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OBA submits comment on municipal advisors proposal

 

The following comment letter was submitted to the Securities and Exchange Commission on the subject of the Commission's "municipal advisors" proposal.  Comments are due February 22, 2011. 
 
To:  Elilzabeth Murphy, Secretary,
Securities And Exchange Commission
Washington, D. C. 
 
The Oklahoma Bankers Association submits these comments on behalf of approximately 250 banks and thrifts in our state. Oklahoma has a population of some 3.7 million people. There are three major MSA's (Oklahoma City, Tulsa and Lawton-Ft. Sill) but the vast majority of our state is made up of smaller communities, most of which are served by at least one small, traditional community bank or branch.
 
The median size bank in Oklahoma is approximately $85 million in total assets. The number of charters has dropped dramatically in our state, but the number of total locations (nearly 1,500) has increased significantly over the past 15 years or so.
 
Many bank employees and bank board members (more than 21,000) across our state and in the MSA's serve their communities as volunteer and appointed leaders in various capacities, or on municipal boards and other local volunteer governance capacities. A good number bankers and board members serve as elected officials as well, and all of this works together to help greater Oklahoma survive and prosper. 
 
The purpose of Section 975 of the Dodd-Frank Act was to establish a regulatory system to deal with unregulated individuals who provide “investment” services to municipalities. Those services are rendered in connection with traditional “securities” instruments:  municipal derivatives, guaranteed investment contracts, securities in general or investment strategies in connection with any of these instruments. The targets for these rules are those persons who deal with such “investment” instruments and matters, like brokers, dealers and licensed investment advisors, not traditional bank employees or board members.    
 
As a practical matter, the proposal on “municipal advisors” needlessly expands the definition of “investment strategies” to include any funds 'held' by a traditional bank on behalf of any municipal entity. In that regard, it imposes burdens and obstacles on small, traditional community banks and the municipalities they serve that far outweigh any benefits that may be realized. 
 
The absurdity of the application of this proposal can be seen when it's applied to the City Treasurer of Choteau, Oklahoma (population 1,931) who is also a bank teller. Is she really to be prevented from talking to herself about which traditional community bank products make the most sense for the city's funds without registering with the SEC? It can also be seen in its application to the bank board member in Woodward, Oklahoma (population 11,853) who serves as a volunteer member of the local city library board.  
 
The published proposal would cover all sorts of traditional bank products and services – deposit and cash management accounts and loans, for example – and there's no reason for such an expansion. These kinds of products and services were not the cause of the near-collapse of the nation's financial system. More importantly, these kinds of traditional community bankers were not the people who brought it about.
 
The proposal will unnecessarily increase costs and limit the availability of financial services to Oklahoma communities, like Custer City (population 393), Goltry (population 268), Nash (population 224), Pond Creek (population 896) and Seiling (population 875) and Wewoka (population 3,562). Our state's landscape is dotted with similar towns and communities, each of which is served in some manner by a traditional community bank charter or branch, and each of which has municipal entities that would be adversely impacted by this proposal.  
 
The same is true in most of the states in the Heartland – Kansas, Nebraska, Texas, the Dakotas, Iowa, Missouri, Minnesota, Wisconsin and Illinois.  The costs of compliance and the increased costs of existing services would be detrimental to the very survival of smaller towns and communities in all of these states.
 
Even if it does nothing else, the Commission should clearly define the term “advice.” There is no limit on how absurd the application of this undefined term could become otherwise. 
 
We suggest that the answers to the questions on page 837, Vol. 76, No. 4, Part II  of the Federal Register in which this proposal appears should be answered “yes” as they apply to small (under $10 billion), traditional community banks. These entities are not even remotely connected to the problem that Section 975 of Dodd-Frank was intended to address. 
 
Banks providing traditional banking products and services – accepting deposits and making loans – and their employees should be clearly exempted from the reach of this proposal. The Commission should state clearly that neither Section 975 nor its implementing regulation is intended to reach such traditional community bank products and services.
 
The Commission should exclude from the definition of “municipal advisor” those traditional banks that respond to requests for proposals from municipal entities about bank products and services offered by the bank, like money market mutual funds and other exempt securities. In addition, appointed and volunteer members of a municipality's governing body should be deemed to be “employees” of the municipality and, thus, exempt from registration.
 
If banker volunteers are required to register as “advisors” without knowing what constitutes “advice” most of them will simply decline to serve as citizen volunteers who offer their financial expertise for the benefit of their local communities. In many of the Oklahoma communities we've noted herein, bank professionals may be the only source of expertise available to some of these communities. Everybody loses in such an event.
 
We encourage the Commission to reconsider the broad sweep of this proposal and to narrow its applicability in a way that will essentially exclude traditional community banks from its reach.

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