President-elect Donald Trump and various other political figures have pledged at various times in recent months to “repeal” the Dodd Frank Act. As the time has drawn closer for Mr. Trump to take office, calls to “repeal” Dodd Frank have commonly given way to calls for repealing parts of Dodd Frank via a “rollback.”
When identifying Dodd Frank provisions that should be repealed or significantly overhauled, proponents of a Dodd Frank rollback commonly cite the Act’s provisions implementing the following:
- Capital requirements,
- Consumer lending compliance burdens,
- Structure of the Consumer Financial Protection Bureau,
- “Durbin Amendment” debit card fee restrictions, and
- Any provisions that are unduly burdensome on community banks.
Of course, any wish list of Dodd Frank provisions to repeal – and any acknowledgement of provisions that should be kept in place – will vary depending on the source.
This raises the questions: Which Dodd Frank provisions might the banking industry want to retain, and are there any provisions in Dodd Frank that are actually considered to be beneficial to the banking industry?
The following is a list of Dodd Frank Act provisions — several of which have gotten very little attention — that at least some bankers or banking trade groups may consider to be positive improvements in the banking law:
- Interstate bank branching. Dodd Frank deleted a longstanding prohibition on any state or national bank from entering a new state by establishing a branch in that state, if the state had enacted a law prohibiting such a branch. With this provision, Dodd Frank opened up the ability of banks to cross state lines with fewer regulatory hurdles.
- Interest payments on business checking accounts. Dodd Frank also terminated the federal banking law provision that prohibited any bank from paying interest on business checking accounts. One of the original reasons for this prohibition had been to protect banks from competing against each other by offering high interest rates to attract deposits. Some observers have indicated a fear that the removal of this interest-payment prohibition might lead to such competition, but others see it as resulting in one less restriction on how banks do business.
- $250,000 FDIC insurance per accountholder. The FDIC had temporarily increased the standard deposit insurance amount from $100,000 to $250,000 before Dodd Frank was adopted. Dodd Frank made the change permanent by statute. Many bankers saw this as an update needed to keep pace with economic changes and typical customer account protection needs. However, some banking pundits have expressed concerns that this deposit insurance increase will add to the “moral hazard” of banks and their customers relying on the deposit insurance coverage for protection, rather than making sure that the bank holding the funds provides that protection through safe and sound business practices.
- Assessment rate changes. Dodd Frank revised the formula for calculation of assessments that banks are required to pay for FDIC insurance. These revisions generally put less of the burden on small banks and more of the burden on the largest banks. Accordingly, many community bankers have been in favor of these changes. Large banks, of course, may see the matter differently.
Some banking organizations may also be reluctant to advocate certain changes to Dodd Frank based on the fact that those organizations have already made major investments in time and money to achieve compliance with Dodd Frank as adopted in 2010. They may fear that new legislative changes would cause additional expense to achieve compliance with new standards. This reluctance is likely to vary based on the changes in question and the impact on the specific banking organization.
Please check this blog periodically for further updates on legislative and executive branch efforts aimed at a Dodd Frank rollback. The financial world may soon be entering a season of change.
Greg Omer advises banking and financial services organizations on regulatory and corporate issues. He is a former bank and financial services regulator and speaks regularly to financial industry groups on regulatory issues.