By a vote of 258-159, the House of Representatives passed the "Economic Growth, Regulatory Relief, and Consumer Protection Act." The bill would make changes to banking regulations implemented following the financial crisis of 2008. In March, the Senate voted 67 to 31 in favor of the bill. The legislation, which awaits President Trump's signature, is the first major rollback of the Dodd-Frank Act.
The legislation provides relief to roughly two dozen regional banks and other institutions. It raises the threshold for enhanced prudential standards under Section 165 of Dodd-Frank from $50 billion to $250 billion. Currently, bank holding companies with total consolidated assets of $50 billion or more are subject to requirements addressing capital, liquidity management, resolution planning, credit exposure and other areas. In addition, the legislation raises the trigger point for having a risk committee and conducting company-run stress testing from $10 billion to $50 billion and $250 billion, respectively.
Relief for smaller banking organizations is a significant focus of the legislation. It provides capital-related relief for "qualifying community banks" that have less than $10 billion in assets and also meet a new leverage ratio to be designed by the federal banking regulators. The legislation also provides a limited exemption from the Volcker Rule for insured depository institutions that have less than $10 billion in assets and little or no trading book activity.
In addition, the legislation makes changes in a miscellaneous set of areas. It modifies the capital treatment of certain real estate loans by introducing a new, more limited concept known as an HVCRE ADC loan. It also requires the CFPB to promulgate ability-to-repay rules applicable to Property Assessed Clean Energy (PACE) transactions. Further, the legislation offers relief relating to certain mortgage products, including those relating to veterans as well as private student loans.
President Trump is expected to sign the legislation.
Commentary / Mark Chorazak
Since the enactment of Dodd-Frank, it has become clear that community and regional banks have been overly burdened by various requirements that were adopted in the immediate aftermath of the crisis. Many of these requirements were not appropriately tailored to the risks that these banks present to the U.S. financial system. The legislation, while not perfect, provides important relief on several fronts. The passage of this legislation also offers a rare glimpse at bipartisanship in Congress, and that alone is to be celebrated.
But the bill is not the significant rollback that many – on both sides of the aisle – have claimed. For the largest banks, in particular, no significant relief is provided. It was not long ago when President Trump had promised to do "a big number on Dodd-Frank," and more than a few members of Congress have called for an outright repeal of Dodd-Frank over the years. That promise, and those calls, are neither met nor answered by this legislation.
This legislation is surgical, not sweeping. It amends certain parts of Dodd-Frank, but it is not a re-write of it. Dodd-Frank, including the Volcker Rule of which it is part, very much remains.
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