Deputy Secretary of the Treasury Neal Wolin gave another plug for the benefits of Dodd-Frank for community banks on the Treasury Department blog. It’s as if all the regulators keep saying the same things over and over they hope the bankers will eventually believe that Dodd-Frank is all up side and no down side. See previous statements by Mr. Bernanke and Ms. Bair here.
Mr. Wolin noted the following:
- The Dodd-Frank Act raises deposit insurance protection to $250,000, providing greater protection for one of community banks’ core sources of funding.
- Dodd-Frank ensures that the cost of deposit insurance is born by the institutions that engage in the riskiest activities and that, consequently, benefit the most from its protection. Dodd-Frank does this by requiring insurance premiums to be based on total liabilities, which are a more accurate reflection of risk than deposits alone. As a result, the premium burden will shift away from smaller institutions to larger, riskier banks.
- Dodd-Frank provides that large financial institutions will be subject to heightened prudential standards, including requirements to hold more capital and maintain larger liquidity buffers. Community banks, which do not pose the same type of risks to the system as large firms, will not be subject to these obligations.
- Dodd-Frank levels the playing field between small banks and nonbank financial service providers, such as payday lenders and independent mortgage brokers. Dodd-Frank corrects this deficiency by giving federal regulators the ability to regularly examine nonbank financial services providers and to prohibit unfair and deceptive practices in which they may engage.
- Dodd-Frank works to protect small banks from excessive supervisory burdens. The regulator responsible for monitoring the safety and soundness of community banks will also bear responsibility for enforcing rules promulgated by the new Consumer Financial Protection Bureau. This will allow small banks to avoid multiple exams.
- The Dodd-Frank Act reduces the unfair funding advantages enjoyed by the largest institutions prior to the crisis by setting out a process for those institutions to be wound down, broken apart, and liquidated when facing imminent failure.
Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.