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ABA Testifies on Flawed Municipal Advisors Proposal

The American Bankers Association testified today in strong support of H.R. 2827, legislation that would clarify what constitutes a municipal advisor and remove banks from the SEC's proposed rule implementing Section 975 of the Dodd-Frank Act.

ABA Chairman Albert C. Kelly, Jr., testified before the House Subcommittee on Capital Markets and Government Sponsored Enterprises. Kelly is also chairman and chief executive of SpiritBank in Bristow, Okla.

Kelly testified that ABA strongly believes Section 975 was not intended to cover banks, whose activities are already highly regulated by federal and state banking supervisors, but was instead directed at unregulated entities that provide advice to municipalities.

“Requiring banks to register as municipal advisors would subject them to a wholly unwarranted and different securities-based regulatory regime on top of the comprehensive bank regulatory regime,” Kelly said. “The problem is compounded because the SEC proposal goes far beyond just advice related to securities activities of state and local governments. It would regulate all 'funds held by or on behalf of a municipal entity.”

Kelly noted that banks have provided a full range of products and services to municipalities for decades, including traditional bank products such as deposit accounts, cash management services and loans. If the current proposal is adopted, the practical impact would be significant.

“By going far beyond what the statute intended, the SEC's proposal would capture nearly every bank and every employee who gives such advice and force them to register as municipal advisors,” Kelly said. “Any bank employee who may give 'advice' to local governmental bodies such as schools, libraries and hospitals would have to register.”

Kelly noted that this would also affect the many banks that serve as advisors to municipal pension plans, since they would have to register as municipal advisors under the proposal even though bank trust departments are already examined far more frequently than investment advisors regulated by the SEC. The burden and cost of such a duplicative regulatory scheme would be enormous.

“The registration, reporting and examination requirements would be very costly – particularly for community banks,” Kelly said. “Some banks may decide to stop providing basic services to municipalities, meaning local governments may have to go outside their communities for something as simple as a bank account. This does nothing for the bank or its community.”

For a copy of Kelly's full testimony, please click here.

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