Dodd-Frank Rollback

The Dodd-Frank rollback is now law (S.2155). As the Jurist reports, Trump signed the law on May 25, 2018. Now, banks without $250 billion in assets are not subject to some of the more limiting Dodd-Frank regulations. Previously, banks were subject to the restrictions if they had just $50 billion in assets. The Jurist highlights the new law, citing the Washington Post’s article for much of the detail changes, including repeal of the Volcker Rule for smaller banks holding over $10 billion in assets. This article will highlight some of the changes, including what those changes might mean to the larger public.

Overall, regulations add costs for businesses. Just generally speaking, when a business must comply with a new law from Congress or rule from an administrative agency, that compliance will cost money. Even if there is an elimination of any particular regulation because the business will need to adjust some aspect of business in order to either take advantage of the lower regulatory bar or adjust to add process and/or procedure to comply with the new regulation or law.

Yet another aspect of the regulatory environment is that some regulations protect business from legal liability. For example, if a drug maker follows all of the FDA’s rules relating to testing and efficacy, that compliance may be cited by the business in any allegation regarding the corporation’s lack of negligence.

But, back to the new Dodd-Frank rules, first is the new Volcker asset floor. The Volcker rule prevents banks from using their deposit accounts (checking and savings deposits) for investment banking activities. Investment banking is far more risky than other investment vehicles. Now, banks with less than $10 billion in assets are allowed to use their depository accounts for investment banking into stocks, bonds and other securities. These investment banking securities, while being more risky, offer potentially greater returns on investments.

Another change involves the annual stress test that banks were required to perform. These tests were used to see if a bank could survive another meltdown like that from the Great Recession. These tests cost lost of money to perform. Now, if the bank has less than $250 billion, it is not required to perform the annual test.

Finally, the Dodd-Frank rollback eliminates the requirement that banks provide detailed information on their borrowers. Now, and again with that same threshold of $250 billion, banks are not required to report on its borrowers.

Overall, only the largest of banks will now be subject to the regulations put in place under Dodd-Frank. One estimate is that the number of banks subject to the rule has now gone from 38 to now only 12. Of note, some well known banks (American Express and Ally Financial) are now outside of the law’s $250 billion threshold.

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