Pub. 16 2019 Issue 1

Issue 1 • 2019 7 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S - Clear Preemption: Preempt state privacy and data security laws to ensure that a national standard pro- vides consistent protection for all Americans. • Resolve the Federal-State Conflict on Cannabis Banking: Thirty-three states have legalized cannabis for medical or adult use. Nevertheless, federal law still defines cannabis as an illegal drug under the Controlled Substances Act and, as a result, all proceeds generated by a cannabis-related business can be considered unlawful for banks to process. Even accepting a cannabis-relat- ed deposit can be considered money laundering. The problem extends to any entity that derives revenue from a cannabis firm, including real estate owners, security firms, utilities and other vendors and investors. That puts banks in the untenable position of either potentially vio- lating federal law or refusing services to a significant legal sector of their local economies. But excluding the canna - bis industry from the banking system has serious conse- quences for the communities where they operate. Canna- bis businesses are handling increasingly large amounts of cash-even paying their state taxes and licensing fees in cash-creating public safety and supervisory concerns. Permitting cannabis businesses to use the banking system would improve the safety, regulation, transparency and accountability of the industry. We ask our delegation to: - Support and pass bipartisan legislation H.R. 1595, the Secure and Fair Enforcement Act (SAFE) Bank- ing Act of 2019. - Allow banks to serve cannabis-related businesses in states where the activity is legal and clarify that han- dling proceeds from their legitimate transactions is not money laundering and does not violate federal law. - Require federal banking regulators to provide explicit, clear and uniform expectations regarding the treat - ment of all cannabis-related accounts. - Specify that a Suspicious Activity Report is not re- quired solely because a transaction involves proceeds from a legal state cannabis business. • Delay and Study CECL Standard: The Financial Accounting Standard Board’s Current Expected Credit Loss accounting standard requires banks to forecast all future losses at the time a loan is made. Such upfront loss recog- nition will require more capital at the time of origination, fundamentally changing the economics of lending and po- tentially increasing the cost to consumers of longer-termed products like residential mortgages and of loans issued to non-prime borrowers. All banks, including community banks, will be heavily impacted by CECL. Theymay have to raise capital and will need to purchase or develop costly new systems and processes to track loan performance. In addition, the new standard will increase the complexity of a highly judgmental area of accounting, add to the volatility of regulatory capital and, due to the inability to forecast turns in the economy, also add to the procyclicality of the bank- ing industry-exacerbating economic downturns in times of uncertainty. The standard will be effective in 2020 for SEC registrants, 2021 for non-registrant banks with outside equity/debt holders, and 2022 for privately-held andmutual banks. We support legislation that: - Requires the SEC and the federal banking agencies to perform a quantitative impact study. - Requires the study to assess the impact of CECL on the industry and lending throughout an economic cycle and across banks of all sizes, and to recommend changes to address any negative impacts. - Delays the required effective date until one year after a study can be completed. • Credit Unions: Congress exempted credit unions from paying federal income taxes during the Great Depression to encourage their mission as small financial institutions that served consumers of modest means who shared a common bond. Today, there are approximately 300 credit unions with more than $1 billion in assets that, though representing just 5 percent of all credit unions, enjoy 75 percent of the industry’s tax benefit. These institutions are indistinguishable from commercial banks yet individually are larger than nearly 90 percent of the banks in the U.S. Congress should ask if the tax exemption for the largest credit unions still makes sense. We urged our delegation to support legislation to: - Remove the tax exemption for all credit unions above $1 billion in assets. - Require credit unions to file the same salary and com - pensation disclosures as any other not-for-profit. • Farm Credit System: The Farm Credit System (FCS) is a $335 billion government-sponsored enterprise (GSE) that competes directly with banks by making farm, ranch, consumer, housing, business and energy loans. As a GSE, it does not pay taxes at the same rate as banks. We asked our Congressional delegation to: - Support H.R. 1872, the Enhancing Credit Opportuni - ties in Rural America (ECORA) Act. ECORA would remove the taxation on interest from agricultural real estate loans, giving rural banks the same tax status as the FCS when making farm real estate loans. n John Gulas, Congresswoman Xochitl Torres Small, John Anderson, and David Hockmuth. David Hockmuth, Aaron Emmert, Senator Tom Udall, Udall Staffer Jeff Lopez, and Jon Hitchcock.