European Parliament published a report that provides a concise overview of the Dodd-Frank Act, the challenges of its implementation, and efforts to roll back the Act, in large part due to what are viewed to be vague and impractical provisions. The report highlights that, from the beginning, many critics considered the Dodd-Frank Act to be unwieldy, unnecessarily restrictive, costly, and impractical to implement. Rulemaking and implementation of the provisions of this Act has not proceeded smoothly.
This report, which was provided by Policy Department A at the request of the ECON Committee, provides a synopsis of key provisions of the Dodd-Frank Act, from its enactment in July 2010 through recent developments as of 24 October 2018. The report first introduces the purpose of each key provision and the general terms of the Act’s required oversight, rules, and regulations to attain the intended goal of each provision. From this foundation, it then moves on to discuss the rulemaking efforts of the regulatory agencies and other bodies in their attempts to define and implement rules to satisfy these provisions. Finally, the report addresses the challenges of such implementation efforts and the rollback efforts of the current U.S. White House administration:
- The new Financial Stability Oversight Council created rules designating nonbank financial companies as "too big to fail," which have been challenged as burdensome and counter-productive. Of the four companies so designated, all such designations have been rescinded. The U.S. House has passed a bill, which is in the U.S. Senate, that would eliminate such designations—and, therefore, rules following from such designations—from the Dodd-Frank Act altogether. As of October 24, 2018, zero nonbanks were designated as systemically important financial institutions.
- The Volcker Rule, which is also a part of this Act, took years to arrive at implementation and has faced criticism due to its ambiguity. Continued update proposals, comments, and responses have delayed its implementation. Certain provisions were recently rolled back under the Trump administration. With five regulatory agencies responsible for rulemaking and implementation, the Volcker Rule is viewed by critics as unwieldy and impractical.
- Financial institution stress testing requirements, which include the Dodd-Frank Act Stress Tests (DFAST) and the U.S. Comprehensive Capital Analysis and Review (CCAR), have evolved since first implemented under the Dodd-Frank Act but have not changed significantly. The asset size of institutions that are required to comply with these tests, however, has recently increased from USD 50 billion to USD 250 billion, providing regulatory relief for many small and medium banks.
- The U.S. supervision of Foreign Banking Organizations was enhanced in 2016/2017. Recently, a bill was passed that would reduce the number of foreign banks required to comply with these standards by raising the threshold of total global consolidated assets from USD 50 billion to USD 250 billion.
- Following from the Dodd-Frank Act stress test regulations, the U.S. FASB proposed updates to computing loan-loss provisions in the Current Expected Credit Losses (CECL) framework. These updates will impact the credit loss provisions in the stress testing requirements under Section 165 of the Dodd-Frank Act and have been accepted by the FED with full adoption expected in 2020.
Related Link: Report (PDF)
Keywords: Europe, Americas, US, EU, Banking, Dodd Frank Act, Volcker Rule, Stress Testing, CECL, FED, European Parliament
Previous ArticleEIOPA Publishes Report on Use of Capital Add-Ons Under Solvency II
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.