Should Banks be Considered Small if They Have Up to $3 Billion in Assets Instead of $1 Billion? (H.R. 4771)

What is H.R. 4771?

(Updated April 6, 2018)

This bill would require the Federal Reserve to expand its policy statement on the allowable debt levels of small bank holding companies to apply to firms with less than $3 billion in assets, rather than only firms with less than $1 billion in assets. Banks under the threshold are exempt from a prohibition on engaging in significantly leveraged (i.e. debt-financed) nonbanking activities, although the Federal Reserve can apply the policy to banks at risk of failing. The change would take effect within six months.

Argument in favor

Applying the Federal Reserve’s policy statement to bank holding companies with up to $3 billion in assets rather than only those with under $1 billion will allow firms to make more investments with businesses and consumers in the communities they serve.

Argument opposed

By expanding the policy statement to cover banks that are three times larger than those it originally covered, this bill could cause covered banks to engage in more risk-taking and ultimately lead to more small bank failures.

Impact

Small bank holding companies; and the Federal Reserve.

Cost of H.R. 4771

The CBO estimates that enacting this bill would have an insignificant impact on the budget.

Additional Info

In-Depth: Sponsoring Rep. Mia Love (R-UT) introduced this bill to help small banks around the country access capital and make loans in their communities:

“Smaller banks are the lifeblood of many local communities in Utah. They support the credit needs of low and middle income families as well as the small businesses, farmers, and entrepreneurs that create jobs. Community banks are a  major, and sometimes the only, lending source for a lot of hard working and ambitious people. When these community banking institutions are overwhelmed with regulations and mandates — many of which are meant for larger institutions — it is the hard working Americans in those communities that suffer. The exemptions provided in this bill will make it easier for small banks and thrifts to continue operating in communities that would otherwise lack sufficient banking services.”

Original cosponsor Rep. Josh Gottheimer (D-NJ) added:

“Community banks are an essential element of our communities — helping our families buy homes and small businesses get off the ground in North Jersey. But these economic engines have been under historic pressure from new, unnecessarily burdensome regulations. Regulatory relief and cutting bureaucratic red tape will increase access to capital for community banks and their customers — our Jersey families and businesses.”

Some House Democrats expressed opposition to this bill in its committee report:

“Tripling the Policy Statement threshold to $3 billion at this time is wholly unfounded. There has not been sufficient time to see what effect previously doubling the Policy Statement threshold to $1 billion just a few years ago really means for community banks and the communities they serve. Congress should examine the data and consider the benefits and costs before making further changes.”

This legislation passed the House Financial Services Committee on a 41-14 vote and has the support of two Democratic cosponsors. During the last Congress, Rep. Love offered a similar bill which raised the assets threshold from $1 billion to $5 billion, which passed the House on a 247-171 vote.

Media:

• Sponsoring Rep. Mia Love (R-UT) Press Release
  
• CBO Cost Estimate