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From Banking and Finance Law Daily, May 13, 2015

Banking bill inspires varying confidence in reform, fear of rollbacks

By Colleen M. Svelnis, J.D.

Industry and congressional responses have come in since Senate Banking Committee Chairman Richard Shelby (R-Ala) released a discussion draft of his banking reform legislation that is scheduled to be marked up in the Banking Committee next week. The Financial Regulatory Improvement Act of 2015 aims to ease restrictions on mortgage credit, reduce the examination and supervision burdens on smaller institutions, tighten up the Financial Stability Oversight Council’s process for designating systemically important financial institutions, and make technical corrections to the Dodd-Frank Act.

The draft legislation would also raise the threshold for close supervision of banks from $50 billion to $500 billion and initiate an inquiry into reorganizing the Federal Reserve System (see Banking and Finance Law Daily, May 12, 2015).

Praise for leadership efforts. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) released a statement in favor of the legislation, saying “it’s encouraging to finally see leadership in the Senate.” Hensarling said the draft bill “includes several bipartisan provisions similar to bills the House has previously supported. Those of us in the House who are fighting for a healthier economy that helps Americans achieve financial independence strongly support regulatory relief for America’s community financial institutions and commend Senator Shelby’s leadership.”

Richard Hunt, President and CEO of the Consumer Bankers Association, said that the discussion draft “appropriately addresses the repercussions of the ‘one-size-fits-all’ framework implemented by the Wall Street Reform and Consumer Protection Act. We appreciate the Chairman’s thoughtful approach to regulatory relief for U.S. financial institutions and, given the bipartisan support for a number of these provisions in the past, hope Republicans and Democrats can work together in the coming days to advance these reforms.”

Help for regional banks. The legislation “would make important adjustments to the nation’s financial regulatory regime to preserve safety and soundness, improve the economy, and enhance regulators’ ability to address those financial institutions that pose the greatest risk to the economy,” said William Moore, the Executive Director of the Regional Bank Coalition. “If this bill passes, regional banks that are currently spending hundreds of millions of dollars every year to comply with rules that do nothing to preserve safety and soundness would instead be able to devote that money to improving the economy through loans to families and small businesses in communities across the country.”

Regulatory relief for community banks. The American Bankers Association released a statement by Frank Keating, the organization’s president and CEO, highlighting several measures “that will make it easier for these local institutions to serve their customers and communities. ABA, our member banks and state associations have long sought regulatory relief for community-based institutions.”

According to Independent Community Bankers of America President and CEO Camden R. Fine, “ICBA strongly supports provisions of Chairman Shelby’s draft legislation that would make common-sense reforms to community bank regulations to benefit local communities. The draft bill includes several important regulatory relief provisions from ICBA’s Plan for Prosperity platform, including less restrictive mortgage regulations, relief from excessive regulatory examinations and quarterly reporting requirements, and an exemption from the Volcker Rule.”

Opposition. However, the response is not all positive. Bartlett Naylor, Financial Policy Advocate for Public Citizen, expressed concern that the changes would undermine the Wall Street reforms instituted after the financial crisis. “Removing safeguards that now apply constitutes a gamble that the nation can ill afford to lose,” he said. Naylor also said that the removal of the Volcker rule prohibition on “gambling with taxpayer-backed FDIC deposits” for any bank with less than $10 billion in assets was “an invitation for hedge funds to obtain a bank charter.”

“This is nothing more than a thinly veiled and cynical attempt to gut Wall Street reforms under the radar,” he said.

National Community Reinvestment Coalition President and CEO John Taylor stated that the draft “represents regulatory regression,” saying it “would strip away key consumer safeguards and sensible protections put in place to prevent another financial crisis.” Taylor said that “the bill would also require annual increases in the fees Fannie Mae and Freddie Mac charge to guarantee the timely payment of principal and interest for investors in the Enterprises' mortgage-backed securities. This would constrict access to credit and increase costs for many creditworthy borrowers, pushing homeownership further out of the reach of working families.”

A statement issued by Americans for Financial Reform briefly noted that from its preliminary review “it is clear that this legislation would constitute a major rollback of financial reform.” Citing examples where it says the bill would weaken reforms, AFR said the draft legislation “puts the wish list of the financial sector above protecting the stability of the US economy, and the safety of mortgage markets and of homebuyers.”

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