Richard Wald of Emigrant Bank expressed concern at a House subcommittee hearing on Friday regarding the “grandfather” exception to increased capital requirements under the Collins Amendment and how community banks are affected by the provision.
The Collins Amendment, which was originally drafted by the Federal Deposit Insurance Corp., would gradually implement risk-based capital standards. Some institutions, however, would be granted “grandfather” exceptions.
The measurement date used to determine whether a firm had “grandfather” status — less than $15 billion in assets — was moved retroactively from 2010 to 2009 just prior to the enactment of the Collins Amendment and Dodd-Frank. Wald said that his bank had been hurt by the change in “look back” date.
“Because of an effort to be exceedingly cautious with regard to addressing its liquidity during the peak of the financial crisis, Emigrant had more than $15 billion in assets on December 31, 2009, but significantly less than $15 billion when Dodd-Frank was enacted,” Wald said. “Thus, it lost the grandfathered status it otherwise would have enjoyed because the ‘look back’ date was retroactively changed to December 31, 2009, fully six months prior to the enactment of Dodd-Frank.”
Wald said that regulators did not take into account community bank preparedness and liquidity considerations when drafting the grandfather provision.
“In enacting a cut-off date that was six months prior to Dodd-Frank’s enactment, the drafters failed to anticipate that some community banks may have prudently taken out liquidity insurance, thus temporarily enlarging their asset base and causing them to forfeit grandfathered status that could have allowed them to continue to enhance their consumer lending in the communities in which they operate,” Wald said.