ABA Dodd-Frank Tracker

Fed, FDIC Issue FAQs on Large Bank Resolution Plans

2017-05-08T09:41:00.000-04:00

The Federal Reserve and the FDIC have published the answers to frequently asked questions about guidance issued last year on the resolution plans that the nation’s eight largest banks are required to submit detailing how they would be wound down in the event of bankruptcy.

The FAQs address capital and liquidity requirements and forecasting, governance mechanisms, management of critical third-party vendors and other operational issues, derivatives and trading activities, legal entity rationalization and other general and legal matters related to the resolution planning process.

Read the FAQs.

Financial Choice Act Clears House Committee

2017-05-05T11:30:00.000-04:00

The House Financial Services Committee has voted to advance the Financial Choice Act, Chairman Jeb Hensarling’s (R-Texas) sweeping, 600-page bill aimed at reforming parts of the Dodd-Frank Act’s extensive supervisory regime and providing regulatory relief for banks. ABA President and CEO Rob Nichols saluted the committee for its “very important step toward reforming the Dodd-Frank Act and providing much-needed regulatory relief,” adding that “we look forward to working with lawmakers from both parties as this important process moves forward.”

The Choice Act, which passed on a party-line vote, includes a number of regulatory relief provisions long sought by ABA as part of its Blueprint for Growth, including a Qualified Mortgage safe harbor for mortgage loans held in portfolio, more tailored supervision based on an institution’s risk profile and business model and repeal of the Durbin Amendment, which capped prices on debit interchange, as well as the Volcker Rule.

The bill would also reform the CFPB, renaming it the Consumer Law Enforcement Agency and stripping it of examination powers and “UDAAP” enforcement authority and replace Dodd-Frank’s Orderly Liquidation Authority provision with a new Bankruptcy Code. In addition, it would also allow banks maintaining a 10 percent non-risk weighted leverage ratio to elect into an alternative regulatory regime that would, among other things, exempt qualifying institutions from federal capital and liquidity requirements, blocks on capital distributions, systemic risk regulations and limitations on mergers and acquisitions provided that any new entity also maintains the minimum leverage ratio.

Nichols said:

The thousands of pages of new regulations facing banks have become a tremendous driver of decisions to sell or merge. Given the cost of complying with all the new rules, some community banks are having to choose between meeting those regulatory requirements and meeting the financial needs of their individual and business customers.

Read Nichols' statement.

Regulators Issue Determination on Wells Fargo’s Revised Resolution Plan

2017-04-25T09:35:00.000-04:00

The Federal Reserve Board and the FDIC have announced that Wells Fargo has adequately remediated deficiencies in its 2015 resolution plan after a second round of revisions. The agencies determined in December 2016 that Wells Fargo had not remedied deficiencies that had previously been identified in the bank’s plan to facilitate orderly resolution under the U.S. Bankruptcy Code in the event of a failure.

Read more.

Trump Orders Reviews of Dodd-Frank Liquidation Authority, SIFI Designation

2017-04-24T10:00:00.000-04:00

President Trump has ordered the Treasury Department to conduct reviews of the Dodd-Frank Act’s Orderly Liquidation Authority and its process for designating nonbanks as systemically important financial institutions.

The OLA memorandum calls for a review of whether OLA is consistent with the president’s “core principles” for regulating the financial system, whether employing OLA could cause losses to taxpayers, whether it leads to excessive risk-taking and whether a new chapter in the Bankruptcy Code would be a superior method of resolving a failing financial firm, among other topics.

The second memo calls for Treasury to review the Financial Stability Oversight Council’s processes for designating nonbank SIFIs and to pause any further designations of nonbanks pending completion of the review. Both reviews are to be completed within 180 days.

ABA EVP Wayne Abernathy said:

ABA has welcomed and embraced the administration’s thorough review of financial regulations. We appreciate the administration’s efforts to understand how financial regulations are working in practice and how to refine them to make them more supportive of economic growth. ABA and our member banks are actively participating in the process.

Read the OLA memo.
Read the SIFI designation memo.

Hensarling Releases Full Text of Financial Reform Bill

2017-04-20T10:30:00.000-04:00

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has released the latest legislative text of his Financial Choice Act, a 600-page bill aimed at rolling back and reforming parts of the Dodd-Frank Act’s extensive supervisory regime, as well as providing regulatory relief for banks of all sizes. A similar version of the legislation cleared the committee in the previous Congress. The committee is scheduled to hold a hearing on the bill next week.

Title V of the Choice Act contains numerous provisions long sought by ABA. These regulatory relief measures would provide a Qualified Mortgage safe harbor to mortgage loans held in portfolio, tailor supervision to banks’ risk profiles and business models, raise the small bank holding company policy statement asset threshold to $5 billion, create an independent exam appeals process, provide charter flexibility for thrifts, stop data collection on small business loans, clarify the QM rule’s points and fees test, expand the short-form Call Report, enhance mortgage relief for smaller banks and smaller mortgage originators and prevent future “Operation Choke Point” activities.

The bill further details plans to reform the CFPB, which would be renamed the Consumer Law Enforcement Agency and would be stripped of examination powers and “UDAAP” enforcement authority. The Choice Act would also repeal the Durbin Amendment, impose more stringent penalties for Wall Street in cases of fraud or deception and repeal sections of Dodd-Frank that limit capital formation, including the Volcker Rule. It would bring the new CLEA, FDIC, OCC, Federal Housing Finance Agency, National Credit Union Administration and supervisory functions of the Federal Reserve into the congressional appropriations process, mandate cost-benefit analyses of regulations and require congressional approval for “major rules.”

Additional regulatory relief would be available for banks maintaining a 10% non-risk weighted leverage ratio that elect into the alternative regime. Qualifying banks would be exempt from federal capital and liquidity requirements, blocks on capital distributions, systemic risk regulations and limitations on mergers and acquisitions provided any new entity also maintains the minimum leverage ratio.

Another key component of the Choice Act is ensuring no institution is “too big to fail” by replacing Dodd-Frank’s Orderly Liquidation Authority provision with a new Bankruptcy Code designed to accommodate the failure of a large, complex financial institution. Additionally, it significantly restricts the Federal Reserve’s ability to make discounted loans or bail out financial firms or creditors.

View the full text of the bill.

Regulators Clear Living Wills for Regional, Card Banks

2017-03-27T10:20:00.000-04:00

The FDIC and Federal Reserve have announced that they had reviewed resolution plans submitted in December 2015 by 16 regional and credit card banks and that none were found “not credible” or inadequate to facilitate an orderly resolution under the Bankruptcy Code, the statutory standard under the Dodd-Frank Act.

So-called living wills submitted for fifteen of the banking firms – American Express, Ally Financial, BB&T, Capital One, Comerica, Discover, Fifth Third, Huntington, KeyCorp, M&T Bank, PNC, Regions, SunTrust, U.S. Bancorp and Zions Bancorporation – had no shortcomings, according to regulators. As a result, these institutions will be able to submit less information as part of the resolution plans due in December 2017. The agencies identified shortcomings in the plan submitted by Northern Trust Corporation that the company must address in its next filing.

Meanwhile, the agencies provided feedback to the U.S. affiliates of four overseas banking firms – Barclays, Credit Suisse, Deutsche Bank and UBS – to address vulnerabilities associated with governance, capital and liquidity. All four have “significantly restructur[ed]” their U.S. operations to comply with Dodd-Frank, the agencies said. The four firms will have until July 2018 to submit revised living wills.

The resolution plan process – which applies to U.S. bank holding companies with assets of more than $50 billion, nonbanks designated as systemically important by the Financial Stability Oversight Council and large foreign banks with U.S. operations – requires these large institutions to describe their strategy for a rapid and orderly wind-down in the event of stress. Planning requirements are tiered based on a firm’s level of complexity.

Read more.

Fed to Evaluate Large Bank ‘Living Wills,’ Fintech in 2017

2017-01-09T09:30:00.000-05:00

Speaking at a legal event in Washington, D.C., Federal Reserve General Counsel Scott Alvarez outlined several issues the agency will focus on in 2017, including certain regulatory relief measures and the entrance of nonbank fintech companies into the Federal Reserve System.

The Fed is currently exploring whether to change its annual filing requirement for banks submitting “living wills” detailing how they would be resolved in the event of bankruptcy, Alvarez said. He noted that the agency is also considering creating different asset-based schedules for banks required to file. Additionally, the Fed will continue streamlining reporting and capital requirements for community banks this year, and plans to move forward with rulemakings related to derivatives contracts for global systemically important banks, physical commodities activities and metrics reporting for the Volcker rule, he said.

Another important focus will be the treatment of fintech firms entering the Fed system under the OCC’s proposed limited-purpose national bank charter, which was announced by Comptroller of the Currency Thomas Curry in December 2016. The OCC and the Fed are currently working closely to determine how fintech companies under a limited-purpose charter will access the benefits of the Federal Reserve System, such as the payments network, Alvarez said.

The Week Ahead: Jan 1 - 7

2016-12-30T11:00:00.000-05:00

Sunday

Effective Date CFPB: Appraisals for Higher-Priced Mortgage Loans Exemption Threshold
Read more.
Effective Date CFPB: Consumer Leasing (Regulation M)
Read more.
Effective Date CFPB: Fair Credit Reporting Act Disclosures
Read more.
Effective Date CFPB: Mortgage Disclosure (Regulation C) Adjustment to Asset-Size Exemption Threshold
Read more.
Effective Date CFPB: Truth in Lending (Regulation Z)
Read more.
Effective Date CFPB: Truth in Lending (Regulation Z) Annual Threshold Adjustments (CARD Act, HOEPA and ATR/QM)
Read more.
Effective Date FRB: Federal Reserve Bank Capital Stock
Read more.
Effective Date OCC: OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches; Technical Amendments
Read more.

Tuesday

Comments Due CFPB: Truth In Lending Act (Regulation Z)--Appraisals for Higher-Priced Mortgage Loans (PRA)
Read more.
Comments Due CFTC: Agency Information Collection Activities: Practice by Former Members and Employees of the Commission
Read more.
Comments Due OCC: Appraisals for Higher-Priced Mortgage Loans (PRA)
Read more.
Comments Due OCC: Guidance on Sound Incentive (PRA)
Read more.
Effective Date FRB: Federal Reserve Bank Services
Read more.

Friday

Comments Due FCA: Loans in Areas Having Special Flood Hazards--Private Flood Insurance
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

OCC Finalizes Receivership Framework for Uninsured National Banks

2016-12-20T11:15:00.000-05:00

The OCC has issued a final rule establishing a framework for how the agency will handle receiverships for national banks not insured by the FDIC, such as trust banks and other special purpose charters. The rule, which was adopted as proposed, implements provisions of the National Banking Act governing such receiverships.

The framework parallels the approach used by the FDIC, and covers the appointment of a receiver, resources available to the receiver, public notice, handling and prioritization of claims, receiver powers related to fiduciary and custodial accounts, distribution to shareholders and termination of receivership. In the preamble to the rule, the OCC acknowledged the fundamental differences in business models between national trust banks and consumer and commercial banks and savings associations, a distinction ABA highlighted in its comments on the proposal.

The OCC supervises 52 uninsured national trust banks and has not put an uninsured bank into receivership since the Great Depression. However, as the agency moves forward with its plan to grant special-purpose national bank charters to fintech companies, Comptroller of the Currency Thomas Curry earlier this month noted the importance of having a formal receivership process in place.

Read the final rule.

Regulators Issue Determinations on Revised SIFI Resolution Plans

2016-12-14T09:45:00.000-05:00

The Federal Reserve Board and the FDIC have announced that four out of five systemically important domestic banking institutions have successfully remedied deficiencies in their 2015 resolution plans. Revisions submitted in October by Bank of America, Bank of New York Mellon, J.P. Morgan Chase and State Street were approved unanimously, after the agencies earlier this year determined that the original plans would not facilitate orderly resolution under the U.S. Bankruptcy Code in the event of failure.

The fifth bank, Wells Fargo, failed to adequately remedy its deficiencies with its revised plan, the agencies said, citing outstanding issues with “legal entity rationalization” and “shared services.” Regulators did note, however, that the bank’s revised plan did address the deficiency in the “governance” category. As a result, the agencies will impose restrictions on the growth of Wells Fargo’s international and nonbank activities. The company will have until the end of March to address the remaining deficiencies to avoid further regulatory actions, including divestiture of certain assets or operations.

Read more.

OCC Proposes Limits on Qualified Financial Contracts

2016-10-04T09:00:00.000-04:00

The OCC has proposed a rule that would establish restrictions on qualified financial contracts – such as derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending and borrowing agreements – of national banks and federal thrifts that are subsidiaries of U.S. and foreign-based global systemically important banks. The objective of the proposal is to facilitate the orderly resolution of a failed institution by limiting the ability of the firm’s QFC counterparties to terminate contracts immediately upon the entry of the covered entity or one of its affiliates into resolution.

The rule is “substantively identical” to the QFC rule proposed earlier this year by the Federal Reserve that would require G-SIBs’ QFCs to contain contractual provisions that recognize the automatic stay of termination provisions and transfer provisions applied in resolutions under the Dodd-Frank Act and the Federal Deposit Insurance Act, the OCC said. Comments are due by Oct. 18.

Read the proposed rule.

OCC Finalizes Recovery Planning Guidelines for Large Banks

2016-09-30T09:30:00.000-04:00

The OCC has issued final guidelines on recovery planning for the financial institutions it regulates with assets of more than $50 billion. The guidelines will join the OCC’s safety and soundness regulations as an appendix and be enforceable by statute, the agency said.

Under the guidelines, each covered bank would be expected to develop and maintain a recovery plan appropriate for its own risk profile, size, activities and complexity. Each plan would be expected to include an overview of the bank; qualitative and quantitative stress triggers for when the recovery plan would be implemented; the range of recovery options for each trigger and how they would be implemented; assessments of how each option would affect the covered bank; escalation procedures; reports to management or board members as appropriate; and communications procedures.

As ABA requested in its comment letter, the OCC recognized that many banks covered by the proposal already engage in significant recovery planning exercises, and the agency said “we do not intend for the recovery planning described in these final guidelines to be needlessly burdensome or duplicative of these other planning processes.” But while ABA urged the agency to allow covered banks to meet the guidelines by leveraging recovery planning done at the holding company level, the OCC emphasized that it is “unlikely” that a plan not prepared specifically for the covered bank will satisfy the final guidelines, unless the covered bank comprises at least 95% of the holding company’s assets.

Also as requested by ABA, the guidelines will take effect on a phased schedule. Banks with assets of over $750 billion will need to comply within six months of Jan. 1, 2017; banks with $100-$750 billion in assets will have 12 months; and banks with $50-$100 billion in assets will have up to 18 months after Jan. 1 to comply.

Read the final guidelines.

Fed, FDIC Delay Deadline for Most ‘Living Wills’ to 2017

2016-08-03T10:00:00.000-04:00

The Federal Reserve and FDIC have announced that they are delaying the deadline to file resolution plans, or “living wills,” from Dec. 31, 2016, to Dec. 31, 2017, for 36 large banking organizations and two systemically important nonbanks. Meanwhile, the agencies said they will provide feedback on the 2015 round of resolution plans in time for the 2017 filing.

The delay does not apply to the eight U.S. institutions designated as “global systemically important banks”: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

The resolution plan process – which applies to U.S. bank holding companies with assets of more than $50 billion, nonbanks designated as systemically important by the Financial Stability Oversight Council and large foreign banks with U.S. operations – requires these large institutions to describe their strategy for a rapid and orderly wind-down in the event of stress. Planning requirements are tiered based on a firm’s level of complexity.

Read more.

Agencies Find Certain Bank Living Wills ‘Not Credible’

2016-04-14T10:30:00.000-04:00

In the latest round of public feedback on the “living wills” or resolution plans that the largest banks file to demonstrate they can be wound down in an orderly way, the Federal Reserve and FDIC deemed the plans filed by Bank of America, the Bank of New York Mellon, J.P. Morgan Chase, State Street and Wells Fargo “not credible” or inadequate to facilitate an orderly resolution under the Bankruptcy Code.

Each of these five firms “must remediate its deficiencies” by Oct. 1, 2016, the agencies said. Meanwhile, the living wills submitted by Goldman Sachs and Morgan Stanley were deemed not credible by one of the two agencies. Neither agency found Citigroup’s plan to be not credible or inadequate to facilitate an orderly resolution, although they did identify issues that Citi must address.

Commonly identified weaknesses in the resolution plans included governance mechanisms, operations, liquidity modeling and the rationalization of the firms’ legal entity structure.

ABA President and CEO Rob Nichols said:

Today’s results show that both banks and regulators continue to learn from the living wills process. Banks have made tremendous strides in adding hundreds of billions of dollars in additional capital, improving liquidity and better managing risk since the financial crisis. These efforts ensure the industry is well equipped to handle any economic circumstance that could arise.

ABA continues to work with regulators to clarify expectations and procedures related to living wills as bankers and regulators alike seek to make the living wills requirement an effective and successful regulatory tool.

Nichols added:

Each iteration brings more value for both the regulators and the institutions they supervise, and provides an important roadmap for further work that needs to be done. We will continue to maintain an open line of communication to ensure the living wills process keeps improving for both banks and regulators.

The next deadline for resolution plan submissions is July 1, 2017. Most institutions had shortcomings in their 2015 plans that the agencies said must be addressed in next year’s filing.

Read more.
Read Nichols' statement.

GAO: Regulators Could Improve Transparency around ‘Living Wills’

2016-04-13T10:30:00.000-04:00

A lack of transparency surrounding the process by which federal regulators assess the “living wills” submitted by the nation’s largest banks could undermine public and market trust in the resolution plans and limit accountability on the part of regulators, the Government Accountability Office said in a report recently released.

Under the Dodd-Frank Act, banks with over $50 billion in assets are required to submit plans for resolution under bankruptcy. However, the report highlighted the fact that the agencies have never publicly disclosed their frameworks for assessing those plans, or their criteria for reductions in small company plan requirements. The GAO said that by not disclosing this information, companies lack information they could use to assess and enhance their frameworks, and recommended that regulators make that information public in the future.

The report also questioned the feasibility of the annual reporting requirement — on average, the GAO found that regulators took 9 months to complete their reviews, leaving little time for companies to revise their plans before re-submitting.

The study was called for by House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who has previously raised concerns over the lack of transparency among regulators. Hensarling said:

[S]ecrecy and lack of accountability can lead to abuse by Washington regulators and is a tool for them to potentially exercise de facto management authority over major financial institutions. Once again we’re seeing the uncertainty created by Dodd-Frank and its regulatory burden that impedes economic growth and makes it more difficult for working Americans to achieve financial independence.

View the report.

Banker Op-Ed: Candidates Should Work for Bipartisan Reg Relief

2016-03-08T11:15:00.000-05:00

In an op-ed in the Orlando Sentinel this weekend, Florida Bankers Association president and CEO Alex Sanchez called on political candidates to work for bipartisan regulatory relief that would build up regional and small banks, rather than focusing on the destruction of large institutions they consider “too big to fail.”

Sanchez wrote:

Instead of highlighting the fundamental role the banking industry plays in strengthening the economy, it is often used as a scapegoat to deflect blame for politicians’ failed economic policies. The Florida Bankers Association… supports reasonable regulation, recognizing its importance as a cornerstone in maintaining the strongest banking industry in the world. But we adamantly oppose the dismantling of the nation’s “big banks.”

Sanchez pointed to the numerous regulatory measures that have been implemented as a result of Dodd-Frank to ensure that large banks can absorb financial shocks without needing taxpayer bailouts, including stress testing, more stringent capital and liquidity requirements and the creation of “living wills,” which outline a plan for an institution to be resolved in the event of a failure. Breaking up these banks would negatively impact the economy – driving jobs overseas and business to foreign competitors, Sanchez argued. Instead, politicians should focus their attention on making sure that small and regional institutions can thrive.

Sanchez added:

Rather than engaging in the art of politics for gain on the campaign trail, presidential candidates should join many bipartisan members of Congress in promoting meaningful Dodd-Frank regulatory reform for community and regional banks.

Read the op-ed.

Federal Reserve Approves Final Emergency Lending Rule

2015-11-30T11:20:00.000-05:00

The Federal Reserve approved a final rule specifying its procedures for emergency lending under the Federal Reserve Act. The final rule clarifies the definition for "broad-based eligibility" and broadens the definition of insolvency. Furthermore, the rule requires the interest rate for emergency lending credit to be set at a premium to encourage repayment and discourage use of the program as circumstances normalize.

Chair Janet L. Yellen said:

Emergency lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressures in financial markets that would otherwise have severe adverse consequences for households, businesses, and the U.S. economy.

Since the passage of the Dodd-Frank Act, the Board's authority to engage in emergency lending has been limited to programs and facilities with "broad-based eligibility" established with the approval of the Secretary of the Treasury. The rule provides greater clarity regarding the Board's implementation of these requirements.

The final rule will take effect January 1, 2016.

Read more.

Agencies Post Living Wills for Largest Banks

2015-07-07T10:35:00.000-04:00

The Federal Reserve and FDIC posted online the public sections of resolution plans for 12 large, internationally active banks. This round of resolution plans — submitted by July 1 — includes firms with more than $100 billion in U.S. nonbank assets.

The agencies will review the public and confidential sections of the plans, which detail how the banks would resolve themselves in the event of major financial distress, and will issue comments on the plans.

View the public sections of the plans.

GAO Evaluates Bankruptcy Code for Financial Institutions

2015-03-20T10:48:00.001-04:00

The U.S. Bankruptcy Code chapters dealing with the liquidation or reorganization of a financial company have not been changed since GAO last reported on financial company bankruptcies in July 2013, the GAO reported in its assessment of financial company bankruptcies. However, several bills introduced in the previous Congress would, if reintroduced, make broad changes to the Code, relative to financial company bankruptcies.

The Financial Institution Bankruptcy Act of 2014 (H.R. 5421) and Taxpayer Protection and Responsible Resolution Act (S.1861) would have expanded the powers of the Federal Reserve and the FDIC and would have imposed a temporary stay on financial derivatives that are exempt from the automatic stay under the Code. That stay would prohibit a creditor from seizing or taking other action to collect what the creditor is owed under the financial derivative. Furthermore, the bills would have added processes for the resolution for large, complex financial institutions, similar to provisions currently in the Orderly Liquidation Authority in the Dodd-Frank Act, which grants FDIC the authority to resolve failed systemically important financial institutions under its receivership.

The 21st Century Glass-Steagall Act of 2013 — a bill introduced in the House of Representatives (H.R. 3711) and the Senate (S. 1282) — would have repealed safe-harbor provisions that allow most counterparties in a qualifying transaction with the debtor to exercise certain contractual rights even if doing so would otherwise violate the automatic stay.

As of March 12, 2015, these legislative proposals had not been re-introduced in Congress.

The Dodd-Frank Act mandates that the GAO report on ways to make the U.S. Bankruptcy Code more effective in resolving certain failed financial companies. This report addresses recent changes to the U.S. Bankruptcy Code and efforts to improve cross-border coordination to facilitate the liquidation or reorganization of failed large financial companies under bankruptcy.

Read the report.

New Report Highlights 2015 Regulator Expectations

2015-01-21T10:31:00.002-05:00

In 2015, regulators will expect banks to step up standards for governance, consumer protection compliance, third-party risk management, cybersecurity, credit quality and anti-money laundering compliance, according to a new report from Deloitte. The report also said that the Volcker Rule, liquidity requirements and resolution planning will be high on supervisors’ priorities for larger banks.

In addition to effective compliance management systems, regulators will also expect “a ‘compliant’ tone coming from top leadership,” Deloitte said.

Regulatory compliance is ultimately about protecting the reputation of the organization and its management, both in the eyes of the regulators and the public whom the organization serves.”

Regulators are expressing concern about loosening credit underwriting standards, Deloitte added, noting that “[r]egulators are increasingly likely to issue critical comments based on their discomfort with a firm’s underwriting practices.”

Read the report.

Bipartisan Policy Center Argues Against Big Bank Breakup

2014-10-28T10:04:00.000-04:00

The Bipartisan Policy Center’s Financial Regulatory Reform Initiative wrote a paper assessing the costs and benefits of breaking up the big banks. The paper concludes that:

“[T]he reforms undertaken since the financial crisis have gone a long way toward addressing the TBTF issue. Proposals to break up major financial institutions entail greater costs than the benefits they would provide and are potentially outright counterproductive.”

Rather than break up the big banks, the Bipartisan Policy Center finds that it would be better to allow the Dodd-Frank Act and other global reforms enacted in the wake of the financial crisis to work as intended.

The paper points out several ways recent regulations have addressed the TBTF issue:

The new legal authority created by Dodd-Frank to resolve a large, complex institution has lessened market expectations of future government rescues, reducing the cost-of-funding advantage
The enhanced prudential requirements placed on large banks, like higher capital requirements and annual stress tests, further reduces the funding advantage
Dodd-Frank permits regulators to restrict activities of financial institutions they deem to pose a “grave threat” to the U.S. financial system
Dodd-Frank caps the size of large banks at 10% of total U.S. consolidated financial liabilities

The paper also points out that breaking up the big banks would reduce the value they provide the economy, businesses and consumers. Large global financial institutions benefit consumers and business by facilitating international trade, spreading socially beneficial innovations and promoting economic growth.

Furthermore, the paper notes that a breakup presents difficulties, such as how to divide the company’s assets, debts and customers among its successor institutions, and how the breakup would disrupt existing customer relationships.

Finally, the Bipartisan Policy Center finds that there is little reason to believe that breaking up the largest institutions would reduce the risk in the financial system over the long-term. If a large, $2 trillion bank were broken up, it is likely the breakup would result in several $400 billion to $500 billion banks, not multiple small, easy-to-resolve banks. In fact, creating more banks just under the threshold for a breakup could be riskier for the economy, not safer.

Read the paper.

New Infographic Illustrates Regulatory ‘Avalanche’

2014-07-23T08:23:00.000-04:00

ABA is sending to members of Congress a new infographic documenting the enormous cumulative weight of new and existing regulations on community banks. The graphic shows that Call Report items have more than tripled since 1990, that the majority of small banks have a sole compliance officer to wade through several-hundred-page rules and that reg burden has helped drive community bank consolidation.

The avalanche of regulatory activities in recent years has included mortgage rules, Basel III, liquidity proposals, the Durbin Amendment, municipal adviser registration, derivatives and remittances. The graphic also shows the cost to consumers of heavy burdens, with 58% of banks canceling or holding off on a new product because of increased regulation and 44% limiting current products or services in order to comply.

View the infographic.

ABA Keating Assesses Dodd-Frank on Anniversary

2014-07-22T09:59:00.001-04:00

In connection with the fourth anniversary of the Dodd-Frank Act yesterday, ABA President and CEO Frank Keating made several media appearances. The bill is a mixed bag, he noted on Bloomberg’s “Bottom Line” program.

“There are some good things in the law,” he noted -- for example, “it says that no institution is too big to fail” and provides “a mechanism to ensure that’s the case.” It also furnishes a mechanism for regulation of systemically significant nonbanks, he pointed out.

However, Keating added, the CFPB needs more oversight, and mortgage rules based on Dodd-Frank are hindering the housing market. “I hope both Republicans and Democrats go back to the drawing board and amend those things that harm us as an economy and leave in those things that save us from reckless lending and the collapse of a big institution.”

Watch the Bloomberg interview.

House GOP, Dems Evaluate Dodd-Frank on Anniversary

2014-07-22T09:57:00.000-04:00

Democrats on the Financial Services Committee have released a report defending the progress of the Dodd-Frank Act, arguing that the bill reduced the risk of bailouts by providing regulators with tools to address systemic threats.

Meanwhile, Republicans on the House Financial Services Committee released a report finding that the regulatory structure created by the Dodd-Frank Act does not sufficiently address the problem of too-big-to-fail financial institutions. The report argued that the orderly liquidation authority created by Title II of Dodd-Frank is untested and continues to leave taxpayers exposed to the costs of winding down a failing firm.

While ABA has opposed several major Dodd-Frank provisions and its overall regulatory burden, ABA and its member banks of all sizes share the law’s goal of ending too big to fail. They support policies that ensure taxpayers do not shoulder the burden when a large financial firm must be wound down.

Read the Democrats’ report.
Read the Republicans’ report.

Morrison & Foerster Report: Dodd Frank Act at 4

2014-07-21T10:13:00.000-04:00

Morrison & Foerster released a publication to mark the four-year anniversary of the enactment of the Dodd-Frank Act: Dodd-Frank at 4: Where do we go from here? The report provides a brief summary of the “most significant Dodd-Frank Act related regulatory developments of the last year” and additional thoughts on what is left to implement. The regulatory developments the report focuses on include: regulatory capital requirements, the Volcker rule, enhanced prudential standards, derivatives developments and more.

Read the full report by Morrison & Foerster.