unions successfully lobbied to exempt the National Credit Union Administration from the congressional appropriations process.
"It should not include banks and exempt credit unions. If they’re going to do it, everyone should be on the same playing field,” Thompson said.
Similar provisions were passed in June when the House approved the Financial Choice Act, the broad regulatory relief package sponsored by House Financial Services Committee Chairman Jeb Hensarling, which also sought to put the federal regulators onto appropriations.
As industry observers pieced through the House appropriations bill, they paid particular attention to language that seemed to have different outcomes for federally chartered versus state-chartered banks.
All three federal bank regulators — the Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency — would be put under appropriations, potentially imposing new costs on the agencies to cover their own supervisory activities.
But since the OCC already charges assessments for supervising federally chartered institutions, which cover the cost of operating the agency, the bill could leave its assessments unchanged.
"This would put pressure on the Federal Reserve and the FDIC to impose a fee, [or] it certainly would incentivize them to do so," said Chris Cole, an executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
Cole said the bill could have the biggest impact on state-chartered banks supervised by the Fed.
The bill included an offset that would allow the Federal Deposit Insurance Corp. to reduce exam fees based on what FDIC-supervised financial institutions already pay in deposit insurance premiums. However, the offset still has industry insiders concerned that the FDIC could also begin charging bank exam fees, particularly if deposit insurance premiums drop to such a low level that they do not fully cover the cost of supervision.
"We think this would have an adverse impact on Fed member banks because the way the law is written is the FDIC banks could offset the fee with their premiums, but the Fed member banks could not," Cole said.
The OCC supervises roughly 1,400 national banks and federal thrifts. The Fed currently oversees 828 state member banks. Meanwhile, the FDIC supervises 3,356 state nonmember banks.
To some extent, higher fees for state-chartered banks could also be viewed by some as leveling the playing field since nationally chartered banks have traditionally paid more in exam fees.
"There's no question that many banks, particularly community banks, have never been interested in converting to a national bank [charter] because of the fee issue," said the ICBA's Cole. "They have always looked at the fee issue as an important issue. When new banks come into formation, there are a lot more state de novo banks than national banks."
On the positive side, the House bill advances a whole host of regulatory reforms banks have sought that were included in the Choice Act. They included everything from a repeal of the proprietary trading ban known as the Volcker Rule, to new restrictions on the Consumer Financial Protection Bureau.
“We appreciate any effort that is being made to advance regulatory relief provisions through the House of Representatives,” said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association. “As Congress attempts to move comprehensive regulatory relief, every avenue should be used to advance measures that many members of Congress support already.”
However, Ballentine added, “Any language that is written that would cause banks to have to pay additional fees for examinations is something that we would adamantly be opposed to.”
To be sure, some observers said the legislative language leaves a considerable amount to interpretation, including about whether the agencies must or can charge fees to address their revenue needs. Meanwhile, although banks have aggressively pushed for regulatory relief legislation, the fact that the Senate is unlikely to pass a broad reform package might give some institutions comfort that the risk of higher exam fees might be limited.
Still, any legislative move that could result in higher exam costs for state-chartered institutions has triggered alarm bells.
"We're opposed to the creation of a new tax on depositories that could end up costing them more money," said John Ryan, president and CEO of the Conference of State Bank Supervisors. "This opens up a Pandora's box."