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2010 Government Relations Action Priorities
Adopted by ABA Board of Directors, December 2009

The following priorities reflect the diverse and forward-looking agenda of the American Bankers Association. Our member banks pursue progressive, entrepreneurial and service-oriented strategies to provide financial services to benefit their customers and communities. These policies are designed to help bankers achieve their goals by maximizing the operating flexibility and business options available to them while reducing federal regulatory burdens.

Special Emphasis for 2010: The Key Elements of Traditional Banking

Promoting Economic Growth and Recovery

Banks are invested in economic growth. We prosper as our customers and communities prosper. Banks will play a key role in funding economic recovery, even more so now than before the recession and the disappearance of many non-bank sources of finance. We will lead efforts to provide good lending for good projects and support regulatory, legislative, and accounting proposals that would prudently enhance the availability of funding, promote economic recovery, remove barriers to sound lending and investment, and reinforce the ability of banks to meet the credit needs of our communities. We will remind policymakers that new regulatory proposals, such as those affecting capital, liquidity, risk management, and products and services, must be considered in light of their impact on economic growth and the cost and availability of financial services to support economic growth and recovery. 

Continuing Priority on Customer Service

Banks prosper as our customers prosper. Continuous improvement in the quality of service to our customers, whether savers, investors, or consumers, is a banking tradition. Unfortunately, all banks are tarnished by financial firms that engage in bad practices, particularly by non-bank competitors. We also seek improvement in regulatory programs that ensure that inappropriate practices within the industry are promptly and effectively addressed, and we will insist that non-bank competitors be held in practice to the same level of standards. We believe that consumer protection is an integral element of financial supervision, and we will strongly oppose efforts to weaken consumer protection and safety and soundness supervision by creating institutional walls that undermine the integrity of the supervisory program.

Reinforcing Confidence in the Banking Industry

High confidence in the banking industry is central to our success and the economic strength of the United States. As guardians of that trust, we will continue to reinforce publicly, as well as with regulators and Congress, what makes the true banking industry different from non-banking financial firms, including the strength of the banking industry based on such factors as our robust capital and reserves, resilient security programs, diverse lines of business, and demonstrated ability to respond to changing customer needs and economic trends. We will actively resist and promptly respond to actions that could jeopardize confidence in the banking industry and our ability to serve our customers and our communities. We will vigorously seek action to address the continuation of unsafe or unsound practices by non-banking firms, whose conduct can affect the financial system in general and undermine public confidence.

Ending Too Big To Fail

Government policy in 2008 converted the too big to fail doctrine into a realized practice. The too big to fail doctrine must be ended. It is expensive to the economy and to the government. It unfairly benefits large institutions over smaller ones and encourages excessive risk-taking. It distorts investment, causing investors to misprice risk, and mutes market discipline. While it is presumed to exist systemic risks will build up that will eventually have to be addressed. We believe that no financial firm should be considered too big to fail. We call for the creation of a systemic resolution authority that draws appropriately upon the tools and capabilities of relevant regulatory agencies to resolve any failing financial institution whose failure may have systemic consequences, in an orderly and efficient way. We also oppose proposals that would in effect have the banking industry shoulder the cost burden of resolution of failing non-bank financial firms.

Strong Bank Capital

The American banking system entered the economic recession with a strong capital position, which has allowed it to weather the financial turmoil better than non-banking financial businesses and better than less-well capitalized banks in other countries. ABA supports capital standards that adequately support the strength and risk profile of financial institutions, banks and non-banks alike. That requires a flexible regulatory program that properly aligns the capital program with the complexity and activity of the firm, such as through a menu of acceptable capital standards. We recognize that financial regulators, in conjunction with their foreign counterparts, are reviewing capital standards and structures, and we support the need for review. Such review should involve significant consultation with the financial industry. Moreover, in developing capital rules and standards, policymakers should carefully consider the impact of capital rules and standards on economic growth and recovery. There should also be recognition that capital is not a cure all, nor a substitute for good underwriting and effective risk management. Moreover, policymakers must recognize that no amount of capital will be sustainable or adequate without strong earnings.

2010 Action Priorities

Effective, Efficient, and Flexible Financial Regulatory Structure

The banking industry benefits from a resilient financial system that responds to the wide range of evolving financial services needs of customers and communities. That system is supervised through a regulatory structure beginning with the dual banking system, offering an array of federal and state banking charter choices and options, including national and state banks and savings associations. In addition, there is a versatility in ownership options, including public corporation, mutual, and privately held structures, among others. We will work to promote the strengths of our system though a regulatory structure that reinforces safety and soundness at both the level of individual institutions and at the systemic level, promotes consistent regulatory requirements for similar activities, preserves charter choice, fosters innovation and creativity, and facilitates the ability of the banking industry to meet customer needs efficiently and competitively (including addressing the effects of regulation on competitiveness). We will strongly oppose efforts to undermine the integrity of the bank supervisory program, including opposition to efforts to weaken consumer protection and safety and soundness supervision by creating institutional walls between them.

Charter Choice, Dual Banking, and Business Flexibility

ABA believes that depository institutions of all types should have the ability to choose the charter that best suits their business model as they respond to the needs of their customers. This also applies to credit unions that seek to change their charter and become banks. This chartering flexibility has given the United States the most robust financial system in the world and has provided access to basic financial services for the vast majority of Americans. ABA also believes that banks and holding companies should be permitted to evolve in ways that continue to meet the needs of their customers. Eliminating choices for depository institutions is not the best way to promote efficiency of regulation among regulatory agencies. Efforts to improve regulation should focus on greater cooperation and coordination, not reducing the number of charters, the flexibility of some charters, or eliminating agencies with history and expertise in supervising those charters. ABA opposes efforts that reduce the ability of institutions to choose their form of organization or charter or limit institutions' business flexibility, consistent with appropriate standards of prudential supervision.

Mutual Institution Charter. ABA firmly supports the continued availability and vitality of the mutual form of organization for depository institutions. ABA actively supports the ability of mutually chartered institutions to grow, serve their communities, and actively compete in the financial services marketplace. Mutuality is one of ABA's fundamental government relations priorities. As approved by the ABA Board of Directors, ABA supports the mutual and mutual holding company options through active participation with the banking agencies to achieve more flexible and tailored rulemaking and supervisory guidance for mutual charters.

Dual Banking System. For nearly 150 years the dual banking system has been a source of innovation and strength for the banking system and the communities and customers we serve. Many popular banking services had their origins in one or the other charter option, not available at the time under alternative charters. ABA opposes efforts to undermine the dual banking system. The ABA will resist efforts to undermine the program of national standards for national banks and federal savings associations as well as efforts to concentrate and centralize banking supervision at the national level, since either would be hostile to preserving the dual banking system.

National Standards for National Banks and Federal Savings Associations. National standards—with their preemption of state and local regulatory mandates—are part of the core of the national bank and federal savings association charter options. Compromise of the national standards damages the value of a national charter and undermines the dual banking system and our competitiveness internationally. ABA will work to preserve national standards for national institutions.

Independence of the OTS. ABA strongly supports the independence of the Office of Thrift Supervision (OTS). The long term viability of the thrift charter and of the thrift holding company structure is supported by a dedicated regulatory agency with the mission and expertise to provide effective supervision. As long as housing and home ownership remain national priorities there will be compelling value in the thrift charter option, supported by a strong OTS.

Payments System Issues

Legislation and regulation will be actively supported that allow banks to sustain their leadership in the vitality and versatility of the payments system in meeting customer needs and preferences, including use of credit and debit cards, as well as prepaid and stored-value cards and other payments services improvements. We will emphasize the ineffectiveness and costs of using the payments system as a policing tool. We will encourage the setting and enforcement of uniform standards for all significant providers of payments services, designed to protect the integrity of the payments system, including appropriate assigning of liability for data breaches resulting from failure to follow standards for protecting payments data.

Interchange. ABA believes that interchange rates and governance should be set by the free operation of the market forces in the private sector. ABA will oppose proposals to have state or federal governments set price controls or otherwise regulate interchange rates, which currently are set by the private market through contractual relationships.

Overdraft Accommodation Programs. ABA supports the ability of banks to provide both credit-based and discretionary overdraft accommodation services for customers within a rational regulatory scheme, preserving the flexibility of banks to operate programs in keeping with customer desires and the efficient operation of the payments system.

Strong, Adequately Funded Deposit Insurance Program

A strong Deposit Insurance Fund (DIF), with resources provided by the banking industry, has been an important source of confidence for the banking industry and the general public. ABA fully supports providing adequate means to maintain the strength of the DIF. Programs to rebuild DIF ratios should take full advantage of the letter and intent of the law to minimize any procyclical effects, relying upon a program of steady premiums that avoids spikes in rates (especially when the economy is under stress), noting that excess payments into the Fund reduce resources needed to finance economic growth in our communities. We believe that the DIF should be used only to protect insured depositors in failed banks. We support updating the treatment of reciprocal programs (such as CDARS) as core deposits rather than as brokered deposits. We believe that deposit insurance premiums should be closely tied to evaluation of risk. We are also concerned that failed bank resolution costs in recent months have averaged more than double the historic rate of resolution costs, and we will continue to seek and support efforts to reduce those costs.

Appropriate Accounting Treatment for Bank Assets

Banks have long acted as economic shock absorbers, making and holding loans for the long-term. Recent economic events have well demonstrated the weaknesses in accounting rules and proposals to impose full fair value accounting treatment on all bank assets, accentuating economic cycles, driving banks toward short-term holdings, and, moreover, discouraging acquisition of troubled banks in troubled times. ABA will continue to be a leader in advocating a system for valuing bank assets that is based upon the economic use of the asset rather than immediate, liquidation estimates of value. ABA will also encourage improved transparency and accountability in the standard setting process, ensuring that the interests of the users of financial statements—including businesses and investors—are taken into account. In that regard, we believe that accounting standards, both U.S. and international standards, should be subject to oversight and review by systemic risk regulatory authorities who would have the authority to direct accounting standard setters to address systemic risk issues posed by accounting standards.

Anti-Money Laundering Reform

ABA recognizes the important role banks play in the fight against terrorist financing, money laundering, and other financial crimes. We will seek to implement the recommendations of the ABA Chairman's Committee on Bank Secrecy Act/Anti-Money Laundering Reform, which would refocus the government program more on criminals and financial crime and make it less of a massive reporting program that documents the legal activities of law abiding people and businesses.

Addressing Procyclical Regulatory Policies

The events of recent months have made it painfully clear that banks and their regulators were right when we sought to increase loan loss reserves during times of strong bank earnings so as to have financial strength to weather the inevitable downturn in the business cycle. Additionally, some risk-based capital formulas can reinforce rather than mitigate the business cycle. On the other hand, bank earnings are an essential element of bank strength, and non-interest earnings can be an important source of stability, less sensitive to the business cycle. Another example is the regulatory treatment of fully-discounted other real estate owned (OREO). While banks are allowed to carry OREO on their books for up to five years, the accumulation of OREO—even fully discounted—affects regulatory treatment of capital and CAMELS ratings, effectively encouraging banks to unload OREO into already depressed markets. ABA will support regulatory attention to countercyclical measures with regard to loan loss reserves, capital standards, treatment of fully-discounted OREO, and diversification of bank earnings that will increase the financial resilience of the banking industry.

Reinvigorating Prudent Mortgage Lending

ABA supports efforts to strengthen the flow of financing for good mortgage loans. We are committed to work with Congress, Treasury, and federal regulators to address mortgage origination and funding problems. ABA is equally committed to avoiding measures that would unwisely limit prudent lending, which could contribute to a credit crunch and undermine economic recovery. We support efforts to enhance the availability of mortgage financing in a way that aligns the interests of borrowers, lenders, and investors with the performance of the loan, and we believe that this reform can and should be done in a way that does not discourage recovery of the secondary market for mortgage lending. We believe that recent changes to the regulations under the Home Owners Equity Protection Act should be reviewed to ensure that they are not in practice hindering the provision of prudential mortgage finance. Other regulations, including RESPA changes effective January 2, 2010, should be reviewed to ensure they complement rather than conflict with recent legislative and regulatory initiatives.

Federal Home Loan Banks

The ABA supports a strong and vigorous Federal Home Loan Bank System, fully capable of providing liquidity and funding necessary to manage balance sheets and prudently support new demands for lending by the banking industry. In order to meet these public policy objectives and adequately manage and capitalize risks, resources that have been diverted to service REFCorp bonds since 1987 should, upon completion of that obligation, remain within the Federal Home Loan Bank System. Among the preferred uses for the funds once the obligation is fulfilled would be: 1) building retained earnings for each FHLBank; 2) setting aside funds to provide a cushion against specific risks to which the FHLBs might be exposed; and 3) increasing the Affordable Housing Program at each Bank. Each of these options has potential appeal, but the primary objective must be to use the funds to support the system's mission. Moves to pull these resources outside of the system will be strongly opposed, because these funds are needed to support the banking industry's capacity to meet the credit needs of communities and to assist in the housing recovery. ABA will oppose any efforts to restructure the secondary market GSEs in a manner that would diminish or jeopardize the mission and function of the Federal Home Loan Banks.

Reforming the Secondary Mortgage Market

Early in 2010, the Obama Administration intends to set forth plans for bringing Fannie Mae and Freddie Mac out of conservatorship. ABA is working closely with Congress, the Administration and the existing secondary market entities to ensure that the evolution of the secondary mortgage market meets the needs of primary lenders, does not usurp the role of the primary market, and encourages stable, liquid and competitive markets that best meet consumer needs.

Unfair Competition from Government-Advantaged Institutions

We will continue our work to redress efforts of the credit union industry and Farm Credit System to abandon their core missions and use their government advantages to expand into the banking business. Moves to broaden government advantages to these institutions will be strongly opposed, while policy makers will be encouraged to require these institutions to return to their core missions or formally obtain a banking charter. Where such an institution chooses to seek a banking charter, procedural barriers to charter conversion (apart from appropriate safety and soundness considerations) should be removed. The Internal Revenue Service will also be encouraged to continue to reevaluate whether tax benefits for these institutions should be retained and to ensure that unrelated business income is taxed fairly. We will seek to have the Farm Credit System brought under the supervision of the new GSE regulator.

Industrial Loan Companies

We will work with Congress and the regulators to finalize proposed restrictions on the ownership of banks by non-financial firms through the enactment of legislation adopted by the House of Representatives during the previous Congress.

Expanded Organizational Options for Community Banks

ABA will work to expand organizational options for community banks by seeking to improve Subchapter S rules, address tax code obstacles to LLC structures, and update the shareholder threshold at which corporations are required to register with the Securities and Exchange Commission.

Pro-Business Tax Policies

ABA will seek tax policies that promote growth and investment for our customers and for our institutions. That includes policies to enhance the value of the Subchapter S and LLC options for banks and small businesses, to encourage saving and investment, and to promote economic growth and development.

Employee Compensation and Corporate Governance

Compensation programs that risk the safe and sound operation of banking firms must continue to be addressed appropriately by bank regulators. Regulatory examination and supervision of employee compensation needs to be focused on demonstrable safety and soundness issues. It is imperative that the regulators not adopt a one-size-fits-all approach, given the great variety found in America's system of over 8,000 banks of all sizes and types. Maintaining competitive compensation programs is also essential to attracting the best talent to our industry. ABA is strongly opposed to the federalization of corporate law, believing that corporate governance matters are best left to the states, including efforts to 1) impose majority vote in uncontested elections, 2) eliminate staggered boards, and 3) separate the roles of Chairman and CEO. Any federally-mandated corporate governance initiatives must provide appropriate exemptions for publicly traded community banks. For example, "say-on-pay" may not be appropriate for a smaller company whose shares are not broadly held and may not be able to field a compensation committee made up entirely of independent directors, resulting from the unique qualities of community ownership.

Promoting the Security of America

Recognizing that terrorism affects us all, and that banks are often the targets of attacks, fighting terrorism continues to be a high priority of the banking industry. We are working with executive branch agencies and the Congress to improve both effectiveness and focus, with programs that achieve tangible results to upset terrorist plans. Banking industry leadership includes areas such as financial system resilience, anti-money laundering efforts, and enhanced physical security measures.

Serving the Whole Community

The banking industry takes pride in its strong record of compliance with anti-discrimination standards and fair lending laws and regulations. Banks have also been the leading source for providing financial services to our communities, demonstrated by consistently high records of compliance with the Community Reinvestment Act. We believe that credit unions, that receive significant government benefits in order to serve particularly low and moderate income people, should be required to demonstrate, through measurable standards, that they are meeting their service obligations.

Regulatory Effectiveness and Efficiency

Promoting the effectiveness and efficiency of regulatory requirements is a constant effort and a primary purpose of the ABA. The measure of a law or regulation must be whether it helps the banking industry serve our customers; if it makes it harder or interferes with efforts to serve our customers, then the law or regulation must be changed. This standard is applied to newly proposed legislation and regulations, as well as in response to the need to reform existing laws and regulations. The effort cannot be only in reaction to proposals but must also be found in affirmative industry proposals for reform. The resulting benefits to customers are also in the interest both of banks and government policymakers. We believe that consistency in regulatory standards and coordination of similar regulatory requirements among appropriate regulatory agencies is important to the achievement of these goals. Most frequently, this can be achieved through joint rulemaking involving the relevant agencies.

Financial Education

ABA strongly supports financial literacy initiatives at the local, state and federal levels. The ABA directly supports bankers' efforts through its financial education subsidiary, the ABA Education Foundation. Founded by bankers in 1925, the Foundation assists bankers in their work to promote financially literate customers and communities.