President Signs Bill that Reverses Dodd-Frank Banking Reforms
President Trump has signed a bill to roll back systemic risk regulations under the Dodd-Frank Act. Approved on May 22 by the House of Representatives, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“the Act”) represents the most substantial changes to the Dodd-Frank Act since its enactment. The new legislation is viewed as a partial rollback of the 2010 law. Although heralded in the media as a dramatic step away from regulatory reforms introduced by Dodd-Frank, the changes included in the Act will generally have the greatest impact on small banks.
Sen. Mike Crapo praised the legislation as a means to help local banks and credit unions to focus more on lending, which would stimulate job and economic growth. The law increases the Systemically Important Financial Institution asset threshold for banks from $50 billion to $250 billion. It also frees banks with total consolidated assets under $20 billion from the Dodd-Frank Act’s Volcker Rule, which prohibits proprietary trading and ownership in hedge funds and private equity funds, among other regulatory benefits for small banks. Also, the Securities and Exchange Commission must conduct a study on the pros and cons of algorithmic trading, and the Department of Treasury is required to release a report about cyber threats to the financial markets, as well as other provisions impacting financial markets.
The bill also features several rule changes unrelated to the banking industry. For instance, one provision reclassifies certain investment-grade municipal securities as high-quality liquid assets, which supporters hope will increase the appeal of municipal bonds to banks.
Other noteworthy changes from the Act include the following:
- Limited removal of Volcker Rule naming restrictions;
- Exemption of small banks from the Volcker Rule;
- Favorable custodial bank treatment of riskless assets for calculating supplementary leverage ratios;
- Parity for closed-end funds regarding offering and proxy rules; and
- Beneficial treatment of certain securities for all banking organizations.