On March 15, the Senate passed Senator Mike Crapo’s Economic Growth, Regulatory Relief, and Consumer Protection Act which would modify key provisions of the Dodd-Frank Act and other financial regulations.1 If passed in the House, the bill would impact regulations for community banks (assets of less than $10 billion) and large banks with assets greater than $50 billion. In addition, the bill would also impact consumer mortgage and credit-reporting regulations, as well as the agencies regulating the financial industry.2
The bill echoes recent sentiment from the House’s Financial Choice Act 2.0 and Treasury Report series, by focusing on streamlining regulation facing large banks, while reigniting community banking and small business growth, and in general reducing the burden on smaller financial entities.3 Uncertainty remains as to whether, and in what form, the Bill might be passed into law, as Rep. Jeb Hensarling, Chair of the House Financial Services Committee, has indicated House Republicans will want the Act to account for additional Financial Services panel bills. 4
Key Aspects of the Bill for Large Financial Institutions
|SIFI Designation||· Increases Systemically Important Financial Institution (SIFI) Designation threshold for bank holding companies to institutions with assets of $250 billion or more|
|Applicability of Enhanced Prudential Standards||· Raises the asset threshold for bank holding companies subject to enhanced prudential standards from the current $50 billion threshold to $250 billion· Banks with total consolidated assets between $50 billion and $100 billion will be exempt from enhanced prudential standards, except for the risk committee requirements· Banks with between $100 billion and $250 billion in assets would remain subject to supervisory stress tests, with the Federal Reserve Board (FRB) having the discretion to apply other individual enhanced prudential provisions in the event it would promote financial stability or safety and soundness|
|Supervisory Stress Tests||· Applicable to banks with between $100 billion to $250 billion in assets· Regulators would have discretion to reduce scenarios used in stress tests and the frequency of these for banks with less than $250 billion in assets|
|Company Run Stress Tests||· Raises the threshold for company run stress tests from $50 billion to $250 billion and requires the tests be conducted periodically, as opposed to semi-annually|
|Mandatory Risk Committees||· Increases applicability threshold from $10 billion to $50 billion|
|Credit Exposure Reports||· Makes the implementation of credit exposure report requirements discretionary for the FRB|
|Supplementary Leverage Ratio||· Funds of a custodial bank deposited with a central bank would not be considered when calculating the supplementary leverage ratio (SLR)|
|Liquidity Coverage Ratio||· Investment grade liquid and marketable municipal would be reclassified as Level 2b high quality liquid assets|
|Volcker Rule||· Exempts banks with assets less than $10 billion|
Source: Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) and Selected Policy Issues, Congressional Research Service, March 5, 2018. Access at: https://fas.org/sgp/crs/misc/R45073.pdf
In its current form, banks with less than $250 billion in assets, and particularly those with less than $100 billion in assets stand to greatly benefit from the reduced regulatory burden. For covered institutions, however, compliance with the Enhanced Prudential Standards is now ingrained in core processes. Accordingly, these institutions will need to understand the potential disruption to core processes a roll-back of Dodd-Frank may cause, and whether retaining these processes and the information derived from them, can better position the institution’s leadership to make more informed decisions. In addition, as the push for deregulation progresses, it is anticipated that new products and business models would interject new inherent risks into recently controlled business environments. In this regard, firms should continue to strengthen core programs around conduct risk, while preventing ongoing threats including financial crime and cybersecurity.
- “Senate Passes Bill Easing Banking Rules,” The Wall Street Journal, March 14, 2018. Access at: https://www.wsj.com/articles/rollback-of-crisis-era-banking-rules-clears-senate-1521067499
- “House Lawmakers Vow Not to ‘Rubber Stamp’ Senate Bank Bill,” The Wall Street Journal, March 15, 2018. Access at: https://www.wsj.com/articles/house-lawmakers-vow-not-to-rubber-stamp-senate-bank-bill-1521143211
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