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Florida Regulatory Agency Supplements Comments on Proposed Bank Information Reporting Regs

MAY 9, 2011

Florida Regulatory Agency Supplements Comments on Proposed Bank Information Reporting Regs

DATED MAY 9, 2011
DOCUMENT ATTRIBUTES

 

May 9, 2011

 

 

Internal Revenue Service

 

CC:PA:LDP:PR

 

Room 5203

 

PO Box 7604

 

Ben Franklin Station

 

Washington, DC 20044

 

 

RE: SUPPLEMENTAL MATERIAL

 

Notice of Proposed Rulemaking 146097-09

 

(76 Fed. Reg. 1105 (January 7, 2011)

 

 

Dear Sir or Madam:

The Office of Financial Regulation would like to supplement its comments to the Notice of Proposed Rulemaking 146097.

SURVEY

The Office of Financial Regulation has conducted a survey of NRA deposits in South Florida. There are 32 state chartered banks and 22 foreign banks or banking corporations in that area over which OFR has regulatory responsibility. The survey reflects data from 16 of the state chartered banks and 21 of the 22 foreign entities.

As reflected in the tables below there are $14.2 billion dollars in NRA deposits in Florida regulated institutions.

With respect to the 16 Florida chartered commercial banks surveyed, 41% of their total deposits were in NRA deposits.

                                                        % Total NRA

 

 Institution      Total NRA       Total Deposits        Deposits to

 

    Name           Deposits      (including NRA's)     Total Deposits

 

 _____________________________________________________________________

 

 

 Bank 1            $734,738           $802,233             91.59%

 

 Bank 2            $230,508           $347,871             66.26%

 

 Bank 3             $63,467           $169,694             37.40%

 

 Bank 4             $46,489           $476,988              9.75%

 

 Bank 5            $413,260           $463,634             89.13%

 

 Bank 6             $13,933            $91,591             15.21%

 

 Bank 7            $100,337           $219,331             45.75%

 

 Bank 8            $646,043           $700,190             92.27%

 

 Bank 9            $329,253           $455,750             72.24%

 

 Bank 10         $1,605,665         $3,412,205             47.06%

 

 Bank 11            $26,471            $79,272             33.39%

 

 Bank 12            $41,233           $132,563             31.10%

 

 Bank 13            $45,185         $1,352,921              3.34%

 

 Bank 14           $174,228         $1,279,015             13.62%

 

 Bank 15            $67,004           $140,857             47.57%

 

 Bank 16           $195,665         $1,444,091             13.55%

 

 

 TOTAL           $4,733,479        $11,568,206             40.92%

 

 

With respect to the 21 Florida regulated foreign institutions surveyed, 90% of their total deposits NRA deposits.

                                                        % Total NRA

 

 Institution      Total NRA       Total Deposits        Deposits to

 

    Name           Deposits      (including NRA's)     Total Deposits

 

 _____________________________________________________________________

 

 

 Bank 1            $131,855           $152,753             86.32%

 

 Bank 2          $2,802,193         $2,802,193            100.00%

 

 Bank 3            $297,733           $294,292            101.17%

 

 Bank 4          $1,315,665         $1,440,756             91.32%

 

 Bank 5          $1,100,000         $1,097,055            100.27%

 

 Bank 6                $885            $11,375              7.78%

 

 Bank 7            $205,634           $205,655             99.99%

 

 Bank 8             $90,747           $134,615             67.41%

 

 Bank 9            $598,090           $598,434             99.94%

 

 Bank 10           $414,465           $423,107             97.96%

 

 Bank 11           $167,333           $587,599             28.48%

 

 Bank 12           $385,368           $391,103             98.53%

 

 Bank 13            $35,079           $130,773             26.82%

 

 Bank 14            $17,774            $25,661             69.26%

 

 Bank 15            $30,505            $97,870             31.17%

 

 Bank 16           $197,516           $200,076             98.72%

 

 Bank 17           $291,946           $292,363             99.86%

 

 Bank 18           $514,610           $514,914             99.94%

 

 Bank 19           $698,791           $698,922             99.98%

 

 Bank 20           $208,785           $219,045             95.32%

 

 Bank 21             $6,453             $6,906             93.44%

 

 

 TOTAL           $9,811,427        $10,325,467             89.91%

 

 

It should be noted that these figures do not include NRA deposits in nationally chartered banks or federally regulated foreign institutions or in banks chartered in other states that are operating in Florida. While we do not have hard figures, it is probable that NRA funds in these other institutions substantially exceed those in Florida regulated entities.

EFFECT ON LIQUIDITY

Banks do not keep their deposits in their vaults. They lend the money to borrowers. A typical loan to deposit ratio is 85%. The loans are illiquid. Borrowers do not have to return the money other than on the stated terms.

A deposit runoff of 15% could place an institution in jeopardy. There would not be cash available to pay off depositors. When this happens the bank fails.

Eleven (11) of the sixteen (16) surveyed banks in South Florida have over 30% NRA deposits. A loss in a short period of time of even half of those deposits would put those institutions at risk of failure.

                                                   NUMBER OF AFFECTED

 

          LEVEL OF NRA DEPOSITS                    SOUTH FLORIDA BANKS

 

 _____________________________________________________________________

 

 

 NRA Deposits Comprise Over 80% of Total Deposits           3

 

 NRA Deposits Comprise Over 47% of Total Deposits           7

 

 NRA Deposits Comprise Over 30% of Total Deposits          11

 

 

The 22 foreign entities are less at risk for complete failure. However given their high percentage of NRA deposits (14 over 90%, 17 over 67%) it is unlikely there would be any reason for them to continue to do business in Florida. There would thus be a Florida failure in the sense the institution would be gone from Florida's economic landscape.

                                                       NUMBER OF

 

                                                    FLORIDA REGULATED

 

          LEVEL OF NRA DEPOSITS                      FOREIGN ENTITIES

 

 _____________________________________________________________________

 

 

 NRA Deposits Comprise Over 90% of Total Deposits          14

 

 NRA Deposits Comprise Over 67% of Total Deposits          17

 

 NRA Deposits Comprise Over 27% of Total Deposits          19

 

 

EFFECT ON LENDING

The domestic banks we regulate are primarily community banks. These are the backbone of small business lending. The foreign institutions also lend their deposits to Florida borrowers. They also lend those deposits to individuals and businesses in foreign countries to enable them to do business here. Examples are loans to buy property in Florida or to finance trade transactions with U.S. based businesses.

It is estimated that every dollar in deposits generates nine (9) dollars in lending. The table below shows the impact of deposit loss on lending capacity.

                        EXISTING RELATIONSHIP:

 

    $14.2 Billion in NRA Deposits Support $127.8 Billion in Lending

 

 _____________________________________________________________________

 

 

                                                Estimated Decrease in

 

                                                South Florida Lending

 

 % Decrease in NRA Deposits                           (Billions)

 

 _____________________________________________________________________

 

 

             20%                                     $ (25.56)

 

             30%                                     $ (38.34)

 

             40%                                     $ (51.12)

 

             50%                                     $ (63.90)

 

             60%                                     $ (76.68)

 

 

Florida's economy is fragile. As of the end of 2010 19.4% of Florida residential mortgages were 90 days or more past due. 47% were under water.

DISPROPORTIONATE IMPACT

Some believe that the ratio of NRA deposits to total deposits nationally is such that the proposed rule will have no significant impact. However it is the nature of NRA deposits that they are concentrated in geographic areas. There are real institutions that are placed at risk by this proposed regulation. An identifiable geographic part of the economy will be adversely affected.

CONCLUSION

As drafted the proposed rule creates a substantial risk of harm. I would hope that further careful thought would be given to how that harm can be avoided. I would hope that the goal of international tax transparency sought by the IRS could be achieved without the collateral damage that I fear will result under the present proposal.

Sincerely,

 

 

J. Thomas Cardwell

 

Florida Office of Financial

 

Regulation

 

Tallahassee, FL
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