• One Step Closer to Passage of Regulatory Relief Bill…But Still Major Hurdles Ahead
  • April 19, 2018 | Author: Joan S. Guilfoyle
  • Law Firm: Jones Walker LLP - Washington Office
  • On March 14, 2018, the Senate passed the Economic Growth, Regulatory Relief and Consumer Protection Act (“S. 2155”).[i] This bill had bipartisan support, including 12 Democrat co-sponsors and was approved by the Senate by a vote of 67-31. The next step is for the bill to go to the House of Representatives where it must be reconciled with the House of Representatives’ version of regulatory relief, the Financial CHOICE Act (“H.R. 10”), which was passed by the House in June 2017. How difficult will it be to reconcile the two bills? It may be harder than one thinks. While both bills address many of the same key regulatory issues that have concerned bankers since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, in general, H.R. 10 goes much further toward eliminating or constraining many of the Dodd-Frank provisions that have been the most onerous. As a result, it may be difficult to reconcile the two bills and ultimately get any regulatory relief legislation signed.

    There is the most similarity between S. 2155 and H.R. 10 with respect to provisions that are of interest to community banks. Both bills would increase the Federal Reserve threshold below which bank holding companies are entitled to operate under the Fed’s Small Bank Holding Company Policy Statement. While H.R. 10 would increase the threshold to $10 billion in total assets, S. 2155 would only increase it to $3 billion. Bank holding companies that may operate under this policy statement have their capital compliance determined on a consolidated basis and are entitled to hold higher levels of debt, provided certain other qualifications are met. Both bills provided some relief from HMDA requirements as well. Both bills also address the definition of a “qualified mortgage” and the ability-to-pay rules introduced as a result of Dodd-Frank for loans that are held on a bank’s books rather than sold in a securitization. Again, the S. 2155 approach is more conservative, making the safe harbor only available to institutions with less than $10 billion in assets. The H.R. 10 safe harbor would apply regardless of size as long as the loan is held on the bank’s books. S. 2155 would also increase the threshold from $1 billion to $3 billion for banks to qualify for an 18-month rather than a 12-month examination cycle. While H.R. 10 does not address this issue, it is reasonable to assume that reconciling this provision would not be difficult.

    So how do the bills differ? Both address the enhanced prudential standards threshold or the “SIFI designation,” but take different approaches in doing so. Many larger institutions have complained that the costs associated with crossing a fairly arbitrary threshold (currently $50 billion in total assets) are significant. S. 2155 would increase the threshold to $250 billion with certain limited exceptions. Institutions with under $250 billion in assets would be exempt from the enhanced prudential standards and from conducting company “stress tests.” The House took a different approach in H.R. 10 by creating a regulatory “off-ramp” whereby large institutions that exceed the SIFI threshold could opt out of the enhanced prudential standards and stress tests by agreeing to hold more capital, specifically, a minimum 10 percent leverage capital ratio. Institutions agreeing to do so would also be exempt from Basel III capital and liquidity standards.
    Treatment of the Volcker Rule is another example where the House proposal goes much further. The Volcker Rule generally prohibits insured depository institutions from engaging in trading and investing in or sponsoring hedge funds and private equity funds. S. 2155 would exempt banks with under $10 billion in total assets from these restrictions while H.R. 10 would repeal the Volcker Rule in its entirety.
    One of the most controversial areas where the two bills differ is with respect to the Consumer Financial Protection Bureau or CFPB. H.R. 10 calls for it to be renamed as the “Consumer Law Enforcement Agency,” and would significantly restrict its authority. The bill also provides that the President has the authority to appoint and remove the director and deputy director of the CFPB and would eliminate the agency’s authority to bring enforcement actions for unfair and deceptive trade practices. S. 2155 is silent with respect to the CFPB.
    While it is still possible that reasonable compromises may be reached in the interest of achieving some meaningful regulatory relief, it will be difficult. The House Bill was passed without any Democrat voting in favor of it. The Senate bill was passed with some bipartisan support although the support is somewhat fragile, and its sponsors believe some of this support would evaporate if more contentious provisions, in particular, the CFPB, were added. In addition, the longer it takes for an agreement to be reached, the more likely that some other issue could arise that could derail attempts at regulatory relief.