STATE GOVERNMENT RELATIONS
General Assembly Marches Toward Deadline
The Indiana General Assembly has moved one week closer to the conclusion of the 2021 session. Lawmakers now have under one month to finalize and pass any remaining legislative proposals by the new end date of April 21.
Committee work continued through this past week as lawmakers worked through bills still alive. Of note to IBA members, bills on unclaimed property (SB 188), the state budget (HB 1001), publication of notices (SB 332) and the Department of Financial Institutions (SB 346) all saw committee time. The IBA GR team will continue to monitor legislative activity as it relates to the industry.
Click here for a complete list of bills that the IBA Government Relations Team is tracking in the 2021 Indiana General Assembly.
Senate Bill 383 – Various Tax Matters
Author/Sponsor: Sen. Travis Holdman & Rep. Tim Brown
Summary of legislation: Various tax matters. Requires a corporation with gross income of more than $1,000,000 to file its corporate income tax return in an electronic manner specified by the department of state revenue (department). Provides a sales tax exemption for a utility scale battery energy storage system. Provides a sales tax exemption for public safety equipment and materials. Provides certain procedures for reporting federal partnership audit adjustments for purposes of the state adjusted gross income tax and financial institutions tax in order to conform with changes in federal law. Provides that the department of state revenue (department) may prescribe procedures: (1) by which a pass through entity remits tax; (2) for persons or entities that are otherwise subject to withholding but that may have circumstances such that standard tax computation may result in excess withholding; (3) for individuals and trusts that are residents for part of the taxable year and nonresidents for part of the taxable year; and (4) by which an entity may request alternative withholding arrangements. Requires the daily pari-mutuel breakage on wagers to be paid to the department, instead of the auditor of state, for deposit in the appropriate breed development fund. Requires a utility provider to maintain records sufficient to document each one to one meter change. Allows a person to request that the department reissue an exemption certificate with a new meter number in the event of a one to one meter change.
Senate Bill 386 – Cost Securitization for Electric Utility Assets
Author/Sponsor: Sen. Eric Koch & Rep. Ed Soliday
Summary of legislation: Cost securitization for electric utility assets. Provides that an electric utility that has certain qualified costs that: (1) are associated with an electric generation facility that will be retired from service within 24 months; and (2) are equal to at least 5% of the electric utility's total electric base rate; may file a petition with the utility regulatory commission (IURC) for a financing order authorizing the securitization of the qualified costs. Provides that an "electric utility," for purposes of the bill, is a public utility that: (1) owns or operates any electric generation facility for the provision of electric utility service to Indiana customers; (2) is under the jurisdiction of the IURC; and (3) has a total of not more than 200,000 retail electric customers. Provides that not later than 240 days after a petition for a financing order is filed, the IURC shall conduct a hearing and issue an order on the petition.
Senate Bill 188 – Revised Uniform Unclaimed Property Act
Author/Sponsor: Sen. Eric Koch & Rep. John Young
Summary of legislation: Revised Uniform Unclaimed Property Act. Repeals the unclaimed property act and replaces it with the revised unclaimed property act. Makes conforming amendments.
Senate Bill 346 – Financial Institutions and Consumer Credit
Author/Sponsor: Sen. Eric Bassler & Rep. Martin Carbaugh
Summary of legislation: Financial institutions and consumer credit. For purposes of the statutes governing: (1) first lien mortgage transactions; (2) the Uniform Consumer Credit Code; and (3) financial institutions; changes references to federal laws within those statutes from federal laws as in effect on December 31, 2019, to federal laws as in effect on December 31, 2020. Amends the statute concerning loans made by a credit union to the credit union's members to eliminate certain requirements with respect to loans secured by real estate. Amends the definition of "check" for purposes of the statute governing licensed cashers of checks to remove a reference to a "personal money order."
FLD Virtual Day at the Statehouse
Register now for the FLD Virtual Day at the Statehouse, scheduled for April 9. This is an opportunity for emerging bank leaders to network with peers and learn more about grassroots advocacy and the legislative process. If you have an interest in politics, or if you just want to do your part to promote the future success of the banking industry, register now to unlock your potential as an industry advocate.
FEDERAL GOVERNMENT RELATIONS
IBA Washington Trip - July 18-20
Register now for the IBA Annual Washington Trip, scheduled for July 18-20. Join with fellow Hoosiers as we travel to our nation’s capital to tell the story of Indiana banking to elected officials and regulators. This is an opportunity to discuss the impact legislation has had or may have on your bank, and how currently proposed policies could influence your customers and communities. It is more important now than ever to engage in grassroots advocacy as you share your concerns, your successes and what you believe will allow you to better serve your communities. We look forward to seeing you in Washington!
Senate Passes PPP Extension; Bill Goes to President
The Senate yesterday voted 92 to 7 to pass a bill extending the Paycheck Protection Program. The legislation, which the House already passed, now goes to President Biden for signing. The Paycheck Protection Program Extension Act would allow loan applications to the program – currently set to expire on March 31 – for two more months and give the Small Business Administration 30 additional days to process loan applications submitted by the new May 31 deadline.
Action Alert: Speak Up About NCUA’s Proposed Credit Union Service Organizations (CUSOs) Rule
The National Credit Union Administration has proposed to expand the range of permissible lending activity for credit union service organizations (CUSOs). The proposed rule would allow CUSOs to originate any type of loan a federal credit union may originate, including auto and payday loans. The proposal would also grant NCUA the authority to approve additional CUSO activities and services outside the normal notice-and-comment rulemaking process, and it seeks comment on broadening federal credit unions’ investment authority in CUSOs. Importantly, CUSOs may serve people who are not members of a credit union, which means that expanded CUSO authority undermines credit union field-of-membership restrictions.
Additionally, the proposal introduces significant safety and soundness and consumer protection risk to the credit union industry. The NCUA has no examination or oversight authority over CUSOs. As a result, NCUA has no mechanism to hold them accountable for unsafe and unsound practices or violations of federal consumer financial protection laws.
Bankers must speak up to let the NCUA know how expanding the range of permissible lending activity for CUSOs dilutes the statutorily mandated common bond of credit union customers, raises safety and soundness risks for federally insured credit unions, and creates consumer protection concerns for the communities they serve.
Yellen Supports Stock Repurchases for Banks as Economic Conditions Improve
Treasury Secretary Janet Yellen on Wednesday said that banks “should have some ability … to make returns to shareholders” through stock buybacks, which had been suspended earlier in the pandemic. Yellen said that she had “been opposed earlier when we were very concerned about the situation that banks would face,” but that “financial institutions look healthier now” and should be able to proceed with such repurchases.
The Federal Reserve board in December voted to limit large banks’ dividends and share repurchases in the first quarter to an amount based on their income over the past year. Firms without income are not able to pay a dividend or conduct buybacks.
Powell: Fed ‘Not Equipped’ to Service Individual Accounts
Federal Reserve Chairman Jerome Powell on Wednesday said that his agency is “not equipped to service individual commercial and retail accounts” and that doing so is currently “not permitted under law.” His comments come amid renewed calls from some lawmakers for legislation that would enable the Fed to offer banking accounts and services directly to consumers.
“That’s never been our role and it’s really not been the role of other central banks,” he told members of the Senate Banking Committee. “It would be quite a dramatic change in our role in the economy, and one that would require very careful thought.”
Yellen Supports PPP Extension; Economic Recovery Moving ‘Quickly,’ Powell Says
Testifying before the Senate Banking Committee on Wednesday, Treasury Secretary Janet Yellen told the committee that she supports an extension of the Small Business Administration's Paycheck Protection Program, saying that “the economy is not in a place where small businesses that have been affected are able to thrive.”
Yellen said that since taking office, the Department of the Treasury has been expediting relief to areas of greatest need. Treasury worked with SBA on several changes to the PPP, including removing student loan delinquency as a bar to receiving a PPP loan and allowing Schedule C filers to calculate their loan amounts based on gross income rather than net profit.
During the hearing, Federal Reserve Chairman Jerome Powell offered his thoughts on the economic outlook overall, noting that “the recovery has progressed more quickly than generally expected and looks to be strengthening. This is due in significant part to the unprecedented fiscal and monetary policy actions.” Powell added that some upward pressure on prices is expected in the near term, but that he expects economic growth this year to be very strong.
IBA and Other State Bankers Associations Raise Concerns About 90-Day PPP Forgiveness Window
The Indiana Bankers Association joined 50 state bankers associations on Tuesday to urge the Small Business Administration to provide clarity about the status of Paycheck Protection Program loans that have surpassed the 90-day period by which SBA is required to provide a decision on whether to forgive the loan, under a January 2021 interim final rule. The groups urged SBA to immediately review all loans that have been in review for more than 90 days.
“We have heard repeatedly from our members across the country that SBA has exceeded this regulatory deadline, sometimes by weeks or months,” the state associations wrote in a letter. “When lenders inquire with SBA, they are often met with silence about when SBA’s review will conclude and whether the loans in question will be forgiven. This lack of information leaves the small business borrowers in a state of uncertainty and without the ability to fully utilize their capital resources while they wait for a decision from SBA.”
ARRC: USD Libor Exposure Grows as Cessation Deadline Nears
Even with certain U.S. dollar tenors of the London Interbank Offered Rate set to cease publishing as soon as the end of 2021, the volume of financial instruments that reference USD Libor has grown to $223 trillion, up from $199 trillion in 2016, according to the Alternative Reference Rates Committee. “Most of this increase again comes from derivatives exposures, but the estimated amount of business loans referencing USD Libor has also increased,” the ARRC indicated in its latest transition progress report issued Monday.
Of the $223 trillion, $90 trillion will mature after June 2023, when the remaining tenors of USD Libor will cease publishing – resulting in legacy contracts that must be revised to deal with the cessation. “Some of these contracts should already have workable fallback language, but many still have no effective means to replace Libor upon its cessation,” Federal Reserve Vice Chairman for Supervision Randal Quarles noted in a speech on Monday. The ARRC added that 55% of the $2 trillion in outstanding Libor-benchmarked syndicated loans will mature after June 2023, as will 31% of the $1.3 trillion in non-syndicated business loans, 53% of the $1.5 trillion in non-syndicated commercial mortgages and 61% of the $1.3 trillion in retail mortgages referencing Libor, based on historic prepayment rates.
The ARRC raised concerns about a lack of progress in transitioning business loans, noting that borrowers need to be prepared to accommodate new rates and that they may wish to transition more gradually, “which cannot occur if lenders do not offer alternatives soon.” Borrowers also wish to be “offered a range of [Secured Overnight Financing Rate] alternatives,” the ARRC said, adding that “delay in offering alternatives to Libor in the business loans market slows overall market development in the derivatives markets that may be required to hedge these loans.”
Meanwhile, in his speech, Quarles outlined what supervised institutions should expect as examiners review their post-Libor transition plans, financial exposures, risk assessments, operational preparedness, contract readiness, customer and counterparty communication, and oversight by boards and management. “Market participants have had many years to prepare for the end of Libor, yet over the last few years they have actually increased use of Libor,” he said. “The firms we supervise should be aware of the intense supervisory focus we are placing on their transition, and especially on their plans to end issuance of new contracts by year-end.”
Agencies Allow Temporary SLR Change to Expire
With the acute phase of the coronavirus crisis past and a return to normal economic activity in sight, the federal banking agencies last Friday indicated they would let a temporary change to the supplementary leverage ratio expire as scheduled on March 31. In May 2020, the agencies allowed depository institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio, which facilitated banks increasing their balance sheets to support consumers and businesses.
While the Treasury market has stabilized, the Federal Reserve noted that as a result of “recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability.” The Fed said it would “shortly seek comment on measures to adjust the SLR” for an environment with higher reserves and “take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements.”
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.