Southwestern Illinois Banking & Finance

Vol. 13, No. 2 November 2012

www.ibjonline.com

(618)659-1997

Community bankers fighting new regulations that may sound the death knell for some
By ALAN J. ORTBALS New federal regulations are rumbling down the track and have community banks firmly in their sights. Known collectively in the trade as Basel III, they will make life so difficult for community banks that there is widespread fear some will not survive. I think the current environment is the biggest threat to community banks in the history of this country, said Dennis Terry, president and chief executive officer of First Clover Leaf Bank in Edwardsville. The Basel Committee on Banking Supervision is the name of an organization of banking supervisory authorities that first came together in Basel, Switzerland in 1974. Its aim was to bring about better coordination of the international banking system. The agreements reached at that initial meeting are known as Basel I. Additional guidelines were created by Basel II in 2004. The latest iteration, Basel III, was delineated during meetings in 2010 and 2011 in response to the near collapse of the international banking industry in 2008. Basel III set new higher requirements for banks to maintain capital reserves. The Basel accords do not carry the force of apply to the big international banks that compete with each other, said Cole. The idea was that the Bank of America would have the same capital standards as some big European bank. Having the big guys be under the same capital standards makes sense. But applying Basel III to all banks in the United States, thats where the logic breaks down - and thats where we think we should get an exemption or just stay under the present capital standard which is Basel I. The idea to include community banks in the new Basel III capital requirements is coming jointly from the big three regulators: the U.S. Federal Reserve Bank, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, according to David Schroeder, vice president of federal governmental relations for the Community Bankers Association of Illinois. A Notice of Proposed Rules was issued by the three earlier this year and comments were solicited. That comment period ended last n See REGULATIONS, page 4

photo courtesy of The Associated Press

Central bankers from around the world met in Basel Switzerland in May 2012 and agreed on new capital standards for banks. If applied to community banks, these requirements will greatly hamper their ability to lend.

law or regulation and each participating country has flexibility in how they will be implemented. This is where the rub comes in here in America, according to Chris Cole, senior vice president with

the Independent Community Bankers Association. The Basel Committee on Banking Supervision, BCBS, in Europe, envisioned this as a capital standard that would just

Community banks continue urging feds to put on the brakes with compliance rules and regs
By KERRY L. SMITH Nearly two and a half years after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, community banks are urgently pressing for relief from an increasingly thick quagmire of compliance rules and regs they say are threatening their very existence. Although industry reps differ in their assessments of how much of the compliance burden is truly being wrought by Dodd-Frank, bankers in Southwestern Illinois and elsewhere agree upon the crux of the problem: in seeking to protect consumers from another financial industry meltdown, federal regulators have exceedingly overreached. And it will ultimately cost banks customers, they say. From a community banking standpoint, there has been a truly unrelenting avalanche of new banking laws, rules and regulations, said David Schroeder, vice president of federal government relations for the Community Bankers Association of Illinois. Banks are suffering under a stifling regulatory burden. It needs to stop. Small businesses are the economic engine of our economy and community banks are the ones who predominantly lend to small businesses. I dont want to minimize Dodd-Frank, but about 70 percent of the regulations contained in it have no impact whatsoever on community banks. Dodd-Frank is only part of the immense regulatory burden that community banks are bearing, he added. Linda Koch, president and chief executive officer of the Illinois Bankers Association, has a different perspective. The decreasing number of banking institutions is being driven by the overwhelming regulatory burden, and much of it is coming from Dodd-Frank, said Koch. Since Dodd-Frank, there have been nearly 4,580 pages of regulations that have been finalized and implemented, along with more than another 4,623 pages that are pending - and Dodd-Frank is only halfway there. Compliance burdens, both Koch and Schroeder contend, are costing banks time, people and money. The median size bank in Illinois has fewer than 40 employees, said Koch, A typical community bank today has at least three employees dedicated to regulatory compliance... that is almost six times more than what n See COMPLIANCE, page 4

photo courtesy of The Associated Press

Banks report that theyre drowning in an increasing number of compliance rules and regs, nearly six times more than what was required five years ago.

Small businesses, manufacturers in Illinois stressed out by year-end uncertainty in tax codes
By KERRY L. SMITH Multiple economic factors including an unpredictable tax climate - are causing great stress to Illinois manufacturers in the fourth quarter of 2012. Whether its the fate of the Bush tax cuts, Congress treatment of the bonus depreciation deduction, whats going to happen with the federal healthcare law and more, small to mid-size manufacturing companies are scratching their heads as to which is the better business strategy: to make that capital investment now or to wait until the first quarter of 2013. Add to all that the sequestration (across-the-board federal budget cuts) thats going on, the financial Armageddon and the presidential campaign, and its an environment of uncertainty that manufacturers havent seen to this degree in a long, long time, said Mark Denzler, vice president and chief operating officer of the Illinois Manufacturers Association. All of this combined is making it extremely difficult in long-term decision making. Denzler and RubinBrown partner Henry Rzonca say although its a waitand-see situation where the Bush tax cuts are concerned as to whether theyre going to be extended into 2013 or not, a companys individual scenario ultimately is what should determine its decision to make a capital investment now or hold off until next year. Sooner is generally better from a tax perspective, said Rzonca. But what we have here are potential tax rate increases to individual taxpayers who pay tax on business income from passthrough entities (sole proprietorships, n See UNCERTAINTY, page 10

See Inside For Special Section on

Hospitals of Southwestern Illinois pgs. 11-16

Permit No. 5584 St. Louis, MO PRSRT STD U.S. Postage

PAID