Federal Reserve Chairman, Janet Yellen, declined to pursue a policy change that would solve a tax liability problem for Subchapter S shareholders should . . .
Below, please find a link to the Congressional Letter signed by 43 Congressional Representatives over the continued concern over the capital and tax . . .
The FDIC, yesterday afternoon, issued guidance outlining the circumstances under which the Agency would approve an S corporation bank’s request for relief from the dividend restrictions imposed under the Basel III capital conservation buffer. Exceptions will generally be granted to 1- and 2- rated banks which are adequately capitalized and are not subject to a written supervisory directive. While the guidance only applies to capital conservation buffer considerations, it does recognize that there may be other circumstances such as a bank returning to a healthy condition that might present circumstances where a dividend exception could be granted. The Agency noted that it does not expect the concern to be an issue for some time as a result of the three year phase-in through 2019. We are pleased that the FDIC recognizes the unique circumstances under which S corporation banks operate and hope this guidance will result in greater recognition and willingness by the Agencies to consider case by case dividend approvals to pay taxes in a broader set of circumstances, beyond the capital conservation buffer issue. Importantly, the Agency recognizes that the ability to pay dividends is a crucial element of an S corporation bank’s capital access strategy. A more detailed description of the issuance follows.
Subchapter S Bank Association Presdient, Patrick J. Kennedy Jr., was quoted in the April 25th American Banker article entitled, “S Corp Consolidation Could Be Side Effect of Basel III.” In the article Mr. Kennedy joins others in expressing concern that Basel III could be the last straw for countless S corporation banks as they mull their futures. As we all know, currently banks would be required by Basel III to hold a certain level of capital; failure to do so could result in a prohibition against paying dividends to shareholders. Dividends are critical to those investors, who rely on the payments to cover tax obligations if the bank is profitable. For that reason we strongly believe S Corps face a greater burden under Basel III than C corporations, where the company is taxed for its profit. Concerns also exist that the proposed rules could force more S Corps to delay growth plans or opt to sell themselves.
On behalf of the Subchapter S Bank Association we have sent a letter to Chair Yellen, Comptroller Curry and Chairman Gruenberg expressing our continued concern regarding the unequal treatment depository institutions and their holding companies that elect to be taxed under Subchapter S of the Internal Revenue Code (IRC) receive compared to their peers taxed under Subchapter C, especially when considered in the context of the capital conservation buffer rules presently contained in Basel III and regulatory dividend restriction policy.
ABA urged federal regulators to remedy a provision in the Basel III capital standards that disadvantages the 2,000 community banks organized as Subchapter S corporations.
The federal bank regulatory agencies today released an estimation tool to help community banks understand the potential effects of the recently revised regulatory capital framework on their capital ratios. The revised framework implements the Basel III regulatory capital reforms and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Patrick J. Kennedy, President of the Subchapter S Bank Association, was recently quoted in the American Banker Association’s article, “Basel III Creating Headaches for S Corp Banks.”