House Passes Small Business Tax Credit Bill — President to Sign Monday
On Thursday, the House passed a $42 billion bill designed to provide tax credits and to make more capital available to small businesses. The bill was originally passed by the Senate last week and will be signed into law by the President on Monday. The “Small Business Jobs Act” is intended to make credit more available by authorizing the creation of a $30 billion fund run by the Treasury Department that would deliver low-cost capital to banks with less than $10 billion in assets. The bill also provides $1.5 billion in grants to state lending programs that in turn support loans to small businesses. The bill would also extend and/or create $12 billion in small business tax credits over the next ten years including a 100% exclusion of capital gains taxes on investments for qualifying C corporations, a five year extension of the “carry back” provision, an increase and extension through 2011 of Section 179 deductions for up to $500,000 worth of equipment, an extension of bonus depreciation for capital expenditures made in 2008 or 2009, and an increase to $10,000 in the deduction for start-up expenses for 2010.
Tax Cut Extension Vote Postponed Until After November Election
On Tuesday, Senate Majority Leader Harry Reid (D-NV) said he was “working hard for a vote most likely next week” on an extension of the Bush income tax income tax cuts for taxpayers making less than $250,000 per year. On Thursday, Reid and House Majority Leader Steny Hoyer (D-MD) announced the vote on the extension will be delayed until after the November elections. However, if Republicans take back the Senate and or the House, they could attempt to block that vote in the hopes of getting a more favorable bill early in the next Congress.
House Republicans Unveil “Pledge to America”
On Thursday, House Republican leaders unveiled their “Pledge to America” which details a series of policy proposals House Republicans will attempt to enact if they gain the majority in the November elections. The proposal includes promises to freeze federal government hiring, cut Congress’ budget, place hard caps on domestic spending accounts, extend the Bush tax cuts that are set to expire in 2011, and “repeal and replace” the new health care law.
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On September 16, 2010, the Senate adopted H.R. 5297, the Small Business Jobs Act of 2010, which includes the creation of the $30 billion Small Business Lending Fund. The House passed the Senate’s version of the bill in full on September 23, 2010, thereby sending it to President Obama for his signature. This legislation would (finally) implement the program described in President Obama’s State of the Union address (and first announced almost one year ago) from the beginning of the year to provide additional funds to community banks to lend to small businesses.
The version of the legislation is generally comparable to the version the Senate began considering in July but contains many differences from the version previously adopted by the House in June. Most significantly, the Senate-adopted bill does not permit eligible institutions to amortize losses and write-downs on certain OREO and NPAs secured by real estate. For convenience, we have posted the text of the Small Business Lending Fund provisions contained in the Senate-passed bill.
Eligibility.
Under the terms of the Senate-adopted bill, eligible depository institutions with $10 billion or less in consolidated assets (as of December 31, 2009) may apply to receive a capital infusion of up to between 3% and 5% of the institution’s risk-weighted assets, less any existing TARP CPP or CDCI funds. Institutions with $1 billion or less in consolidated assets are eligible for up to a 5% investment, while those institutions between $1 and $10 billion are only eligible for 3%. (Under TARP, only institutions with $500 million or less in consolidated assets were eligible for capital up to 5% of risk-weighted assets, so this potentially represents an increase in available funding for institutions between $500 million and $1 billion.)
Institutions on the FDIC’s problem bank list are explicitly excluded from eligibility under the Small Business Lending Fund. The bill defines the problem bank list as the list of depository institutions having a current CAMELS composite rating of 4 or 5, or such other list designated by the FDIC. The bill explicitly emphasizes that merely because a bank has a CAMELS rating of 3 or better does not limit the discretion of the Treasury Department to deny an application for funds.
Matching with Private Funds.
The Small Business Lending Fund explicitly authorizes the Treasury and federal regulators to consider making an investment conditioned on private matching investments. This authorization is not available for institutions that are specifically ineligible (i.e., those on the troubled bank list) but rather is only available to otherwise eligible institutions that the regulators or Treasury determine not to recommend to receive capital infusions.
In an effort to make it a little easier to find information about the Dodd-Frank Act, we have created a new page on BankBryanCave.com that highlights our best summaries of the Regulatory Reform Act and also provides copies of several of the presentations that Bryan Cave has given on the Act.
The latest and greatest information will continue to be posted directly on BankBryanCave.com, but if you’re looking for quick overview of the Act or easy links to our most popular posts on Dodd-Frank, please check our our new Dodd-Frank page.
The Senate has acknowledged that the federal banking regulators are sending mixed messages to community banks… but they don’t plan to do anything about it. Section 4113 of the bill to authorize the Small Business Lending Fund adopted by the Senate on September 16, 2010 includes a declaration of Congress regarding the messages being sent by the federal banking regulators.
Sec. 4113. Sense of Congress
It is the sense of Congress that the Federal Deposit Insurance Corporation and other bank regulators are sending mixed messages to banks regarding regulatory capital requirements and lending standards, which is a contributing cause of decreased small business lending and increased regulatory uncertainty at community banks.
Apparently, the Senate doesn’t have any issues with the regulators’ actions, since the bill neither states that Congress believes the regulators are wrong for sending these mixed messages nor includes any requirement that they stop doing so. One might suggest that the regulators are not sending mixed messages… but are sending different messages depending on the audience; the regulators are telling Congress they want banks to lend, while imposing burdens on banks that make new lending practically impossible.
Consumer Protection Act & What It Means to You
Wednesday, October 6, 2010 11:00 AM – 12:00 PM EDT
The Dodd–Frank Wall Street Reform and Consumer Protection Act significantly modified the consumer protection landscape. The act created a new financial protection regulator with broad enforcement powers, modified the federal preemption standard applicable to national banks and federal savings associations and added a wide range of anti-predatory and mortgage reform laws.
Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future. Our presenters will discuss the Consumer Financial Protection Bureau, federal pre-emption standards, new mortgage loan originator compensation rules, debit card interchange fee limits, numerous new mortgage-lending rules and more.
If you are interested in attending, please register online for this free webinar.
SEC Adopts Rules Allowing Shareholders Access to Company Proxy Materials
On August 25, 2010, the Securities and Exchange Commission voted to adopt new rules that will require companies to include in their proxy materials nominations for election as directors submitted by eligible shareholders, subject to certain conditions. For more information, please see the Client Alert published by the Corporate Finance and Securities Client Service Group August 26, 2010.
Enforcement Landmines for Private Funds in Dodd-Frank
By now, most “private” or “hedge” fund managers know that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires SEC registration of most advisers to private funds, effective July 2011. But SEC registration is not the only aspect of the new law that fund managers need to be aware of. Other provisions of the law will have significant effects on funds. For more information, please see the Client Alert published by Securities Litigation and Enforcement Alternative Investments Team.
Regulations Issued Under Health Care Reform on Preventive Services and Internal claims and Appeals, and Extended Review Procedures
The Departments of Treasury, Labor and Health & Human Services (the “Departments”) recently issued two more batches of interim final regulations under the Patient Protection and Affordable Care Act as amended (the “Act”). This new guidance addresses (i) the preventive services coverage mandate, and (ii) the new internal claims and appeals and external review processes. For more information, please see the Client Alert published by the Employee Benefits and Executive Compensation Group August 5, 2010
USDA to Hold Meeting for Public Input on Codex Processed Fruits and Vegetables Standards
On August 18, 2010, USDA announced a public meeting to provide information and receive comments on agenda items and draft U.S. positions that will be discussed at the 25th Session of the Codex Committee on Processed Fruits and Vegetables. For more information, please see the August 19, 2010 Food Regulatory and Policy Bulletin published by the Food and Drug Administration Practice
During China Visit, FDA Commissioner’s Focus Not on Heparin Investigation
FDA Commissioner Margaret Hamburg’s recent trip to China focused primarily on avenues of collaboration and cooperation between the FDA and Chinese regulators rather than on the current investigation into the contaminaiton of heparin. For information on this and other issues, please see the August 27, 2010 Drugs and Devices Regulatory and Policy Bulletin published by the Food and Drug Administration Practice.
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Senate Passes Small Business Tax Credits Bill
On Thursday, the Senate passed a long-stalled small business tax credit measure, 61-38, with all fifty-nine Democrats and two Republicans, George Voinovich (Ohio) and George LeMieux (Fla.), voting for the bill. The bill will extend a number of tax provisions, including liberalized and expanded expensing for 2010 and 2011, revived bonus depreciation for 2010, a five-year carryback of unused general business credits for eligible small businesses, removal of cell phones from the listed property category, and liberalized Code Sec. 6707A penalty rules. The bill now heads back to the House where it is expected to pass and then be signed into law by the President.
Warren Appointed as Special Adviser to the Bureau of Consumer Financial Protection
On Friday, President Barack Obama formally appointed Elizabeth Warren as a “Special Adviser” to temporarily lead the new Bureau of Consumer Financial Protection. In her interim post, which will eventually be filled by a permanent chief, Warren will oversee all aspects of the Bureau’s creation, including staff recruitment and immediate decisions about the Agency. While many Congressional Democrats praised the appointment, Senator Chris Dodd (D-CT), who sponsored the financial reform bill which created the Bureau, said that Warren was too liberal to win Senate approval for the job on a permanent basis and therefore only the interim post was possible.
Basel Committee Passes New Global Bank Capital Standards
As expected, last Sunday the Basel Committee passed new rules ordering banks to raise their minimum core tier one capital from 2 percent to 7 percent of their risk weighted assets by 2019 or face restrictions on pay and bonuses. This new protocol more than tripled the old requirement of 2 percent to force banks to hold more top quality capital against potential losses. Banks will also be required to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings.
Geithner Testifies on Chinese Currency Policy
On Thursday, Treasury Secretary Timothy Geithner testified before the Senate Banking Committee and the House Ways and Means Committee on China’s trade and currency policies. During his testimony, lawmakers demanded a crackdown on Beijing’s policies, and Geithner vowed to push China on trade and currency reforms. Geithner said the United States would use a Group of 20 Summit in November to mobilize trading partners to pressure Beijing to allow the Yuan to rise. Lawmakers are weighing new legislation to punish China for practices they say keep the Yuan artificially low. The consensus in Congress seems stronger than ever for new rules targeting China, but the tight legislative calendar leaves little time to pass a bill in the coming weeks. Geithner said the Obama administration has not endorsed the current House bill that would slap duties on goods from countries with “fundamentally misaligned” currencies.
More Information
If you have any questions regarding any of these issues, please contact:
Matt Jessee
Policy Advisor
matt.jessee@bryancave.com
1 314 259 2463
In a speech before the nation’s banking accountants and auditors, OCC Senior Deputy Comptroller for Bank Supervision Policy Tim Long previewed key areas of regulatory concern in the wake of the financial crisis. He lamented the state of loan loss reserve provision rules and pontificated on community bank concentrations in commercial real estate and capital requirements. Specifically, he wants to see capital buffers that are over and above minimum regulatory requirements and are proportional to high CRE concentrations. He is evidently “struck by how often [analysts of the current financial crisis] miss a crucial point” that its root causes were remarkably similar to those of past crises, and he says the OCC intends to refocus on the fundamentals of sound banking.
Long was not shy in assigning blame for industry and regulatory distance from these fundamentals. He decried a period that “allowed accounting doctrine and the accounting profession to encroach on what is fundamentally a process of credit estimation” and a matter of banker expertise. Echoing a previous OCC take on FASB 114, he argued that the “incurred loss” model underlying current GAAP standards limits banks’ ability to provide for loan loss reserves in good times, when historical data substantiating credit risk is harder to produce. Banks should, in the opinion of Mr. Long, instead be permitted (and instructed by examiners) to make provision for losses on a more forward-looking basis and in light of macroeconomic trends. Related FASB changes are pending but are far short of the “expected loss” model Long has previously espoused. Accountants argue that the incurred loss model provides the more accurate financial snapshot and reduces the risk of earnings manipulation.
In addition, Long singled out community bank concentrations in commercial real estate and discussed the need for more rigid limits. Here he acknowledged some degree of regulator responsibility and argued that the principles of the 2006 interagency guidance on CRE concentration appropriately identified this risk and should have been more formally implemented. Long argued that regulatory capital minimums are just that—minimums—and that regulators should be more precise in calling for greater capitalization. In particular, it is Long’s contention that certain CRE concentrations should trigger mandatory capital buffers above regulatory minimums that scale with increasing concentrations.
These statements by Mr. Long exemplify a regulator philosophy that is likely to pervade the implementation of Dodd-Frank and the regulatory environment going forward. Regulators seem to be happy to put the Congressional focus on their role in the financial crisis behind them and eager to position themselves within the new supervisory landscape. In case of the OCC, although it will be gaining federal thrift supervision authority under this new framework, it will also have to work more closely with the Fed in regulating banks held by systemically risky bank holding companies. Long’s comments assume an interagency approach to bank supervision.
Mr. Long was appointed by then-Comptroller John Dugan to his current post in 2008, in which role he also serves as Chief National Bank Examiner and as Chairman of the Committee on Bank Supervision, which coordinates the OCC’s supervisory activities. He has been with the OCC since 1979.
Goolsbee to Chair White House Council of Economic Advisors
On Friday, President Obama named a longtime adviser, Austan Goolsbee, to be the chairman of the White House Council of Economic Advisers. Goolsbee is a former University of Chicago economics professor and one of three economists currently serving on the council. He previously was confirmed by the Senate and will not need to be reconfirmed. Goolsbee, 41, replaces Christina Romer, who has returned to her teaching position at the University of California, Berkeley.
Clash Over Tax Cuts Extension
With the Bush tax cuts set to expire at the end of 2010, President Obama, speaking at a White House news conference on Friday, proposed extending tax cuts for families earning less than $250,000 a year while allowing taxes to rise for those with higher incomes. However, the President stopped short of promising a veto should Congress send him legislation extending, perhaps temporarily, tax cuts for everyone. Republicans have proposed extending the tax cuts for all income brackets. The cost to the Treasury of extending the top two income tax bracket rates, which the Bush tax cuts lowered from 39.6% to 35% and 36% to 33%, would be $700 billion over 10 years.
Stimulus Round Two
During a speech Wednesday, President Obama unveiled his new proposal to allow companies to expense 100 percent of their investments in new plants and equipment through the end of next year in effort to spur job creation. The President also announced a plan to invest $50 billion in new roads and railways, as well as permanently extend a tax credit, valued at close to $100 billion over 10 years, for businesses that conduct new research and development.
Recent media mentions of attorneys in the financial institutions practice include Hightower in American Banker
Atlanta Associate Jonathan Hightower was quoted in the August edition of American Banker (reprinted in the related Bank Technology News) regarding the Office of Financial Research (OFR), which was created by the sprawling financial regulatory reform bill. While created to keep tabs on systemically important institutions, Hightower said the OFR’s data requests likely will trickle down to many smaller institutions. Click here to read the article.