The House of Representatives recently passed a bill to roll back some of the banking industry regulations that were implemented in the aftermath of the financial crisis.
The bill has already passed the Senate and is expected to be signed into law by President Trump shortly. Initially, it was unclear if the bill would clear the House, as some Republicans wanted an even greater rollback of regulations, but any further changes will be included in a separate bill.
Several regulations introduced in the Dodd-Frank Act will be rolled back, and the new bill also provides some new protections for student loan borrowers and consumers who wish to protect their credit. Here's a quick rundown of what the bill will do and what it means to both consumers and investors.
What the bill does
One of the biggest changes the bill makes is dramatically raising the threshold above which banks are considered to be systematically important financial institutions, or SIFIs, from $50 billion to $250 billion. Banks that are considered SIFIs are subject to significantly more regulatory scrutiny than other banks. For example, SIFIs are required to submit to annual Federal Reserve "stress tests" and must have their capital plans (dividends and buybacks) approved by the Fed.
In addition, the bill rolls back mortgage data reporting requirements for most banks, and also provides some consumer protections when it comes to credit monitoring and student loans, as we'll get to in the next section.
What it means to consumers
Now, the SIFI change will save banks with $50 billion to $250 billion in assets money in regulatory expenses, but it won't have much of an effect on consumers. However, some parts of the bill will.
- It will be easier for small banks (less than $10 billion in assets) to offer mortgages that don't meet the Dodd-Frank Act's definition of a "qualified mortgage."
- Two protections will be added for private student loan borrowers -- it protects borrowers if their co-signer declares bankruptcy or dies and releases the co-signer from any debt obligation if the student borrower dies.
- A private student loan default can be more easily removed from your credit report after you've resumed consistent loan payments.
- Consumers who wish to freeze their credit will be able to do so for free. Previously, they often had to pay a fee of up to $10 to freeze their credit -- to each of the three credit bureaus.
- Short-term credit fraud alerts will be extended to one year from the current span of 90 days. Fraud alerts, which make it more difficult for fraudulent accounts to be opened in your name, were already free.
Which banks could be the big winners?
From an investor's standpoint, there are three groups of banks that could be the big winners here. First are the banks that would have formerly been classified as SIFIs, but no longer will -- this includes regional banks like SunTrust and BB&T. These banks could end up saving a significant amount of money in compliance expenses.
The second consists of smaller banking institutions, such as credit unions and community banks, especially those with substantial mortgage lending operations.
The third group is comprised of banks that are getting close to $50 billion in assets -- they will no longer need to worry about the SIFI threshold. New York Community Bancorp is a good example. It's been preparing to exceed the threshold for years now and has paid higher-than-average dividends in order to keep its assets just under the threshold.