Relaxed Bank Rules Could Be A Bust

RBS says customers could be charged negative interest rates if the Base Rate dips below zero

A long-awaited change regarding which banks are designated as “too big to fail” finally could become reality this week. And it’s about time.

Two years in the making, Rep. Blaine Luetkemeyer’s bill to raise the minimum asset level under which a bank is considered “systemically important” is likely to be voted on in committee Tuesday night and possibly head to the floor for a full House vote Wednesday.

Essentially, the measure is aimed at getting community and regional banks regulatory relief. The Dodd-Frank reforms that came about from the financial crisis from 2008 put the level for intensified regulation at $50 billion in assets, a metric that Republicans and small-bank advocates say is too low, and which therefore places too many smaller banks under the same level of scrutiny as the Wall Street giants.

The Luetkemeyer measure strips that provision from Dodd-Frank and replaces it with “shall be deemed to have been the subject of a final determination” under the act. The level is likely to come up considerably from there, with some banking experts suggesting a number around $125 billion, though that ultimately would be determined through individual reviews.

“Assessing an institution through various factors, as opposed to asset size only, will allow for a more comprehensive assessment of risk to the overall financial system,” Tim Pawlenty, CEO of the Financial Services Roundtable industry advocacy group, said in a letter to the Financial Services Committee. The bill “advances that goal and will lead to more effective regulations while also allowing financial institutions to help grow the economy and serve both consumers and businesses better.”

Just 35 of 6,500 U.S. banks currently fit over the $50 billion tier, and Dodd-Frank says those banks are subject to “enhanced supervision and prudential standards,” though regulators have discretion about how those measures are applied. Another tier, above $250 billion, applies an “advanced approach” to regulation, with the top 10 U.S. banks being subject to that level.

The attempt to help smaller banks has been floating around Congress since at least 2014, but has stalled each time. With momentum building to make some common-sense alterations to Dodd-Frank, especially in light of Donald Trump’s victory in the presidential election, the time could be right for the bill to pass. Only time will tell if the move is a boon, or a bust.