Community bankers are excited about the prospects for The Communities First Act, introduced by Rep. Jim Ryun (R-Kan.), a senior member of the House Financial Services Committee. The bill would make regulatory exams less frequent for community banks; exempt banks with up to $5 billion in assets from Sarbanes-Oxley; permit banks with up to $1 billion in assets to file a short-form call report twice per year instead of quarterly; and relax the requirement for annual privacy notices.
Oh, one more thing: The bill would drastically reduce community banks' tax liability.
How? It would repeal the Alternative Minimum Tax for banks with up to $5 billion in assets; exempt from taxation income from mortgage and agricultural loans to small communities; defer recognition of interest income on CDs; provide banks in "distressed areas" with a 50 percent tax credit; and provide a 20 percent tax credit across the board.
I've got a better idea. Why don't we just get it over with and declare banking our state religion? That way, nobody in financial services would have to pay a dime in taxes. From the looks of this bill, we're halfway there.
There's no doubt that the big banks would figure out a tax arbitrage strategy to take advantage of these provisions, much the same way as they structure large sums $100,000 at a time in order to get free FDIC deposit insurance.
But I have to give the ICBA credit for finding a new way to draw attention to the tax-exempt status of credit unions. They've been sore about this for years - to no avail. Legislators now may have to choose between blowing an industry-sized hole in the Federal budget and questioning the credit union concept.
Tax issues aside, the bill goes in the wrong direction when it comes to transparency, safety and soundness. Given what the Federal Financial Institution Examination Council has done (see related article, page 11) to simplify call reporting, there's no excuse for filing only twice per year. Similarly, shareholders should be as confident in the prudent management of a small bank as they are in a big bank - or, for that matter, any other public company. That's good for communities, too.