December 18, 2017
It looks as if at least some provisions of the Dodd-Frank Act will be rolled back. A sweeping bill could exempt dozens of banks and loosen the rules on smaller firms. The Dodd-Frank Wall Street Reform and Consumer Protection Act became law in 2010 as a response to the 2008-2009 financial crisis.
Bill Amending or Eliminating Dodd-Frank Provisions Likely to Pass in Senate
The Senate recently began markup on a bill, S2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, introduced by the Banking Committee Chair Mike Crapo (R-ID), which would amend key elements of Dodd-Frank.
Unlike an earlier bill that originated with House Financial Services Committee Chairman Jeb Hensarling (R-TX) and failed due to lack of bipartisan support, S2155 looks very likely to pass. It claims almost 20 cosponsors in both the Republican and Democratic parties.
The American Banker observes that the financial services and banking industries are likely to be pleased with the passage of the bill, as they have been keen to roll back provisions of Dodd-Frank. However, it does not provide the broad relief from regulation that many banks and other financial services firms looked for, either.
Key Features of the Bill
S2155 would make the systemically important financial institution threshold five times higher than Dodd-Frank’s $50 billion, hiking it to $250 billion.
It would also be phased in with several stages. Institutions with $50 billion to $100 billion in assets would be exempt from the raised standards right after the bill becomes law.
Bank holding companies with $100 billion to $250 billion in assets would become exempt one year and six months after the bill becomes law.
The bill maintains the Federal Reserve Board’s (FRB) authority to subject banks with over $100 billion in assets to periodic stress tests and to have authority over whether higher standards should be put into effect or suspended.
The legislation places community bank leverage ratios at between 8% and 10%. For banks and credit unions with under $10 billion in assets, ratios in that range would be compliant with both leverage requirements and capital requirements.
The legislation grants relief from several regulations specific to mortgages. For mortgages kept on a lender’s balance sheet or made by institutions with under $10 billion in assets, for example, S2155 terms these mortgages as “qualified mortgages” under Dodd-Frank. Effectively, this would allow institutions like banks and credit unions to offer a broader range of mortgages.
The legislation would also allow credit unions more flexibility. One- to four-family housing mortgages that are not used as primary residences, for example, would not need to be included in caps on business lending. These loans are currently classified as business loans.
If the legislation passes, its provisions would also remove banks with under $10 billion in assets from having to comply with the Volcker Rule. The Volcker Rule mandates that banks cannot engage in proprietary trading using customer deposits. Banks whose combined total assets and liabilities equate to under 5% of its total assets would also be exempt from the Volcker Rule.
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