Regulators have known since the last presidential election that stringent rules for banking institutions are not one of the Trump administration’s priorities.
The Dodd-Frank Act has been protecting consumers from risky behavior by banks since the aftermath of the 2008 crisis. Now, the administration is effectively removing this stringent oversight, with the sole exception of Wall Street’s giants.
Financial institutions that benefit from the rollback include American Express, Capital One, SunTrust, U.S. Bank, and many others. Meanwhile, the likes of Bank of America, JPMorgan, and Citibank will continue to be scrutinized as they have been since the financial collapse.
While the government vows to only burden with complex rules the large global banks that could potentially destabilize the whole financial system, members of the opposition believe the Dodd-Frank rollback is increasing the risk for the American taxpayer.
Global banks could also benefit from a relaxation in regulations, including the reduction of mandatory reporting and the flexibilization of capital cushion requirements.
Following the Dodd-Frank reform, banks are now categorized based on their assets, and the regulatory framework is adjusted to each category:
- Banks with $100 billion to $250 billion in assets are relieved from the requirement to hold a certain amount in liquid assets. Additionally, they no longer have to perform stress tests.
- Banks with assets over $250 billion, or with a lower asset value but with a certain component of high-risk assets, now face lighter liquidity requirements than they have endured since the 2010 reform.
- Global banks are to face more stringent regulations, but this category, which has hitherto been defined as banks with assets amounting to $250 billion and foreign exposure at $10 billion, now only includes significantly bigger players, with a minimum of $700 billion in assets and foreign exposure at $75 billion.
- Wall Street’s eight giants have not benefited from any form of regulatory relief, and will continue to face the most stringent regulations established under the original Dodd-Frank.
For the President of the Consumer Bankers Association, Richard Hunt, the regulatory rollback is a “positive step toward making regulations more aligned with the risks posed by activities instead of basing everything on an arbitrary number pulled from a hat.”
Meanwhile, representatives of organizations grouping the largest banks are not happy with the reform. Greg Baer, of the Bank Policy Institute, has criticized it for not tailoring regulations based on the actual risk profile of each bank.
For Rep. Nancy Pelosi, who spoke during a debate at the House of Representatives, the Dodd-Frank rollback pretends to help community banks, but will, in reality, “take us back to the days when unchecked recklessness on Wall Street ignited a historic financial meltdown.”
Hopefully, it will not take another financial collapse to put the new regulatory framework to the test.
Are you an employee or ex-employee of a bank or mortgage company cheating on government regulations? We’re working on several stories that could use your input. Give us a call or connect by email – we can keep your identity confidential.