Economic Growth, Regulatory Relief, and Consumer Protection Act Signed into Law

Senate Bill 2155 was passed by the House of Representatives on May 22 with bipartisan support and signed into law by the President on May 24.  The new law rolls back many provisions of Dodd-Frank and amends certain banking rules passed in accordance with Basel III.  It provides regulatory relief to small and mid-sized banks and repeals some of the more stringent regulations placed on these banks.

Titles of the new law are Improving Consumer Access to Mortgage Credit; Regulatory Relief and Protecting Consumer Access to Credit; Protections for Veterans, Consumers and Homeowners; Tailoring Regulations for Certain Bank Holding Companies; Encouraging Capital Formation and Protections for Student Borrowers.  A few key provisions of this extensive new law include:

  • For community banks with consolidated assets of less than $10 billion, the law simplifies capital requirements. The law requires that federal banking agencies establish an equity to average total asset ratio of between eight and ten percent for these community banks.  If they comply with this community bank leverage ratio, smaller banks will be considered in compliance with capital and leverage requirements.
  • Federal banking agencies are required to reduce reporting requirements for banks with below $5 billion in consolidated assets.
  • The law includes the Clarifying Commercial Loans Act passed by the House of Representatives in November. This measure clarifies which acquisition, development and construction loans are considered High Volatility Commercial Real Estate and assigned a heightened risk weight of 150% instead of 100%.   The law characterizes which loans are subject to the new higher risk weight rules and when a loan is exempt from these rules.  
  • The law raises the asset threshold for applying heightened prudential standards to bank holding companies from $50 billion to $250 billion. Banks that fall below this raised asset level will be exempt from an annual stress test.  For banks that fall between $50 billion and $100 billion in assets, the exemption from these enhanced standards applies immediately, while larger banks are exempt eighteen months after enactment. The law reserves the right of the Federal Reserve to apply the increase prudential standards to banks between $100 billion and $250 billion in assets on a case by case basis.

For a more detailed analysis of the new law, the Congressional Research Service provides an in-depth report.