Regulatory Relief for Community Banks: The Economic Growth, Regulatory Relief and Consumer Protection Act
By J. Marc Ward
On May 24, President Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act, which received bipartisan support in both the House and the Senate earlier this year. The legislation reforms the Dodd-Frank Act and provides significant regulatory relief for smaller banks, community banks and credit unions.
The legislation is one of the most significant rewrites of financial industry rules in almost a decade. The Dodd-Frank Act was passed in 2010 in response to the financial crisis. It aimed to prevent another market meltdown by increasing regulatory oversight and decreasing risks throughout the financial system. The Economic Growth, Regulatory Relief and Consumer Protection Act, signed into law on Thursday, May 24, seeks to evolve and streamline some of those regulations.
The legislation has many benefits to community banks, including relief from burdensome regulations intended for much larger financial institutions. Some of the key regulatory changes include:
- The threshold at which banks are subject to certain federal oversight is raised from $50 billion to $250 billion. Some opponents of the bill argue that this threshold is too high and instead should have been somewhere around $125 billion.
- Community bank capital requirements are simplified by establishing a Community Bank Leverage Ratio of between 8-10 percent. The Community Bank Leverage Ratio is equal to the tangible equity capital to the average total consolidated assets. Banks that meet this ratio will generally meet risk-based capital and leverage requirements.
- Certain mortgages held by lenders with $10 billion and under are deemed “qualified mortgages,” allowing small banks and credit unions to expand the types of mortgages offered.
- Banks that originate 1,000 or fewer first lien mortgages on principal dwellings are exempted from escrow requirements.
- The threshold at which mortgage lenders need to collect data on items such as race, ethnicity and credit score of their borrowers under the Home Mortgage Disclosure Act is raised such that banks that originate fewer than 500 close-end mortgage loans or fewer than 500 open-end lines of credit are exempt from reporting requirements.
- Rural mortgage portfolio loans of less than $400,000 are exempted if unable to find a state certified appraiser to perform an appraisal in a timely manner.
- Reporting requirements for the first and third quarter call reports will be reduced for banks that meet certain criteria.
Proponents argue the regulatory reforms will help community banks flourish and help revitalize rural economies by allowing banks to focus less on regulatory compliance and more on lending. Many community bankers consider this legislation to be a victory for community banks across the country.