IRS Reporting Act, Monitor candidate alarming local bankers
October 31 – HARLINGEN – The community banking sector has been shaken by new policies proposed to Congress and by the administration’s candidate Biden for comptroller of the currency.
One problem is forcing banks to report to the IRS any transaction over $ 600 (cash withdrawal, debit or credit card, or check).
The second is the appointment of Saule Omarova as Comptroller of the Currency, a position that oversees all domestic and foreign banks operating in the United States, with hearings on the appointment currently pending on the Senate Banking Committee.
What makes her restless?
In a 69-page article published this month in the Vanderbilt Law Review, Omarova argues that all bank deposit accounts should be transferred to the Federal Reserve and placed in FedAccounts, thereby eliminating the source of funds used by local banks to grant loans to businesses and individuals. people.
In addition, she proposes to allow the Fed in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates”, to confiscate the deposits of these FedAccounts to strengthen monetary policy.
In addition, it proposes to eliminate the Federal Deposit Insurance Corp. which provides bank deposits.
Some say this would in effect nationalize banks in the United States, and the end result could mean the closure of thousands of local banks and limit the availability of credit and banking services to tens of millions of Americans.
Steve Scurlock is director of government relations for the Independent Bankers Association of Texas, a business group that represents community banks.
He admitted that his agency and the banks it represents are baffled by the appointment of Omarova, a professor at Cornell Law School and originally from Kazakhstan. She graduated from Moscow State University in the Soviet Union in 1989.
“It’s an unusual appointment, to say the least,” Scurlock said. “I guess you could probably figure out that we’re not that much in love with some of the things we’ve seen.
“We represent community banks and I think the business model of a community bank is quite simple,” he added. “You receive deposits from your region, your community, you lend this money to your community, and that not only benefits the growth of the community, but it is also a good thing for the bank and the shareholders and investors of the bank .”
But according to Omarova’s proposal, these deposits would no longer be available for reinvestment as they would be placed in a Federal Reserve account, in fact a national bank, not a local bank.
No deposits means no loans and ultimately no local bank, he said.
Ricky Leal is senior vice president of First Community Bank, which has a number of branches in the Rio Grande Valley.
He says federalizing banking and eliminating local trust funds “just don’t work.”
“The whole theory of banking, especially the local community bank, is based on collecting deposits from the local community and lending to the local community so that those dollars are recycled and stay local,” Leal said.
“The people who work in these community banks live here, they work here, they have a local vision of what works in the economy, of what doesn’t,” he added. “You would lose all of that.… A world without a local deposit would change banking as we know it.”
PPP and banks
Leal and Scurlock both point to the distribution of several installments of federal funds to small businesses under the Paycheck Protection Program as proof of the effectiveness of local banks.
Scurlock said that looking at the banking industry as a whole, community banks only control about 14% of all financial assets that banks own. But these small banks have distributed over 42% of all PPP funds aimed at keeping small businesses alive and operating during the COVID-19 economic downturn.
“When our country hit a boiling point when we knew we had a huge emergency with the pandemic, Congress got together and asked, ‘Shall we use the SBA (Small Business Administration) to distribute this? relief to small businesses that are hurting, who risk closure? Or are we going to use the country’s banking system? Leal said. “And they chose to use the banking system. We did.”
The $ 600 transaction reporting threshold revealed Thursday as part of the Build Back Better Act currently in effect in Congress targets what Treasury Secretary Janet Yellen has said are billionaires shirking their tax obligations, saying “he there is a lot of tax evasion and cheating going on. “
Under the Bank Secrecy Act, financial institutions are already required to report suspicious transactions and any cash transactions of $ 10,000 or more to the IRS.
So why worry about a threshold of $ 600 for reporting individual transactions?
“There are significant privacy issues, and we’ve seen issues with the IRS with retaliation against political opponents over the years, and we’ve seen data breaches and everything,” Scurlock said. . “We think this is a very bad idea that will put additional burdens on our banks.”
Leal agrees that the policy would cost his bank more to comply, but he also raises a point about the attitude some people in the Rio Grande Valley have about the banks themselves, saying that building trust with “Unbanked” is a constant challenge.
“As long as I’m in the banking industry, and have been for 15 years now, you always hear about the banking system reaching out to the unbanked, to people who don’t trust the banking system, to people who choose to. don’t participate in the system, ”Leal said.
“So we put these products together, and we put these services together, and we do outreach and try to teach people the benefits of operating in the banking system, and the government comes in and says, ‘We’re going to ask the banks. to report all your transactions to the IRS. ‘ All it does is alienate this group of people, ”he added.
The opposition grows
As more and more information about transaction reporting legislation is released, congressional leaders are getting more and more perspective.
Valley U.S. Representatives Henry Cuellar and Vicente Gonzalez on Wednesday joined 19 other Democrats in sending a letter to House Speaker Nancy Pelosi urging her to remove the IRS reporting legislation from the Build Back Better bill, citing privacy concerns and voter opposition.
Democrats said hundreds of thousands of their constituents have contacted them and raised concerns about privacy by allowing the IRS to collect much of their financial data.
The letter to Pelosi said that even raising the threshold to $ 10,000 per transaction, as announced, leaves a significant number of those voters opposed.
“Most of these taxpayers are not the wealthy tax evaders who are the stated targets of this proposal,” the letter read.
Scurlock, a former McAllen resident and banking examiner who served as deputy banking commissioner at the Texas Department of Banking, says voters are right to oppose it.
“I’m not a conspiracy at all, a black helicopter guy, but one foot under that tent or one nose under that tent, even though it’s $ 10,000 in and out, I don’t necessarily trust whoever runs the government that they’re just going to say, ‘OK, that’s fine,’ “he said. “It’s a step, and in my opinion, I think it’s a scary step.”