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May 22, 2018

The U.S. House of Representatives voted 258-159 to pass the “Economic Growth, Regulatory Relief and Consumer Protection (CP) Act,” which is a significant pro-growth financial regulatory reform package. The leadership of the House is being hailed as instrumental in achieving this historic bipartisan achievement. The bill reduces regulatory requirements—including stress testing, capital, and liquidity requirements—for some banks while raising the asset threshold at which larger banks face stricter rules.

The bill requires the appropriate federal banking agencies to exclude, for calculating a custodial bank's supplementary leverage ratio, funds of a custodial bank that are deposited with a central bank. (Supplementary leverage ratio is a capital adequacy measure that refers to the ratio of a banking organization's tier-one capital to its leverage exposure.) The amount of such funds may not exceed the total value of deposits of the custodial bank linked to fiduciary or custodial and safekeeping accounts. The bill amends the Financial Stability Act of 2010, with respect to nonbank financial companies supervised by the FED and certain bank holding companies, to increase the asset threshold:

  • At which certain enhanced prudential standards shall apply, from USD 50 billion to USD 250 billion, while allowing FED the discretion in determining whether a financial institution with assets equal or greater than USD 100 billion must be subject to such standards
  • At which company-run stress tests are required, from USD 10 billion to USD 250 billion 
  • For mandatory risk committees, from USD 10 billion to USD 50 billion

The bill states that the federal banking agencies must develop a specified Community Bank Leverage Ratio (the ratio of a bank's equity capital to its consolidated assets) for banks with assets of less than USD 10 billion. Such banks that exceed this ratio shall be deemed to be in compliance with all other capital and leverage requirements. Additionally, the bill amends the Bank Holding Company Act of 1956 to exempt, from the "Volcker Rule," banks with total assets valued at less than USD 10 billion and trading assets and liabilities comprising not more than 5% of total assets. This bill also amends the Truth in Lending Act (TILA) to allow a depository institution or credit union with assets below a specified threshold to forgo certain ability-to-pay requirements regarding residential mortgage loans.

 

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Keywords: Americas, US, Banking, Dodd Frank Act, Bipartisan Banking Bill, Proportionality, Regulatory Relief, US House of Representatives

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