On May 24, 2018, the President signed Public Law 115-174, the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” which includes some revisions to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), but not its wholesale repeal. The Law addresses such diverse areas as revised bank systemic risk standards, easing of certain regulations in the case of community banks, and added consumer protections.
Some highlights of the new Law
- One of the most publicized provisions is the change in the statutory threshold of what bank holding companies are deemed to be of systemic risk. The threshold is increased from $50 billion of total consolidated assets to $250 billion of total consolidated assets, thus narrowing the field of those bank holding companies subject to enhanced prudential standards such as risk management, liquidity and stress testing requirements. However, the Federal Reserve Board retains the ability to impose any of those enhanced prudential standards on bank holding companies with more than $100 billion if it believes that it is necessary for U.S. financial stability or safety and soundness.
- In addition, the threshold for publicly traded bank holding companies to maintain risk committees is raised from $10 billion to $50 billion. The Federal Reserve Board can require that a publicly traded bank holding company with assets of less than $50 billion do so if it deems it necessary or appropriate to promote sound risk management practices.
- The threshold for mandatory company-run stress tests is raised to $250 billion from $10 billion and the time period to perform them changed from annually to “periodic.”
- Any bank holding company deemed to be a “global systemically important” bank holding company under Federal Reserve Board regulations will be deemed to meet the new $250 billion threshold for enhanced prudential requirements regardless of its actual total consolidated assets.
- All these threshold increases will not change the current enhanced prudential standards regulations applicable to foreign banking organizations with assets of at least $100 billion with banking operations in the United States, nor limit the ability under current regulations of the Federal Reserve Board to require the foreign banking organization to establish an intermediate holding company.
Other regulatory relief
- Under the law, the Federal banking agencies are to develop a “Community Bank Leverage Ratio” which is a ratio of a bank’s core capital (primarily common equity) to total consolidated assets, of 8-10%. A bank that meets the definition of a community bank (a bank with total consolidated assets of less than $10 billion) and exceeds the Community Bank Leverage Ratio generally will be considered as having met regulatory risk-based and leverage capital requirements set out in the capital regulations issued by the Federal banking agencies.
- The Volcker Rule, which prohibits banking entities from engaging in proprietary trading and sponsoring or investing in hedge funds or private equity funds, is amended by excluding from the Volcker Rule a banking entity that does not have (or is controlled by a company that does not have) more than $10 billion in total consolidated assets and does not have total trading assets and liabilities that are more than five percent of total consolidated assets.
- The Volcker Rule also is amended by lifting the prohibition on a banking entity organizing or offering a hedge fund or private equity fund using the name of the banking entity in the name of the fund by allowing the fund to have the same name or variation of the same name as an investment adviser to the fund, provided the name does not include the word “bank” and the investment adviser is not an insured depository institution or a foreign bank with U.S. banking operations.
- The requirements for banking organizations to maintain a certain level of liquidity (the liquidity cover ratio) are revised to allow municipal obligations to be used to satisfy a portion of those requirements. Our blog post on regulations issued by the Federal Reserve Board to allow banking organizations under its jurisdiction to use municipal obligations to meet a portion of their liquidity requirements is available here.
- The Law amends the exclusion from definition as an investment company for issuers with not more than 100 persons, to increase that number to not more than 250 persons in the case of certain “qualifying venture capital funds” – defined as a venture capital fund with a maximum of $10 billion in aggregate capital contributions and uncalled committed capital.
- The Law requires the U.S. Social Security Administration to develop a database that financial institutions can utilize as a method of confirming an individual’s name, social security number and date of birth in connection with a credit transaction and certain other situations. Such checks could be made only with the consumer’s consent, and financial institutions would have to pay a user fee to access the database, the costs of which must be fully covered by the participating financial institutions.
- Under the new Law, co-signers of private education loans will be discharged should the student obligor die. In addition, should a co-signer on such a loan die, the lender cannot automatically declare the loan in default or accelerate the debt.
- Consumers will be able to extend a fraud alert on their consumer credit report to one year from 90 days and request a security freeze on their consumer credit reports free of charge that would prevent a consumer reporting agency from disclosing information in the report, subject to certain exceptions. There are additional consumer credit report protections for veterans.
- The Government Accountability Office (GAO) is required to conduct a study and issue a report on consumer reporting agencies, to include a review of: (i) the current legal and regulatory structure of these agencies and whether there are any gaps in regulation or supervision, (ii) the error resolution process and (iii) the security of consumer data maintained by the agencies.
- If an individual applies online for a financial product or to open an account, a financial institution may accept a scan or copy or other image of the customer’s identification documentation (such as a driver’s license) and record and use that copy to verify the identification of the individual or the authenticity of the documentation.
A complete summary of the entire Law prepared by the Congressional Research Service is available here.