The US House of Representatives, following the Senate's lead, approved legislation on Thursday, May 22, to significantly roll back parts of Dodd-Frank – though leaving the basic structure of the 2010 law largely in place. The bill now heads to President Trump, who is expected to sign it into law.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) would ease the regulatory burden on small community banks and, with the goal of giving consumers easier access to credit, provide relief for some larger regional banks from enhanced prudential standards, and provide protections against class-action suits for credit-reporting agencies. See the bill.
Some of the key provisions of the bill include:
- SIFIs: The legislation raises the threshold for automatic application of enhanced prudential standards from $50 billion in assets to $250 billion. Banks with between $50 and $100 billion in assets would be immediately released from the stricter standards, including stress tests. However, The Federal Reserve would retain the option to apply enhanced prudential standards to banks between $100 billion and $250 billion if it deems that necessary for financial stability or safety and soundness purposes and those banks would remain subject to "periodic" stress tests.
- Foreign banks: Enhanced prudential standards would continue to apply to the US operations of foreign banks with over $100 billion in global assets.
- Volcker rule: It exempts banks with less than $10 billion in assets from the prohibition on depository institutions engaging in proprietary trading and other riskier investments.
- Simplified capital calculations for smaller community banks: Rules on the types of real estate loans community banks can make and how much capital they need on hand would be modified. Longer exam cycles would be instituted for community banks.
- Mortgage changes: The bill provides "Qualified Mortgage" designation for mortgages held in portfolio by banks with less than $10 billion in assets, and relief from appraisal requirements for smaller mortgages. Banks that extend 500 or fewer mortgages a year would be exempt from reporting some home loan data to federal regulators.
- Thrifts: It provides charter flexibility for federal thrifts with less than $20 billion in assets.
- CFPB: The Senate bill does not address the Consumer Financial Protection Bureau – in contrast to legislation passed by the House last year which stripped the CFPB of much of its power.
Tuesday's 258-159 vote in the House mostly followed party lines, with the Democratic leadership having urged members to vote against the legislation. However, it still managed to attract 33 Democratic votes, and only one Republican voted in opposition. The legislation enjoyed a relatively high degree of bipartisan support when it passed the Senate in March on a 67-31 vote (with 16 Democrats and an Independent who caucuses with the Democrats joining the unanimous Republican support).
House Republicans, led by Financial Services Committee Chairman Jeb Hensarling (R-TX), initially balked at passing the Senate bill as-is, holding out for a bicameral conference committee to negotiate a more sweeping Dodd-Frank rollback. Moderate Democrats warned that the fragile bipartisan coalition that allowed the bill to pass the Senate would fracture under the weight of additional controversial amendments. The decision to bring the Senate bill to the House floor "cleanly," without any amendments, included an agreement in principle that the Senate will take up a package of 34 related bills passed by the House, many with bipartisan support.
During House floor debate, supporters celebrated the bill as pro-growth and pro-consumer, designed to expand opportunities by relieving excessive regulations, particularly on smaller community banks and credit unions. Opponents argued that the bill weakens the regulatory framework for all banks, large and small, that the banking sector is doing well under the current regulatory regime, and that relaxing those controls would lead back to the excessive systemic risk and regulatory gaps that led to the financial crisis in the first place.
In a March 21 Statement of Administration Policy, the Office of Management and Budget urged the House to approve the Senate bill, stating: "The net impact of this legislation will be to foster economic growth by expanding prudent lending, reducing regulatory costs, and strengthening the ability of consumers to protect their credit records, while ensuring the proper oversight and regulation of the financial system."
National and regional financial services trade organizations – including the American Bankers Association, the Independent Community Bankers of America & Credit Union National Association, the Independent Community Bankers of America and the National Association of Federally-Insured Credit Unions – strongly support the legislation itself, as well as the parliamentary strategy of passing the Senat's consensus-driven legislation first and addressing other issues in subsequent measures.
Comptroller of the Currency Joseph Otting last month urged support for the legislation, which he called "incredibly positive for the industry without increasing the risk to the industry." Fed Chairman Jerome Powell has signaled support for some of the key provisions of the bill without explicitly endorsing it. "I think it gives us the tools that we need to continue to protect financial stability," Powell told the Senate Banking Committee on March 1.