President Obama signed the long-term highway funding bill into law on December 4, 2015. As part of its funding for transportation and infrastructure spending through 2020, the bill raids the wallets of larger banks and the Federal Reserve System. Accompanying these unprecedented funding mechanisms (the sticks) are several regulatory relief provisions for the banking industry (the carrots).
First, the sticks:
Dividend reduction. For banks with over $10 billion in assets, reduces dividends paid on the Federal Reserve stock that Fed member banks are required to hold from a rate of 6% to the return on 10-year Treasury bonds (currently around 2.2%), with a 6% ceiling.
Cap on Federal Reserve capital surplus account. Caps the Fed’s capital surplus account at $10 billion. Amounts over $10 billion will be transferred into the Treasury’s general fund to be spent on transportation and infrastructure. Currently, the Fed’s capital surplus account holds $29 billion.
And the carrots:
Reauthorization of the Export-Import Bank. Renews the Export-Import Bank’s charter through September of 2019.
Annual privacy notices. Eliminates the requirement to send annual privacy notices, unless a financial institution has changed its disclosure policies or shares customer information with third parties for marketing purposes.
Extended examination cycle. Raises the asset threshold for banks eligible for an 18 month onsite examination cycle from $500 million to $1 billion.
Changes to the CFPB’s “rural” area designation. Creates an appeals process for the CFPB’s “rural” area designations, with specific criteria to consider when evaluating such appeals. This will enable more lenders to offer Qualified Mortgage loans with balloon payments and Higher-Priced Mortgage Loans that do not require an escrow account. Importantly, the appeals process will expire after two years.
Changes to CFPB “rural or underserved” definition. In addition, lenders operating in rural or underserved areas will be eligible to originate Qualified Mortgages with balloon loans and Higher-Priced Mortgage Loans that do not require an escrow account. Currently, this exception is limited to lenders “predominantly” operating in rural or underserved areas (i.e., over 50% of lending in those areas).
Mortgage loan originator background checks. Directs the U.S. Attorney General to provide criminal history information to state officials performing background checks on mortgage loan originator licensing.
FHLB membership for privately insured credit unions. Permits privately insured credit unions to join a Federal Home Loan Bank, provided that they meet certain disclosure requirements and obtain certifications from their state supervisors.
TruPS relief. Exempts certain trust preferred securities held by bank holding companies with under $15 billion in assets from the Dodd-Frank Act capital standards, permitting qualifying companies to hold such securities as Tier 1 capital. (This provision reportedly was inserted to aid Emigrant Bank of New York.)
Equalization of SEC registration thresholds for SLHCs. Raises the thresholds for registration and deregistration of savings and loan holding companies to mirror the higher thresholds for bank holding companies established in the 2012 JOBS Act. Raises the mandatory registration threshold from 500 to 2,000 shareholders. Raises the deregistration threshold from 300 to 1,200 shareholders.
Simplified SEC registration for small companies. Further simplifies the basic SEC registration form permitted for new securities offerings by smaller companies.
Relief for Emerging Growth Companies. Simplifies the reporting requirements for “emerging growth companies,” which are companies with less than $1 billion in revenues that qualify for a simplified IPO process under the 2012 JOBS Act.
Simplified SEC disclosures. Reduces disclosure requirements for emerging growth companies and other smaller issuers and eliminates duplicative, outdated or unnecessary disclosures for all issuers, among other changes.
Small Business Investment Company investment advisers. Preempts state registration requirements of advisers for small business investment company funds and eases other requirements for such advisers.