2008 Legislative and Regulatory
Policy
The Policy
Committee and Board met in joint session on December 6, 2007, and discussed a
range of issues which will affect banking in 2008. The issues and planned
actions follow:
BUDGET
AND TAXES:
In its
mid-year report on the 2008 budget, the State’s Budget Division highlighted the
deterioration in revenues that the State is already seeing and projected a
potential $4.3 billion budget deficit in 2009 (with higher deficits in future
years). Governor Spitzer has once more ruled out any new taxes, but the Budget
Division’s presentation invoked “closing loopholes” as one of its strategies for
reducing the deficit. The Association therefore would not be surprised to see
some of the tax proposals affecting banking that were defeated in the 2008
budget resurface in this year’s budget debate, along with potential additional
“loophole closers.” NYBA is also studying the costs and implications of
achieving some relief from the State’s regressive alternative tax on assets.
The tax on assets may impose a very substantial tax burden even on banks that
are losing money. A similar tax on other corporations is capped at a meaningful
level.
At the
same time, jobs in the trust industry have been declining precipitously, as
existing trusts move out of State and new trusts are not being established. The
loss of jobs is costing the State tax revenues and economic development
opportunities. The major incentive for moving the trust business out of State
is the fiduciary income tax, which is easily avoided by hiring a non-New York
trustee, including affiliates of New York banking institutions.
NYBA will
urge fair taxation of the State’s depository institutions, opposing tax
increases at a time of economic turbulence and supporting appropriate relief
from the regressive alternative tax on assets. The Association continues to
support fiduciary income tax relief, recognizing the difficulty of achieving
reform in the face of significant budget deficits.
SUBPRIME MORTGAGES
Throughout
2007, subprime lending and foreclosures of subprime loans dominated legislative
and regulatory debate in Washington, D.C. and New York State. NYBA believes and
has urged that the current crisis requires a national response. Nevertheless,
we have been actively engaged throughout the year with the New York State
Banking Department in an effort to come up with solutions at the state level as
well. In 2008 we expect that this issue will continue to take center stage and
we will continue our efforts to promote a reasoned response that will not have
the unintended consequence of limiting access to credit by credit worthy
consumers.
The Board
adopted a set of principles to govern legislation affecting sub-prime
mortgages. Among the principles are that non-bank mortgage bankers and brokers
should be subject to effective regulation and supervision; legislation should
not affect the prime mortgage market; and federal legislation should establish a
uniform nationwide standard, adopting the best features of state legislation,
but not adversely affecting the ability of banks and thrifts to serve all of
their customers, including low- and moderate-income areas. The Board does not
believe any current federal legislation meets these standards. NYBA will
strongly urge members of the New York Congressional delegation, particularly
Senators Schumer and Clinton, to pursue these principles in any legislation they
support. In addition, the Association will urge the Federal Reserve Board to
incorporate these principles in the rulemaking it has proposed under the Trust
in Lending Act, regulation Z. NYBA will also work with Governor Spitzer, State
legislative leaders and the Banking Department on solutions to the subprime
problem in New York State that do not further restrict credit or penalize prime
lenders.
AVOID NEW RESTRICTIONS ON CONSUMER BANKING
Legislators at the state and federal levels continued in 2007 to be focused on
pricing issues related to the electronic payment system. An array of bills were
introduced in New York related to credit cards, the use of credit scoring and
fee limits on some payment system services, including interchange fees charged
to issuing banks. Meanwhile, in Congress, the issue of overdraft protection has
taken center stage with a focus on making such services available only to
consumers who “opt-in” to an overdraft protection program.
The New
York Legislature passed three bills in 2007, which, had they not been vetoed by
Governor Spitzer, could have had serious repercussions for risk based pricing.
The bills would have interfered with credit scoring practices which financial
institutions heavily rely on in making their credit decisions.
NYBA will
continue to urge legislators to avoid inappropriate new restrictions on consumer
banking that would limit the availability, pricing and services of consumer
credit.
PRESERVING NEW
YORK’S STATUS AS A HEADQUARTERS STATE
NYBA supports the
dual banking system and continues to pursue ways in which to maintain parity
between State-chartered institutions and their federally-chartered
counterparts. NYBA is now engaged in a dialogue with the State Banking
Department about potential additional law changes that could be initiated under
the expanded wild card law enacted last year. Additionally, NYBA continues to
be engaged in conversations with the Banking Department regarding a regional
compact in the Northeast, focused on modernizing and coordinating the
application of state and regional law and regulation. We believe that such a
compact could serve as a model for other regions, making it easier, in
particular, for regional and community State-chartered financial institutions to
transact business in neighboring states.
NYBA will
continue to work with Governor Spitzer, Senator Schumer, Mayor Bloomberg, the
State Banking Department and other public policy makers to assure New York’s
continued preeminence as a headquarters state and the world financial capital.
The Association will work to maintain current law on interstate branching and
advance common supervisory and regulatory initiatives with neighboring states
through an interstate compact.
SEEK BANK
SECURITY STANDARDS THAT ARE CONSISTENT WITH FEDERAL REQUIREMENTS
An increasing
bank robbery rate in Nassau and Suffolk counties has once again triggered the
possibility of legislative action mandating specific security measures for bank
branches. To address this issue, NYBA has forged a partnership with law
enforcement representatives from Nassau and Suffolk Counties, New York City and
the FBI, meeting with them on several occasions to discuss possible strategies
to reduce the bank robbery rate. NYBA has, to date, been successful in avoiding
legislative initiatives, which would have mandated specific “cookie cutter”
security practices, such as 911 buttons at ATMs and mandated bandit barriers at
all branches. In 2008 we plan to continue working with law enforcement, to
curtail the bank robbery rate and continue to forestall unnecessary legislative
initiatives.
NYBA will
continue to work with local, State and federal law enforcement officials to
ensure effective bank security programs, but will oppose one-size-fits-all bank
security legislation, such as mandatory 911 buttons and bandit barriers.
ENHANCING BANKING’S MUNICIPAL FINANCE
COMPETITIVENESS
1. Thrift
Municipal Deposits: New York does not permit local governments to establish
deposit accounts in thrift institutions. The State Banking Department has
established a procedure for savings banks and savings and loan associations to
charter limited purpose commercial banks for the sole purpose of accepting
municipal deposits and more than a dozen thrift institutions have taken
advantage of this authority. However, these limited purpose institutions, while
less costly to establish than full-service banks, have restrictions on the
assets in which they can invest and do impose additional costs on the banks.
2.
Opposing Unfair Competition: NYBA has consistently and strongly opposed local
government investments in the State-run short-term investment pool, in mutual
funds, including those limited to investments in which local governments could
invest directly, and in other alternative investments, such as bankers’
acceptances and commercial paper. NYBA has pointed out that authorizing such
investments would drain deposits from local communities, limiting the ability of
banks to provide small business, housing, consumer and local government loans
and investments. In addition, the Association has pointed out the potential
risk to municipal funds in some of these investments that, unlike bank deposits,
are not fully collateralized and may be subject to market fluctuations.
Other
interest groups in Albany who are seeking the ability to accept municipal funds
include credit unions and the mutual fund industry.
3. Easing Collateral
Requirements: In recognition of local governments’ interest in alternatives to
the current system of bank deposit-taking, NYBA is exploring alternatives to the
current system of mandatory 100% collateralization of local government
deposits. Among the alternatives being considered is legislation to authorize
pooled deposit insurance programs such as the Certificate of Deposit Account
Registry System (CDARS) to provide dramatically enhanced deposit insurance
coverage (now up to $30 million) for municipal deposits.
The Board
established a task force to review providing public deposit authority to the
State’s thrift institutions. Chaired by Board Vice Chairman John Scarchilli,
the task force will be made up of commercial bankers and thrift industry
executives representing all views on the issue. NYBA will also maintain its
opposition to unfair competition for municipal deposits from credit unions and
mutual funds, and will point out to legislators the effectiveness of New York’s
protections for public deposits in avoiding the type of losses currently being
experienced by short-term investment pools in other states. NYBA will also
advocate legislation to establish expanded FDIC deposit insurance coverage for
municipal deposits.
OTHER
FEDERAL ISSUES
INDUSTRIAL
LOAN COMPANIES
In recent years, an increasing
number of non-banking institutions have sought to engage in the financial
services business. Most recently, industrial loan companies (ILCs), 97% of the
assets of which until recently were owned by financial firms, have become the
charter of choice for non-banking companies such as Wal-Mart and Home Depot
seeking to gain entry into the financial services business. Because federally
insured ILCs are regulated by the Federal Deposit Insurance Corporation just as
are any other insured banks, they have argued that they present no safety and
soundness problems to federal regulators and are consistent with the separation
of finance and commerce that has been the hallmark of federal policy since the
Great Depression.
Opponents
of ILC ownership by non-financial firms have raised three concerns: first, ILCs
present an irremediable conflict of interest because they will always be
inclined to favor their parent firm’s customers and financial well-being at time
of crisis; second, the parent companies that own ILCs are not regulated as
financial holding companies, escaping the capital, management, liquidity,
auditing and reporting requirements to which bank and thrift holding companies
are subject; and, third, combining the ability to provide non-financial products
and their financing in one package will present a significant anti-tying concern
to which pure financial companies are not subject.
CREDIT
UNIONS
With the
growth in the size and sophistication of credit unions, more and more banks are
finding local credit unions among their toughest competitors. Many New York
credit unions are converting to the recently approved expanded community credit
union charter. In the past, a community charter had to represent a
neighborhood, village or small town. Under new NCUA rules, a community can
consist of an entire metropolitan statistical area or a City the size of New
York City.
In
Washington, the national banking trade groups with which NYBA works closely have
engaged in a three-prong strategy to respond to credit unions’ growth and
competitiveness: first, to limit the expansion of the credit union franchise by
blocking permissive laws and regulations; second, by encouraging larger,
bank-like credit unions to convert to mutual savings banks; and third,
ultimately to establish a threshold test for those credit unions whose size,
type of charter and business plan make them indistinguishable from banks and
thrifts.
CURRENCY
TRANSACTION REPORTS/BSA COMPLIANCE
Of all of
the areas of regulatory burden, none elicits as immediate a response from NYBA
member bankers as the cost and burden of compliance with the Bank Secrecy Act
and anti-money laundering regulations. While New York banks strongly support
the war on terror, there is increasing concern that regulators are imposing
inequitable and inconsistent requirements for BSA/AML compliance. Among the
most recent examples of the difficulty of achieving relief from these provisions
was the effort made last year to repeal the requirement for banks to file
currency transaction reports (CTRs) for their seasoned customers. Even though
every major federal law enforcement agency had testified that CTRs provided no
benefit in their investigations beyond information more readily available from
other sources, they refused to support repeal of the requirement even for
seasoned customers. The House nevertheless included repeal of CTRs in its
version of regulatory burden relief legislation last year, but the Senate
refused to agree.
GOVERNMENT
SPONSORED ENTERPRISES
Legislation is being considered in both Houses of Congress to reform the
regulation of the government-sponsored housing enterprises (GSEs), Fannie Mae,
Freddie Mac, and the Federal Home Loan Banks. The House of Representatives last
year passed NYBA-supported legislation (H.R. 1427) to create a strong,
independent federal regulator with authority over capital requirements and to
impose portfolio restrictions on the GSEs. It would also have the power to
approve new programs and business activities and could take prompt corrective
action. Other authority would be similar to that of the bank regulatory
agencies.
TERRORISM
RISK INSURANCE ACT EXTENSION
The
Terrorism Risk Insurance Act (TRIA), established in the wake of September 11 and
which was scheduled to expire at the end of 2007, has brought needed stability
and certitude of coverage to the market for terrorism insurance, particularly in
high risk areas such as New York State. Legislation was introduced to extend
the Act (and has since passed and been signed into law). NYBA strongly
supported the extension.
FLOOD
INSURANCE REFORM
Catastrophic losses in the federal flood insurance program caused by 2005’s
hurricanes caused Congress to reexamine the program; however, the relatively
mild hurricane seasons during 2006 and 2007 relieved pressure on Congress to
resolve this issue. Higher risk areas such as Long Island need the certainty
and stability of an actuarially sound program, but the current program is both
insolvent and poorly underwritten. Bills are pending in both Houses of congress
to reform the National Flood Insurance Program. NYBA supports reforms of the
National Flood Insurance Program that would place it on a more actuarially sound
footing.
FARM
CREDIT SYSTEM LENDING
During
Committee consideration of the 2007 Farm Bill, H.R. 2419, language was included
that would have authorized the Farm Credit System (FCS) to lend in larger
communities and to make mortgage, small business and consumer loans to persons
not involved in the farming or ranching business. This provision was designed
to begin the implementation of the “Horizons Project,” an ambitious long-term
effort by FCS to expand beyond its currently authorized agricultural lending
base. After extensive lobbying by NYBA, in conjunction with the national trade
groups, this language was ultimately stripped from both the House and Senate
Farm bills, a final version of which has now been signed into law.
NYBA will
continue to maintain its strong and effective federal lobbying program, urging
enactment particularly of legislation to regulate appropriately credit unions,
industrial loan companies and government-sponsored enterprises, to reduce
regulatory burden, particularly with regard to Bank Security Act/anti-money
laundering compliance, and to reform and strengthen risk management programs
such as the Terrorism Risk Insurance Act and the National Flood Insurance
Program.
For additional information on any of the State or Federal issues, please contact:
