We are pleased that the legislation includes a provision to raise the shareholder threshold for Securities and Exchange Commission (SEC) registration for financial institutions, from the current 500 shareholders to 2,000 shareholders, a change that ABA and community bankers have long advocated. This change would enable community based banks to deploy their capital in lending, rather than spending it on regulatory requirements that provide little incremental benefit to the banks, shareholders, or the public.
Many community banks have had to deal with the 500-shareholder rule, which has remained in place for over 40 years without being updated, and which causes small, local banks to be subject to the same costly reporting requirements as large public firms. Many banks that are nearing the 500-shareholder threshold have limited sources from which to raise the capital necessary to meet the credit needs of their communities without increasing the number of shareholders and triggering registration with the SEC. Once registered as public companies, community banks then become subject to additional regulation and disproportionately high financial and opportunity costs when compared to other smaller public companies. Community banks are already subject to comprehensive supervision by banking regulators. SEC Chairman Shapiro agreed – in a recent letter to the Senate – that “different treatment may be appropriate for community banks that are subject to an extensive reporting and regulatory regime.” Additional requirements and costs will only further eat into capital and limit banks’ ability to make loans in their communities.
The legislation also would address the threshold for deregistration, which can occur when the number of shareholders decreases and once-public businesses can become private.
ABA also urged the Senate to reject a substitute amendment being offered by Senator Jack Reed (D-RI). The Reed amendment falls well short of the shareholder threshold provisions included in the underlying legislation.
Read the ABA letter.