Overview
Title
To require the appropriate Federal banking agencies to establish a 3-year phase-in period for de novo financial institutions to comply with Federal capital standards, to provide relief for de novo rural community banks, and for other purposes.
ELI5 AI
H.R. 758 is a plan to help new banks and small country banks build up their money slowly over three years, so they have an easier start. It also lets banks give loans for farms and looks into why we don't see many new banks popping up in certain places.
Summary AI
H.R. 758 is a bill that aims to support new (de novo) financial institutions by giving them three years to meet federal capital standards, easing the initial financial burden. The bill also offers special relief to rural community banks by setting an 8% Community Bank Leverage Ratio and provides for an even lower ratio in the first two years. It introduces amendments to allow Federal savings associations to issue loans for agricultural purposes. Additionally, the bill mandates a study on why there are so few new financial institutions and how to increase their numbers, especially in underserved areas.
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AnalysisAI
General Summary of the Bill
The proposed legislation, titled the "Promoting Access to Capital in Underbanked Communities Act of 2023," seeks to support new financial institutions, particularly in rural areas, and encourage their compliance with federal capital standards over a phased three-year period. The bill specifically addresses de novo, or newly chartered, financial institutions, offering them relief by providing a gradual introduction to capital requirements. Furthermore, it allows banks to propose changes to their business plans with a mandatory response period from regulatory agencies and includes provisions specifically targeting rural community banks and their leverage ratios. Additionally, the bill amends existing regulations to allow Federal savings associations to make agricultural loans and mandates a study to understand and incentivize the establishment of new banks in underbanked regions.
Summary of Significant Issues
A number of concerns arise from the analysis of this bill. One primary issue is the automatic approval of business plan changes if regulatory agencies fail to respond within 30 days, potentially allowing unvetted changes to proceed unchecked. Additionally, crucial details such as the consequences for failing to meet capital requirements after the phase-in period are not clearly outlined, which may create instability within the banking sector. The reliance on definitions and standards from external regulations and documents presents another challenge, as changes to those external texts could affect the application and understanding of this bill. The lack of oversight and clear criteria within various sections could lead to inconsistency and ineffective implementation, impacting the intended support for de novo banks.
Impact on the Public
The bill's provision for a structured phase-in of federal capital standards could positively impact communities by supporting the establishment of more financial institutions, potentially increasing access to banking services in regions that currently have limited options. By fostering an environment conducive to the growth of new banks, particularly in underbanked areas, the legislation aims to promote financial inclusion and economic development. However, the public might be concerned about the regulatory oversight of these new financial entities, especially with the potential for automatic approvals of business plan changes without comprehensive review, which could compromise financial stability.
Impact on Specific Stakeholders
For new financial institutions and their stakeholders, the bill provides an opportunity for growth and stability by offering a phased compliance period with federal capital standards, making the initial stages of operation more manageable. Rural community banks, in particular, stand to benefit from targeted interventions that reduce their immediate regulatory burden, allowing them to better serve local populations with potentially more competitive loan offerings.
On the other hand, regulatory agencies face the challenge of balancing the encouragement of new bank formations with the need for adequate oversight. The bill's current provisions require these agencies to act swiftly on business plan requests, which may strain resources and lead to rushed decisions.
Furthermore, agricultural stakeholders could benefit from the bill's amendments to allow Federal savings associations to provide loans for agricultural purposes, potentially increasing funding options for farmers and agribusinesses.
Overall, while the bill's intentions to support financial inclusivity and new bank formations are clear, the significant issues identified highlight the necessity for comprehensive oversight and clarity to ensure these objectives are met without unintended negative consequences.
Financial Assessment
The bill H.R. 758 primarily focuses on easing financial regulations for new financial institutions and doesn't directly allocate money or involve federal spending. However, there are notable financial concepts referenced that tie into broader regulatory and fiscal concerns.
Financial Relief for De Novo Institutions
The bill introduces a 3-year phase-in period for new financial institutions, also known as de novo institutions, to meet federal capital requirements. This phase-in is crucial because it allows these institutions extra time to accumulate the necessary capital, reducing immediate financial pressure. While this does not involve direct funding, it has significant financial implications for how these institutions manage their resources over the initial years of operation.
By allowing a gradual adjustment, the bill arguably promotes financial stability among new banks, which can be particularly beneficial for smaller or rural institutions that might struggle to meet immediate capital demands.
Community Bank Leverage Ratio
Section 4 specifically addresses rural community banks by setting an 8% Community Bank Leverage Ratio during the transition period. The aim is to provide these banks with more lenient capital ratios in their formative years, again allowing them to build up capital reserves gradually. Notably, the bill also proposes to set lower leverage ratios during the first two years. However, the exact figures for these lower initial ratios are not specified, which ties into the issue of potential ambiguity. Changes in external regulations defining community bank leverage ratios or rural areas could impact how these financial ratios are applied.
Financial Definitions and External References
The bill references external definitions to clarify terms like “rural depository institution,” specifically those with total consolidated assets of less than $10 billion. By relying on existing regulatory definitions, there is a risk of confusion if such definitions change over time. This poses a potential issue for consistent application and compliance, especially if definitions shift in a way that could change which institutions qualify for the proposed financial relief.
Agricultural Loan Authority
The proposed amendment in Section 5 allows federal savings associations to issue secured or unsecured loans for agricultural purposes. While this expands the scope of financial activities that these institutions can undertake, it does not involve direct federal allocations. Yet, it signals a shift in how financial resources can be directed in rural and agricultural sectors, possibly influencing the economic landscape for regions reliant on these loans.
Conclusion
While H.R. 758 does not deal with explicit budgeting or appropriations, its financial references significantly impact the regulatory landscape for new and rural banking institutions. The bill addresses critical issues related to regulatory flexibility and institutional growth. However, the reliance on external definitions and unspecified details regarding leverage ratios could lead to inconsistencies and require careful interpretation and adjustment as these external references evolve.
Issues
The provision in Section 3 that allows for automatic approval of business plan deviations if not acted upon by the Federal banking agency within 30 days could lead to potentially harmful changes being approved without proper oversight, raising concerns about transparency and regulatory compliance.
Section 7 relies on definitions from the Federal Deposit Insurance Act, requiring readers to reference external documents for understanding key terms. This could lead to ambiguity and misunderstanding if those definitions are altered.
Section 2 lacks clarity on what happens if de novo institutions fail to meet the Federal capital requirements by the end of the 3-year phase-in period, which is critical for ensuring stability and compliance in the banking sector.
The lack of specified criteria for 'conditionally approve' in Section 3 and the vague requirement for denial reasons could lead to inconsistencies and insufficient guidance for applicants, affecting fairness and transparency.
Section 4's definition of 'Community Bank Leverage Ratio' and 'rural area' relies on external regulations, which could create ambiguity if those regulations change, impacting the consistency and application of these terms.
Section 6 does not outline oversight or evaluation measures for the study on de novo insured depository institutions, which might lead to concerns about accountability and the practical implementation of its recommendations.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of the Act states its short title, which is the “Promoting Access to Capital in Underbanked Communities Act of 2023.”
2. Phase-in of capital standards Read Opens in new tab
Summary AI
The section describes a rule requiring federal banking agencies to implement a 3-year transition period for banks and their holding companies to comply with federal capital standards. This period begins when a bank becomes insured, or when a bank holding company's subsidiary gains insured status.
3. Changes to business plans Read Opens in new tab
Summary AI
During the first three years after becoming insured, a bank can ask to change its business plan by submitting a request to the relevant federal banking agency. The agency has 30 days to approve, conditionally approve, or deny the request and must provide reasons and suggestions for improvement if it denies the request; if the agency doesn't respond in time, the request is automatically approved.
4. Rural community depository institution leverage ratio Read Opens in new tab
Summary AI
During the first three years of a rural depository institution becoming insured, the bank's leverage ratio is set at 8%. Federal banking agencies will implement lower ratios in the first two years to help them adjust. The term "Community Bank Leverage Ratio" and "rural depository institution" are specifically defined for clarity.
Money References
- (2) RURAL DEPOSITORY INSTITUTION.—The term “rural depository institution” means a depository institution— (A) with total consolidated assets of less than $10,000,000,000; and (B) located in a rural area, as defined under section 1026.35(b)(iv)(A) of title 12, Code of Federal Regulations.
5. Agricultural loan authority for Federal savings associations Read Opens in new tab
Summary AI
The amendment to the Home Owners’ Loan Act allows Federal savings associations to offer secured or unsecured loans specifically for agricultural purposes. Additionally, a wording change clarifies that loans for business or agricultural purposes are separate categories.
6. Study on de novo insured depository institutions Read Opens in new tab
Summary AI
The Federal banking agencies are required to jointly conduct a study to investigate why there have been so few new insured banks in the past ten years and to explore ways to encourage more of them, especially in areas where banks are lacking. They must present their findings to Congress within one year.
7. Definitions Read Opens in new tab
Summary AI
The section outlines that the terms "appropriate Federal banking agency," "depository institution," "depository institution holding company," "Federal banking agency," and "insured depository institution" are defined as they are in section 3 of the Federal Deposit Insurance Act.