Most would agree that financial regulations enacted after the 2008 crisis aimed to promote stability, but also imposed significant burdens.
The 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act aimed to balance stability and growth by recalibrating certain rules.
This article will analyze the Act's key provisions, implementation timelines, and potential impacts on banks, consumers, and the wider economy.
Introduction to the Economic Growth, Regulatory Relief, and Consumer Protection Act
The 2008 financial crisis led to the passage of the Dodd-Frank Act in 2010, ushering in increased regulation of the financial sector. However, some argued these regulations went too far and negatively impacted smaller community banks and credit unions.
In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was signed into law with bipartisan support. The goal was to provide targeted regulatory relief to community financial institutions while preserving core Dodd-Frank protections.
Legislative Background: From Financial Crisis to Reform
The 2007-2008 financial crisis stemmed from excessive risk-taking and lack of oversight in the financial sector. This necessitated the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 which aimed to mitigate systemic risk and protect consumers through increased regulation and oversight.
However, many smaller banks and credit unions felt unfairly burdened by some Dodd-Frank provisions intended for large, complex financial institutions. This set the stage for bipartisan efforts to provide regulatory relief.
Overview of S 2155's Key Provisions
Key components of S.2155 include:
- Adjustments to stress testing requirements and oversight for banks with assets between $100-250 billion
- Amendments to the Volcker Rule restrictions on proprietary trading
- Relief measures for community banks and credit unions including changes to mortgage rules and capital requirements
The goal was to balance systemic risk mitigation with targeted relief for smaller institutions. Consumer protections remained largely intact.
Debate and Passage: The Political Journey of the Consumer Protection Act 2018
S.2155 was sponsored by Senator Mike Crapo with support from moderate Democrats and the Trump administration. Proponents argued it would free up lending by community banks and credit unions while preserving financial stability.
Critics countered it went too far in deregulating Wall Street and could increase reckless behavior that led to the financial crisis. Nevertheless, with bipartisan support, the bill passed and was signed into law in 2018.
Implementation Roadmap: Timelines and Regulatory Actions
Some S.2155 provisions took effect immediately while others require federal agencies like the Federal Reserve and CFPB to draft new rules before coming into force. The implementation roadmap aims to provide regulatory relief without compromising systemic risk management.
Anticipated Consequences: Analyzing the Economic Growth and Regulatory Relief Impact
It remains to be seen what impact S.2155 will have. Supporters anticipate increased lending and economic growth. Critics warn of future financial instability. The truth likely lies somewhere in between – only time will tell whether the right balance was achieved.
What did Economic Growth Regulatory Relief and Consumer Protection Act do?
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was passed by the U.S. Congress and signed into law by President Donald Trump in 2018. This law made several significant changes to banking regulations in the following key areas:
Relaxed Regulations for Regional and Community Banks
-
Raised the threshold for banks considered "too big to fail" from $50 billion to $250 billion in assets. This exempted many regional banks from the strictest oversight and regulations.
-
Provided regulatory relief for community banks with under $10 billion in assets, such as exempting them from the Volcker Rule which restricts banks from making certain types of speculative investments.
Enhanced Consumer Protections
-
Expanded credit monitoring and credit freeze access for consumers affected by data breaches.
-
Added new protections for veterans, seniors, and students against financial exploitation.
By raising thresholds on stringent regulations aimed at the largest systemically risky banks, the Act provided meaningful regulatory relief to regional and community banks. At the same time, new consumer protection measures were introduced to safeguard consumers.
What is the summary of S. 2155?
S. 2155, officially known as the "Economic Growth, Regulatory Relief, and Consumer Protection Act," was a bill passed by the U.S. Congress and signed into law by President Donald Trump in 2018.
At its core, the bill raises the threshold for banks to be considered systemically important financial institutions (SIFIs) from $50 billion to $250 billion in assets. This impacts the level of regulatory oversight and prudential standards that apply.
Specifically, banks with less than $100 billion in assets gained immediate relief from certain Dodd-Frank regulations enacted after the 2008 financial crisis. Banks between $100-250 billion in assets will also see reduced regulations, but on an extended timeline over the next 18 months.
Overall, S. 2155 aims to tailor regulations based on bank size and risk, reducing oversight and compliance costs for smaller and mid-size banks. Proponents argue this will promote economic growth by freeing up capital for more lending, especially to small businesses and consumers.
However, critics counter that deregulation goes too far and risks another financial crisis by letting banks take on too much risk. The bill's impact remains debated between those seeking looser regulations to spur growth versus tighter guardrails to prevent another systemic crash.
What is Section 401 of the Economic Growth Regulatory Relief and Consumer Protection Act?
Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) raises the minimum asset threshold for certain financial institutions covered by the company-run stress testing requirement from $10 billion to $250 billion in total consolidated assets.
Specifically, it revises the requirement for banks and federal savings associations between $100 billion and $250 billion in total consolidated assets to conduct stress tests every other year rather than annually. Institutions under $100 billion in assets would not be required to conduct stress tests at all.
The goal of this section of the EGRRCPA was to provide some regulatory relief for regional and community banks by reducing the frequency of mandated stress tests for mid-sized institutions and exempting smaller banks completely. This aimed to allow these banks to focus more resources on lending to consumers and small businesses rather than on compliance costs.
Overall, Section 401 reflects efforts to balance prudent regulation while providing targeted relief from certain Dodd-Frank requirements for banks that policymakers judged less likely to pose systemic risks. Reducing stress testing mandates for smaller institutions was viewed as a way to encourage lending and economic growth without materially impacting financial stability.
sbb-itb-e93bf99
What is Section 307 of the Economic Growth Regulatory Relief and Consumer Protection Act?
Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) directs the Consumer Financial Protection Bureau (CFPB) to establish regulations for Property Assessed Clean Energy (PACE) financing regarding ability-to-repay requirements.
Specifically, section 307 requires the CFPB to:
- Prescribe regulations that require PACE creditors to assess a consumer's ability to repay before making a PACE financing
- Apply the Truth in Lending Act's civil liability provisions to PACE financing
The goal of section 307 is to institute consumer protections and help ensure PACE loans are affordable, preventing consumers from taking on debt they cannot reasonably repay.
By requiring ability-to-repay assessments and allowing civil liability against creditors who violate the regulations, section 307 aims to regulate the PACE lending industry and prevent predatory lending practices that take advantage of consumers.
Overall, section 307 represents an effort to balance PACE financing's potential benefits for property improvements with the need to protect consumers from unaffordable or misleading lending terms. The regulations seek to encourage responsible lending so consumers can access PACE financing safely.
Dodd-Frank Revisions: Stress Testing and Systemic Risk Reduction
Details on changes to Dodd-Frank stress testing regimes and oversight rules for large banking organizations.
Raising the Bar: Increased Stress Testing Thresholds Under 12 U.S.C. 5365
The Economic Growth, Regulatory Relief, and Consumer Protection Act raised the minimum asset threshold for mandated stress testing from $10 billion to $250 billion under 12 U.S.C. 5365. This reduces compliance costs for mid-sized banks between $10-250 billion while still requiring stress tests for the largest systemically important banks over $250 billion.
Proponents argue this calibrated approach balances stability and growth by focusing heightened oversight on the banks that truly pose systemic risks if they fail, without overburdening smaller institutions.
However, critics counter that stress tests are critical safeguards even for mid-sized banks, and relaxing standards could enable excessive risk appetites that set the stage for another crisis. There are good-faith arguments on both sides.
Federal Reserve Flexibility: Tailoring Prudential Standards
The Act also expands the Federal Reserve's capacity to tailor enhanced supervision and capital standards for banks based on individual risk profiles. This enables a scaled approach instead of a one-size-fits-all model.
Supporters state this flexibility allows proper calibration of oversight to the complexity and business models of each institution. However, skeptics caution that too much discretion could water down important post-crisis reforms designed to rein in systemic risk, reduce interconnectedness, and end "Too Big to Fail" policies for the largest banks.
Risk Assessment: Weighing the Pros and Cons
There are merits to arguments on both sides. Appropriate tailoring of standards can boost lending and growth without compromising stability. However, vigilance is warranted to ensure risk-taking does not reach precarious levels. Open communication between regulators, policymakers, and industry can help strike the right balance.
Global Standards: Stress Testing in an International Context
Globally, other major economies like Europe and China have implemented stress testing and heightened capital standards as well under Basel III. The Act's revisions align closer with international norms for mid-sized institutions while preserving more stringent standards for the largest banks. However, the US still generally maintains higher post-crisis capital requirements than other major banking jurisdictions.
Boosting Small Financial Institutions: Relief for Community Banks and Credit Unions
The Economic Growth, Regulatory Relief, and Consumer Protection Act aims to reduce regulatory burdens for smaller banking institutions with assets under $10 billion. This section reviews key provisions that provide regulatory relief and support to community banks and credit unions.
Regulatory Easing: Dodd-Frank Exemptions for Smaller Institutions
The Act exempts banks and credit unions with under $10 billion in assets from certain Dodd-Frank requirements:
- Stress testing rules no longer apply, removing compliance costs.
- Liquidity coverage ratio requirements are eased, freeing up capital.
- Volcker rule compliance is simplified for smaller institutions.
- Enhanced prudential oversight standards relaxed.
These changes reduce regulatory burdens for community banks and credit unions, allowing them to better serve their customers and communities.
Reporting Simplification: Call Report Adjustments for Community Banks
The Act raises the asset threshold for filing a simplified, streamlined call report from $1 billion to $5 billion for banks with high capital levels. This reduces the reporting burden for many community banks.
Simpler call reports mean community banks can devote more resources to lending and financial services rather than compliance. This supports small businesses and consumers that rely on community banks for access to credit.
Mortgage Data Reporting: Adjusting HMDA Requirements
The Home Mortgage Disclosure Act (HMDA) now exempts banks and credit unions originating fewer than 500 closed-end mortgages or 500 open-end lines of credit from detailed mortgage data reporting.
This change reduces regulatory overhead for smaller lenders, allowing them to offer more competitive rates and better serve their communities. It also maintains data integrity by focusing detailed mortgage data collection on larger institutions.
Financing Small Enterprises: The Impact on Small Business Lending
By reducing regulatory burdens and freeing up capital, the Act encourages community bank lending to small businesses. More financing options help small enterprises invest, grow, and create jobs.
Increased small business lending also circulates more capital in local communities. This spurs economic growth as funds move through local supply chains instead of consolidating in a few large institutions.
Overall, targeted regulatory relief helps community financial institutions better meet the needs of consumers and small enterprises, fueling broader economic gains.
Consumer Protection Measures: Mortgages and Homeownership
The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 introduced several changes to mortgage rules and regulations aimed at balancing greater access to home loans while maintaining responsible lending practices.
Tailored Rules for Rural Lenders: Special Provisions for Small Creditors
The Act creates special provisions for certain lenders that operate predominantly in rural or underserved areas, including exemptions from some ability-to-repay requirements. These provisions recognize the unique challenges small creditors face in these communities and provide tailored regulations to encourage sustainable mortgage lending.
Key highlights:
- Raises origination limit for small creditors to make qualified mortgages from $2 billion to $10 billion
- Exempts small creditors from requirement to establish escrow accounts for higher-priced mortgages
- Allows small creditors to offer balloon payment qualified mortgages
These special provisions give small rural lenders more flexibility, while still maintaining core consumer protections.
Expanded Safe Harbor: Easing Qualified Mortgage Criteria
The Act also expands the definition of Qualified Mortgage (QM) loans, which receive safe harbor legal protections. With a more inclusive QM definition, more loans can potentially qualify, encouraging lending while still meeting ability-to-repay standards.
Key changes to Qualified Mortgage criteria:
- Removes 43% debt-to-income cap on QM loans
- Allows certain mortgages held in portfolio to qualify as QM loans
By removing rigid debt-to-income requirements, the Act enables lenders to exercise more discretion in underwriting while still verifying borrowers' ability to repay loans.
Balancing Access and Risk: Consumer Impacts of Mortgage Rule Changes
Consumer advocates have raised concerns that easing regulations could lead to a return to unsustainable lending practices that contributed to the 2008 financial crisis. However, proponents argue tailored rules can responsibly improve access to mortgage credit.
Potential consumer impacts:
- Increased availability of home loans and expanded access to homeownership
- Risk of loosening standards and reviving irresponsible lending practices
- Continued core consumer protections remain in place
Overall, the Act attempts to strike a balance between enhancing access to mortgage credit and safeguarding sustainable lending standards. The consumer impact remains to be seen as new rules take effect. Careful oversight will help ensure appropriate protections remain in place.
Conclusion: Reflecting on the Act's Implications
Recap of the Economic Growth, Regulatory Relief, and Consumer Protection Act
The Economic Growth, Regulatory Relief, and Consumer Protection Act aimed to provide targeted regulatory relief to community banks and credit unions while preserving key consumer protections implemented after the 2008 financial crisis. The law raised the threshold for enhanced prudential oversight of banks from $50 billion to $250 billion in assets, exempted small banks from the Volcker rule, adjusted stress testing requirements, and made several changes to mortgage rules. While the full impact remains to be seen, the goal was to strike a balance between reducing regulatory burdens on smaller lenders while still safeguarding the financial system.
Unanswered Questions: Monitoring the Long-Term Impact
Many questions remain regarding how these changes will affect lending practices, access to credit, compliance costs, and systemic risk over time. Consumer groups have raised concerns about the potential erosion of consumer protections, while the banking industry welcomes the regulatory relief. Careful oversight by the Federal Reserve, CFPB and other agencies will be necessary to assess the impact on consumers and financial stability. Key metrics to monitor include bank failures, foreclosures, consumer complaints, compliance violations, and overall access to fair and affordable credit.
Future Oversight: Ensuring Financial Stability
As regulations evolve, regulators must remain vigilant to detect risks early and adjust rules accordingly. While targeted relief aims to spur lending by community banks, regulators must ensure such changes do not sow the seeds of another crisis. Ongoing stress testing, data collection, and macroprudential oversight remain essential to monitor systemic risk, contain emerging threats, and balance the objectives of economic growth and financial stability.
