The Financial Regulatory Improvement Act of 2015, introduced last week by Senate Banking Committee Chairman Richard Shelby (R-Alabama) is aimed at providing regulatory relief for community and regional banks and credit unions, and proposes what Shelby calls “moderate” changes that would increase the transparency of theFederal Reserve.
The bill is meant to provide some regulatory relief and reduce the cost of compliance for small and regional financial institutions. Shelby contended in his opening statement that the law currently seeks to mitigate risk by implementing more regulation; the goal, he said, is less risk and therefore should require less government intervention.
One provision of the bill prohibits increases in guarantee fees charged by Fannie Mae and Freddie Mac to offset losses or reductions in revenue, or for any other purpose besides business functions for the GSEs or housing finance reform. The bill also prohibits the sale of Treasury-owned senior preferred shares in the GSEs without approval from Congress.
The contentious issue of what defines a financial institution as “systemically important” is addressed in the bill.
“Title 2 addresses the growing consensus that the mandatory $50 billion asset threshold contained in current law is not only arbitrary, it is a blunt instrument that acts as a substitute for more sophisticated and thoughtful supervision,” Shelby said. “The total assets held by a bank are an important factor, but not the only factor that should be considered when determining whether a bank poses a risk to the entire financial system. Contrary to a number of public statements, Title 2 does not ‘move’ the $50B threshold. It actually preserves the $50 billion threshold and merely changes the process by which a bank is designated as systemically important. Our regulators know far more now than they knew five years ago about what makes an institution risky. Size is only one factor and it is not necessarily dispositive. Therefore, it is appropriate to apply that knowledge to the law.”
The bill has been the subject of much debate in recent weeks between the Republicans and the Democrats on the Senate Banking Committee, with Democrats claiming the bill undermines the Dodd-Frank Act and may pave the way for future amendments to the controversial Wall Street reform and consumer protection act.
The Democrats on the Committee offered a substitute bill for the Financial Regulatory Improvement Act, but it was voted down by a partisan vote of 12-10. Both parties indicated that they would continue negotiations for the bill during the summer, according to reports.
“I am pleased the banking committee has taken the first step in reforming our financial system and reducing the overwhelming regulatory burden facing community banks today,” said Senator Bob Corker (R-Tennessee), a member of the Committee. “It is my hope that we will reach a bipartisan consensus before this legislation is considered by the full Senate that will give hardworking Americans access to credit while protecting taxpayers from another financial crisis, and I stand ready to work with colleagues on both sides of the aisle who are willing to make modifications that will produce a bill that can be signed into law.”
Click here to see Shelby’s opening statement about the bill. Click here to see the reactions of a number of stakeholders at the Senate Banking Committee’s vote to pass the bill. For a section-by-section summary of the bill, click here. For the full text of the bill, click here. To view an archived webcast of Thursday’s hearing about the bill, click here.