Senate
Banking Committee members have reached bipartisan agreement on proposed legislation
that would change the financial regulatory framework by raising the threshold for applying
enhanced prudential standards to bank holding companies from $50 billion to
$250 billion. “The package is
targeted toward helping community banks, credit unions, mid-sized banks,
regional banks and custody banks,” according to the press release announcing the agreement. The regulatory
relief package also includes consumer protections for veterans, senior citizens, and victims of fraud.
The
agreement was announced by Senate Banking Committee Chairman Mike Crapo
(R-Idaho) and Banking Committee members Joe Donnelly (D-Ind), Heidi Heitkamp
(D-ND), Jon Tester (D-Mont), and Mark Warner (D-Va). Crapo said
that the proposals would “foster
economic growth by right-sizing regulation.” The legislative proposal includes provisions intended to:
- improve consumer access to mortgage credit;
- provide regulatory relief for small financial institutions and protect consumer access to credit;
- provide protections for veterans, consumers, and homeowners; and
- tailor regulation for banks to better reflect their business models.
Tailoring regulations. Bank
holding companies with total consolidated assets between $50 billion and $100
billion would be exempt from enhanced prudential standards immediately, and
bank holding companies with total consolidated assets between $100 billion and
$250 billion would be exempt 18 months after the effective date. The proposed
legislation would also require changes to the supplementary leverage ratio for
custodial banks and the treatment of municipal obligations.
Mortgage credit. Mortgage
loans that are originated and retained in portfolio by an insured depository
institution or an insured credit union with less than $10 billion in total
consolidated assets would be deemed qualified mortgages. A tailored exemption
from appraisal requirements would be applied to mortgage loans with a balance
of less than $400,000 if the originator is unable to find a state-certified or
state-licensed appraiser.
The
bill would also provide regulatory relief to small depository institutions from
disclosure requirements under the Home Mortgage Disclosure Act. Other
provisions target barriers to jobs for
loan originators; access to manufactured homes; real property retrofit loans;
escrow requirements for consumer credit transactions; and the wait period for
lower mortgage rates.
Credit
access. Capital simplification for qualifying
community banks would establish a community bank leverage ratio
of tangible equity to average consolidated assets of not less than 8 percent
and not more than 10 percent. Banks with less than $10 billion in total
consolidated assets that maintain tangible equity in an amount exceeding the
community bank leverage ratio would be deemed to be in compliance with capital
and leverage requirements.
Community
bank relief would exempt banking entities from the Bank Holding Company Act if
they have (1) less than $10 billion in total consolidated assets, and (2) total
trading assets and trading liabilities that are not more than 5 percent of
total consolidated assets.
Reporting
requirements would be reduced for depository institutions with less than $5
billion in total consolidated assets that satisfy other appropriate criteria.
Federal savings associations with less than $15 billion in total consolidated
assets would be permitted to operate with the same powers and duties as
national banks without being required to convert their charters. The
consolidated asset threshold would be raised from $1 billion to $3 billion for
well managed and well capitalized banks to qualify for an 18-month examination
cycle.
Protections. Credit
bureaus would be required to include in a consumer’s file fraud
alerts for at least a year under certain circumstances, provide consumers one
free freeze alert and one free unfreeze alert per year, and provide further
protections for minors. Other sections are aimed at protecting veterans’ credit
and aiding senior protection.
Senator reaction. Senator
Sherrod Brown
(D-Ohio), Ranking Member of the Senate Banking Committee, questioned
the wisdom of legislation “rolling back so many of Dodd-Frank’s
protections” while banks made “record profits last year.” Senator Bob Corker (R-Tenn), a member of the Senate Banking
Committee, countered
that the reforms will ease the regulatory burden that Dodd-Frank created for community banks. Similarly, Sen. Thom Tillis (R-NC) commented
that “Dodd-Frank’s harmful
one-size-fits-all model” has restricted access to capital with burdensome
regulations.
Senator
Tom Cotton
(R-Ark) applauded
the agreement, which includes the
PACE Act, legislation Cotton introduced earlier this year that requires Truth
in Lending Act disclosure for Property Assessed Clean Energy (PACE) loans that
target low-income and elderly Americans with predatory home loans.
Industry comments. Marcus
Stanley, policy director at Americans
for Financial Reform,
worried that the proposal strips away mandates to maintain
regulatory oversight and “opens the door for Trump-appointed regulators
to severely weaken the rules applying to large regional banks.” On the other
hand, Rob Nichols, American Bankers
Association president and CEO, welcomed
the regulatory reform legislation for including mortgage rule changes, longer
examination cycles for community banks, charter flexibility for federal savings
associations, and stress test relief.
While
urging Congress to continue working
toward policies which consider risk rather than arbitrary asset thresholds, the Consumer
Bankers Association and Financial
Services Roundtable saw the agreement as an
important step forward by
giving the Federal Reserve Board flexibility to make a more complete assessment
when designating certain institutions systematically important.
The
Independent Community Bankers of America expressed its support
for a legislative agreement that included ICBA-advocated provisions to increase
exemption thresholds for Home Mortgage Disclosure Act reporting, provide
“qualified mortgage” status for portfolio mortgage loans at most community
banks, expand eligibility for the 18-month regulatory examination cycle, and
ease appraisal requirements to facilitate mortgage credit in local communities.
Meanwhile, the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, offered a series of recommendations to revitalize small business lending. The “Financing Main Street Agenda” includes five core recommendations: replace asset thresholds with multifactor risk assessments; reduce the burden of stress testing and capital planning while preserving benefits; harmonize U.S. capital and liquidity rules with international standards; reassess the Volcker Rule; and improve the regulatory process.
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