FinTech on the Hill Update

Regulatory Relief Gets a Bipartisan Boost

Ever since the Dodd-Frank financial services reform bill became the law of the land, the heavy hand of federal regulation remains a constant weight on the shoulders of community and regional banks across the United States.  Lending suffers, the cost of capital increases and the overall banking sector remains stagnant in the post 2008-regulatory environment.  The House of Representatives tried to provide some relief, voting a regulatory relief package out of the Financial Services Committee andpassing legislation on the floor, but without the Senate the legislation cannot make it to the President’s desk.  The Senate struggled to come up with their own version of legislation and, until recently, any talk of regulatory relief seemed part fantasy, part wishful thinking.

The current chairman of the Senate Banking Committee, Senator Mike Crapo (R-ID), made a commitment early on to work in a bipartisan fashion in his committee.  This approach showed signs of success with the recent introduction of a bipartisan regulatory relief bill, S. 2155, the Economic Growth, Regulatory Relief and Consumer Protect Act.  Cosponsored by 9 Republicans, 9 Democrats and one independent, this bill seeks changes to a number of the most controversial provisions in the original Dodd-Frank bill, allowing for more tailored regulation to fit the risk of the different sized financial institutions.

Specifically, the bill raises the threshold for those institutions considered “too big to fail” from $50 billion in assets to $100 billion in assets and provides the Federal Reserve some flexibility in administering stress tests to those deemed systemically risky.  Second, this legislation lowers the capital leverage ratio for smaller institutions (under $10 billion in assets), establishing a ration between 8-10% for compliance.  In the area of housing finance, the bill offers changes surrounding mortgage lending requirements for smaller banks.  Exemption from the Volcker Rule applies to the same smaller banks (under $10 billion in assets) and the even small institutions ($5 billion or less) gain relief in exam and reporting requirements.

Next week, the Senate Banking Committee is holding a committee mark-up on the legislation.  Despite the apparent momentum and bipartisan nature, the odds of this legislation hitting the Senate floor before Christmas are slim.  As Congress pushes ahead on a tax reform bill and develops a deal to continue funding the government, regulatory relief will probably have to wait until 2018.