October 20, 2022

FDIC Approves Increase In Deposit Insurance Assessment Rate

MBA opposed increase, noting it will have a negative impact

The Federal Deposit Insurance Corporation board unanimously voted Tuesday to implement a final rule that increases deposit insurance assessment rates for banks by two basis points beginning with the first quarterly assessment period of 2023. The change will amount to a 54% increase in the current average assessment rate and remain in effect until the Deposit Insurance Fund reserve ratio to insured deposits meets the FDIC’s long-term goal of 2%.

MBA opposed this increase, warning that the board’s decision would put further strain on an already stressed economy.

“This is an incredibly ill-timed and shortsighted decision by the FDIC board,” said MBA President Jackson Hataway. “We believe it will have a negative impact on funds available for credit at a time of economic instability.”

MBA was extremely vocal on this issue as it developed. MBA staff worked with Missouri’s congressional leadership to develop a joint letter from Reps. Blaine Luetkemeyer and Ann Wagner, as well as ranking members from House Financial Services subcommittees focused on financial services. Lawmakers noted their concern “that an increase in the assessment rate at this time could pose real harm to consumers, particularly those with low and moderate incomes who may need access to credit.”

“The FDIC has demonstrated a major lack of commitment to bipartisan leadership and industry engagement with this vote,” Hataway said. “We will continue to advocate on this issue as banking conditions change.”

Several Missouri bankers served on working groups initiated by the American Bankers Association on this issue.

“Although we were unsuccessful, we appreciate the ardent support from our bankers and members of Congress,” Hataway said. “We will continue to fight for a reduction as deposit runoffs continue and the fund normalizes.”

In a joint statement after the FDIC vote, the American Bankers Association and four banking associations said they were disappointed the board voted to increase the rate based on assumptions “that are demonstrably incorrect.”

“The latest data indicates that the deposit insurance fund will likely return to its statutory minimum level next year and that banks are in excellent financial condition, so the FDIC’s action is a preemptive strike against a nonexistent threat," the groups said. "This significant, unjustified rate increase could exacerbate the stress of a slowing economy, instead of enabling resilient banks to support economic growth.”

The FDIC has discretion to raise or lower assessments two basis points without additional comment periods.

MBA Urges Changes To FHLB Advance Qualifications

MBA supports using Tier 1 Regulatory Capital system used by federal regulators

MBA is urging the Federal Housing Finance Agency to stop using tangible capital when deciding whether financial institutions qualify for Federal Home Loan Banks advances. Per FHFA guidelines, FHLB uses tangible equity capital when evaluating a banks health for purposes of issuing advances. Banks with negative tangible equity capital cannot receive new advances from FHLB.

“This arbitrary accounting completely misrepresents industry health and liquidity, and it could penalize some of the most safe and sound institutions in Missouri,” said MBA President Jackson Hataway.

MBA is working with FHLB, along with national and state banking associations, to urge FHFA to modernize its guidelines with a focus on Tier 1 Regulatory Capital that is used by the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency. Bankers said the Tier 1 system “offers the best picture of a bank’s financial condition.”

MBA also has been actively engaging in FHFA listening sessions to prevent bad actors from gaining access to the FHLB system.

“Efforts by mortgage brokers and fintechs to gain membership rights to the FHLB could introduce unparalleled risk to the only GSE free from conservatorship.” Hataway said. “We believe modernization should focus on matching other federal regulatory agencies rather than opening the doors to new entities or mission parameters that could reduce the value of FHLB to communities across Missouri.”

For those wishing to submit comments to FHFA, comments will be accepted until Monday, Oct. 31, and may be submitted online.

Court Overturns HMDA Reporting Threshold For Closed-End Loans

The National Community Reinvestment Coalition sued the Consumer Financial Protection Bureau in federal court regarding the increase in the HMDA closed-end threshold from 25 loans to 100 loans that occurred in 2020, arguing that the CFPB did not adequately justify its decision to increase the threshold. The court ruled that the CFPB’s decision was “arbitrary and capricious” and vacated this part of the rule, remanding it to the CFPB for further action.

It is expected that the CFPB will issue some kind of announcement as to how it will respond to the court’s ruling. Those actions could vary, and affected banks may have to begin collecting HMDA data in 2023 or some other date established by the CFPB. The court ruling did not affect the existing open-end credit HMDA reporting threshold. Hopefully, the CFPB will issue information soon so banks will know how to respond.

Appellate Court Invalidates CFPB’s Funding Structure, Small-Dollar Lending Rule

A three-judge panel of the 5th U.S. Circuit Court of Appeals ruled Wednesday that the Consumer Financial Protection Bureau’s funding structure violates the separation of powers clause of the U.S. Constitution. Uniquely among federal agencies, the CFPB receives its funding directly from the Federal Reserve System based on a request by the bureau’s director.

In the case, the Community Financial Services Association of America and the Consumer Service Alliance of Texas challenged the bureau’s 2017 small-dollar lending rule on several constitutional grounds. The 5th Circuit panel agreed with the plaintiffs only on the CFPB’s “unique, double-insulated funding mechanism” and vacated the small-dollar lending rule. The case is expected to be appealed to a hearing by the full 5th Circuit.

The court found that in setting up the CFPB’s funding structure, Congress ceded both direct control over the CFPB’s budget by insulating it from annual appropriations and indirect control by making the CFPB’s source also insulated from the appropriations process.

“The Bureau’s perpetual insulation from Congress’s appropriations power, including the express exemption from congressional review of its funding, renders the Bureau ‘no longer dependent and, as a result, no longer accountable' to Congress and, ultimately, to the people,” the court found, adding that the issue is more acute because of the CFPB’s expansive powers.

If the panel’s decision is upheld by a review of the full circuit court and further appeals, the CFPB’s existence and power as enacted under the Dodd Frank Act is in question.

Bankers Discuss Legislative, Regulatory Issues

Members of MBA’s Government Relations Committee meet Tuesday, Oct. 18, in Jefferson City to discuss legislative and regulatory topics on both the state and federal level. The meeting provided an opportunity for MBA staff to share updates on issues important to the banking community, including the following.

• a review of the 2022 state legislative session and special session
• expectations for the 2023 state legislative session
• 2022 elections
• updates on regulatory and legislative activity in Washington, D.C.

“We thank our committee members for sharing their perspectives and providing insight on the potential impact of current and future legislation,” said David Kent, MBA senior vice president. “We rely on input from the committee to form policy positions on issues facing the banking community.”

For more information or to share your thoughts on legislative activity, please contact David Kent or Emily Lewis, MBA vice president.


Committee members attending the meeting at MBA's office are Dora Palmer, Regional Missouri Bank, Keytesville; Greg Omer, Central Bank, Jefferson City; Scott Breckenkamp, First State Community Bank, Washington; Kyle Smith, Jonesburg State Bank; Ryan Southard, Heritage Bank of the Ozarks, Lebanon; Jessi Green, The Hamilton Bank; Kevin Jaquet, HNB Bank, Hannibal; Aaron Hall, United Bank of Union; and Andrew Lee, Midwest Independent BankersBank, Jefferson City.