The Senate just passed a bill that would represent the first major reforms to the U.S. banking system since the financial crisis-era Dodd-Frank legislation.
While the bill wouldn't do away with the Dodd-Frank regulations altogether, it would loosen key provisions, particularly for smaller banks. Here's a rundown of the bill, and why there could still be a long way to the finish line before any regulations are loosened.
Passing by a wide margin of 67-to-31, the bill received the support of some Democratic senators as well as from Republicans. This isn't too surprising, as many Democrats have indicated that the Dodd-Frank banking reforms passed in the wake of the financial crisis went a bit too far in some respects.
Here's what the bill would do
The proposed legislation wouldn't dismantle Dodd-Frank altogether. Here's a rundown of the most significant changes that would be implemented by the current version of the bill.
First, it would raise the threshold for a bank to be considered a systemically important financial institution, or SIFI, from $50 billion to $250 billion. Among other things, this move would stop banks such as BB&T and SunTrust from having to submit to the Federal Reserve's stress tests and would therefore give them more freedom to set their own dividend and buyback policies without regulatory approval. One interesting fact to note is that former Rep. Barney Frank, a Democrat for whom the Dodd-Frank reform is named in part, has argued that the threshold needs to be raised.
Specifically, banks with less than $100 billion in assets would be immediately exempt from the current SIFI rules, while those with $100 billion to $250 billion in assets would have a way to get out of it, but the Federal Reserve could choose to enforce tougher regulations.
There are currently only 11 U.S. banks that have assets greater than $250 billion and would therefore remain subject to the SIFI rules under the Senate's bill.
The bill would also exempt banks with less than $10 billion in assets from rules that ban proprietary trading, as well as other rules designed to make sure they can withstand tough economic times.
It would also allow custody banks, such as Bank of New York Mellon, to exempt customer deposits from a strict capital calculation requirement. These banks, which hold trillions in assets for pensions and other financial entities, would be exempt from capital requirements for cash deposited at the Federal Reserve.
For consumers, the bill would legally require the three major credit bureaus -- Equifax, Experian, and TransUnion -- to provide free credit freezes. Currently, there are fees attached when requesting a credit freeze, usually $10 or less per bureau. This is clearly a response to last year's Equifax massive data breach.
In a nutshell, the bill would significantly lower regulatory compliance expenses for many U.S. banks and could create a generally easier environment to grow and do business.
Equally important to note is what the bill would not do, at least in its current form. There are no provisions in the bill that would directly benefit the largest U.S. banks, such as Bank of America and JPMorgan Chase. After all, the biggest lingering fear after the financial crisis was that a big bank failure could threaten the entire financial system in the United States, so it makes sense that regulations on these institutions would be kept in place.
It's not a done deal yet
It's important to realize that although the Senate passed the bill by a wide margin, and President Trump has indicated he will sign it, there's still a long way to go before the bill becomes law.
Specifically, Republicans in the House of Representatives have said they want to add to the bill's current provisions to loosen regulations even further. This has many experts concerned that it could turn Senate Democrats away, which would threaten the bill's passage.
For the time being, however, this is a key first step in creating a more "friendly" business climate for many American banks.