The U.S. Senate recently passed a bipartisan bill (vote was 67 – 31) to rollback regulative measures on Dodd Frank, which will make many small and mid-sized banks exempt from the legislation. If the legislation passes in the House in its current form, then it would be sent to the desk of President Trump to sign it into law, if there are modifications to the draft then it will be sent to the Senate for approval.
Background on Dodd-Frank: This bill was created by President Obama’s administration in 2010 after the 2008 financial crisis. The bill introduced the Volcker Rule which limited the level of risk banks can take by restricting proprietary trading.
Two key takeaways from the bill
- Banks with more than $50 billion in assets are now considered “too big to fail” and are subject to the toughest regulations, including a yearly stress test to prove they could survive another period of economic turmoil. The Senate legislation would raise that threshold to $250 billion in assets, potentially allowing several high-profile financial institutions, including American Express, Ally Financial and Barclays, to escape the extra regulatory scrutiny. [Reference]
- Smaller banks say this relief from the restrictive laws will encourage more lending. [Reference]
- The new version of the bill will exempt banks with less than $10 billion in assets from rules banning proprietary trading (Volcker Rule), as well as exempts smaller banks from several other post-crisis rules. [Reference]
Some new consumer protections were also added to the bill including offering Americans free credit freezes and barring lenders from declaring a student loan in default when a co-signer dies or declares bankruptcy. [Reference]
Investors have certainly taken notice as the SPDR S&P Regional Banking ETF attracted $606 million in daily inflows following the news, a record for the fund, according to Bloomberg. [Reference]
We will continue to monitor this development.