WASHINGTON, DC — The United States House of Representatives today passed a bipartisan bill authored by Congressmen Jim Himes (CT-4) and Steve Womack (AR-3) that will help community banks provide resources to local businesses so they can grow their companies and create jobs. The legislation increases the number of shareholders permitted to invest in a community bank before it must register with the SEC, which will make it easier for community banks to raise capital to lend to businesses.
“With today’s passage of H.R. 1965, we have given community banks the flexibility they need to raise capital without having to comply with the onerous SEC regulations intended for larger banks,” Womack said. “By raising the shareholder threshold from 500 to 2,000, banks will now be better positioned to increase small business lending which, in turn, will promote economic growth in communities across the country. I would like to thank Congressman Himes for his leadership in crafting this bipartisan measure.”
The Community Bank Resource Improvement Act (H.R. 1965) increases from 500 to 2,000 the number of shareholders permitted to invest in an institution before that entity must register with the SEC or “go public.” It also brings the law into agreement with existing SEC rules by increasing the limit from $1 million to $10 million on the value of a company’s assets that potentially triggers SEC registration. Under existing law, a community bank must register with the SEC if it has both more than 500 shareholders and assets in excess of $10 million. In the current economic climate, successful initial public offerings (IPOs) require substantial capital and management time, initially and on an ongoing basis, especially compared to when these regulations were first put in place. Himes’ bill gives community banks the flexibility to remain private until they have the capital and capability to launch a successful IPO.
“This bill helps banks help growing businesses access the capital they need to expand and create jobs while maintaining important protections for investors,” Himes said. “As we seek creative solutions to our nation’s dangerous jobs crisis, we should look to changes like these that improve the business climate without harming our environment, eliminating health protections, or reducing our ability to invest in the education and infrastructure we know are critical to long-term prosperity.”
BACKGROUND
The 500 investor threshold to which private banks are currently subject limits the amount of capital they can raise before they must comply with the expensive reporting requirements associated with SEC registration. Many banks reach the 500 shareholder limit simply because the number of shareholders increases as a result of inheritance for several generations, rather than the bank operating like a public company. While the $10 million asset test serves as an appropriate indication of size for most nonfinancial companies, even the smallest banks quickly meet this test because a bank’s business is to lend and take deposits.
The bill modifies Section 12 (g) of the Securities Exchange Act of 1934.