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Regulators hiking capital requirements for CRE-concentrated banks

An increasing number of US banks are finding themselves subject to heightened capital requirements as federal regulators zero in on commercial real estate.

Already on high alert following the large bank failures in 2023, recent events, as well as increasing commercial real estate (CRE) credit issues have regulators acting out of an abundance of caution. Banks with high CRE concentrations, and particularly those above the regulatory guidance to not exceed 300% of CRE to total risk-based capital, are being required to hold more capital.

It is unknown which banks are subject to heightened requirements because of confidentiality of supervisory information.

The OCC is increasingly making use of a rarely used tool in its regulatory toolbox to address CRE concerns. OCC-regulated banks with high CRE concentrations are finding themselves subject to individual minimum capital ratios (IMCRs), which typically require a leverage ratio between 9% and 10% and total capital ratio between 12% and 14% — above a leverage ratio of 4% and a total capital ratio of 8% to be considered adequately capitalized.

The OCC has long had this tool in its toolbox, but more recently it is increasingly using it to address CRE concentrations, advisers said.

"The capital requirements are directly tied to the amount of CRE loans that the bank has made," Brian Marek, partner at Hunton Andrews Kurth LLP who represents community banks and their holding companies on regulation and more, said in an interview. The higher "the concentration levels in CRE loans, the more capital that has been required by the OCC under these IMCRs."

The OCC is not the only agency with higher expectations for banks with CRE concentrations.

Federal regulators are also engaging in other CRE enforcement activities, such as directing banks to reduce their CRE concentrations and boards to enhance portfolio monitoring.

Specifically, the 300% threshold for CRE loans to total risk based capital is front of mind for the agencies.

"I have heard that examiners are pressuring banks on the 300% CRE supervisory limit," Matthew Bisanz, a partner in Mayer Brown's financial services regulatory and enforcement practice, wrote in an email.

In the first quarter, 456 banks had a CRE loans to risk-based capital ratio above 300%.

Regulators could be less concerned about a bank if it has a high leverage ratio, which measures Tier 1 capital to total consolidated assets, indicating a better ability to withstand losses.

The regulatory criteria looks at whether banks exceed either of two thresholds, CRE loans at least 300% of risk-based capital levels with growth of at least 50% over the past 36 months OR construction (C&D) loans at least 100% of risk-based capital.

Source: S&P Global Market Intelligence

Overdraft fee income hits 3-year low

Banks' overdraft fee income declined in the first quarter, hitting a three-year low.

Overdraft fee income dropped to $1.36 billion in the first quarter from $1.41 billion in the fourth quarter of 2023, the lowest level since at least the first quarter of 2021. Overdraft fee income has steadily declined since the fourth quarter of 2021, except for a couple of quarters, due to increased regulatory and competitive pressure.

ATM and maintenance service fees also declined during the quarter, sinking total service charges and fees on consumer deposits as a proportion of operating revenue to 1.13%, higher than only the first quarter of 2023 at 1.10%.

Source: S&P Global Market Intelligence

Credit union bank acquisitions break record

Credit union acquisitions of taxpaying community banks have reached an annual record less than halfway through the year, according to a new report. 


S&P Global reported that total target assets of banks selling to credit unions has reached $7.21 billion in 2024, well above the 2022 record of $5.15 billion. The 12 deals so far this year also put 2024 on pace to exceed the 16 acquisitions in 2022.  


Following the latest acquisition, ICBA continued its call for policymakers to address the trend and its impact on local communities. In a national news release, ICBA continued calling on Congress to hold hearings, request a Government Accountability Office study on the credit union industry, and consider an “exit fee” on these acquisitions to capture the value of the tax revenue lost once the acquired bank’s business activity becomes tax-exempt. 


ICBA also noted that Congress in 1951 revoked the tax exemption for building and loan associations, cooperative banks, and mutual savings banks, finding that these institutions operated much like commercial banks and should be taxed accordingly. 


ICBA polling shows public support for reforming credit union policies, while states such as Tennessee, Colorado, Minnesota, Mississippi, and Nebraska have acted to restrict these deals. 


Community bankers can use ICBA’s Be Heard grassroots action center to call on their members of Congress to hold a hearing on credit union policy. Additional resources are available on the ICBA website.

Source: S&P Global Market Intelligence; ICBA

Warning on contract fine print

The Consumer Financial Protection Bureau issued a circular warning against the use of “unlawful or unenforceable” terms and conditions in contracts for consumer financial products or services. 


The circular explains how and when fine print in contracts for consumer financial products and services may violate the Consumer Financial Protection Act’s prohibition on deceptive acts and practices. 


In announcing the circular, the CFPB said it has targeted deceptive contract terms affecting mortgage borrowers, bank accountholders, remittance transfer consumers, and auto loan borrowers.

 Source: CFPB

Regulatory and recovery relief for severe weather in Arkansas 

The FDIC announced regulatory relief to facilitate recovery in areas of Arkansas affected by severe storms, straight-line winds, tornadoes, and flooding. The agency is encouraging banks to work constructively with borrowers experiencing difficulties beyond their control because of damage caused by the severe conditions.

CFPB publishes recovery guide for storm victims

The Consumer Financial Protection Bureau released an online resource to help individuals in areas hit by severe weather. 

The guide is designed to help consumers recover and rebuild their finances. It includes information about managing housing payments, protecting credit, handling insurance on damaged property, keeping up with bills and payments, and asking for help from financial and mortgage companies. 

Source: FDIC; CFPB

 ACB Compliance Event

September 10 & 11

Little Rock

2024's Community Bank Leaders

ICBA’s sixth annual 40 Under 40 community bank leaders awards recognize an insightful group of professionals who have continuously stepped up to lend a hand, offer a new perspective or make a difference in their communities.


Congratulations to Sana Griffith, Merchants and Planters Bank, Newport, Arkansas for making this year’s list of bank leaders.

Source: ICBA

New addition to In-Sites, ACB's Information Resource Center

Check-out the latest reference material available through ACB's In-Sites: Information Resource Center from the Barret School of Banking Library: Books for Community Bankers. These publications are available at no-charge for ACB members.

Source: ACB; Barret School of Banking

Small-business owners satisfied with community banks, but regulations threaten lending

ICBA released findings from a study showing that while small-business owners prefer community banks, increasingly burdensome and complex regulations threaten to restrict small-business lending. 


According to “Finding Balance: How Well-Intended Policies Hamper Small Business Lending and Undermine Relationship Banking:” 

  • 95% of surveyed small-business owners were satisfied with their overall experience partnering with community banks, with nearly 9 in 10 citing products and services unique to small-business needs. 
  • Community bank regulatory burdens continue piling up, with more than 9 in 10 ICBA-member community bankers saying the current regulatory environment is more challenging than it was five years ago. 
  • New rules are expanding regulatory mandates, with more than 80% of community bank respondents saying new 1071 data collection and reporting rules would inhibit their small-business lending. 
  • Policymakers can alleviate the burden, such as by nullifying and rewriting the 1071 rule, exempting community banks from new rules targeting larger institutions, and rigorously evaluating regulatory burdens. 

Source: ICBA

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With the exception of official announcements, the Arkansas Community Bankers Association Board of Directors, Officers and staff disclaim any responsibility for opinions expressed and statements made in articles published in Arkansas Community Bankers NewsWatch 2024. Please note that by using some of the links in this publication, you will be leaving the Arkansas Community Bankers NewsWatch 2024. As a service and for informational purposes only, ACB may provide listings of and/or links to third party web pages/publications maintained by the U.S. Government, internet retailers, organizations and others. ACB does not monitor and is not responsible for the content or administration of these outside websites or pages.  No part of this publication may be reproduced without express written permission. © 1990 - 2024 by the Arkansas Community Bankers Association. All rights reserved.

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The Compliance Event of the Year

September 10 & 11, 2024

Little Rock

You don't want to miss this one...Details Coming

2024 ACB Bank Management & Directors Conference

October 9th

Clinton Presidential Library

Little Rock

*** Watch for Details ***