The FDIC issued guidance to help relieve many community banks structured as Subchapter S corporations from rules that would limit their ability to raise capital. The guidance encourages community banks to request case-by-case exceptions to the Basel III capital conservation buffer, which curtails capital distributions, such as shareholder dividends, when regulatory capital levels fall below preset thresholds.

The Basel III capital rules include a capital conservation buffer that prohibits or limits the amount of dividends banks can pay when their risk-based capital ratios fall below certain thresholds. Because income taxes are paid directly by S-corp shareholders, situations could arise in which shareholders have a material income tax obligation on taxable income earned by their bank but the bank is unable to pay enough dividends to meet the shareholders' tax obligation.

The FDIC's guidance establishes criteria under which S-corp banks would be deemed to qualify for an exception from the buffer, such as highly rated institutions and those with sufficient capital to pay out dividends. The agency said that absent significant safety-and-soundness concerns about the requesting bank, it generally would expect to approve exception requests by well-rated S-corp banks that are limited to the payment of dividends to cover shareholders' taxes on their portion of an S-corporation's earnings.

In a February letter to the federal banking agencies,

The Senate approved legislation that would require the White House to appoint someone with community banking experience to the Federal Reserve Board.

The amendment, offered by Sen. David Vitter (R-La.) to legislation reauthorizing the Terrorism Risk Insurance Act (S. 2244), would require at least one member of the Fed board to have experience as a community banker or community bank supervisor.

ICBA, in alliance with ACB, has repeatedly called on the White House and Congress to ensure a community bank presence on the Fed board and has strongly supported Vitter's Community Bank Preservation Act (S. 2252).

"Community bankers have a unique understanding of how to promote healthy and vibrant local economies and should continue to have a clear voice on the Federal Reserve Board," said ICBA Chairman John Buhrmaster.

Vitter presented ICBA's letter of support during the Senate session, as the Wall Street Journal reported. 

Wall Street. Bad.

Thursday, August 21, 2014                                

Risk Management Series: The Importance of Developing a Capital & Contingency Plan