Dodd-Frank rollback: What you need to know

By CongressFOXBusiness

Dodd-Frank GOP bill will untie regulations on smaller banks: Rep. Barry Loudermilk

Georgia Congressman Barry Loudermilk (R) says the Dodd-Frank GOP overhaul bill will roll back regulations for smaller banks.

Members of Congress are working to ease some of the financial restrictions put in place under the Obama administration in the wake of the 2008 financial crisis.

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The Senate passed a bill on Wednesday that would roll back some of the provisions of the 2010 Dodd-Frank banking law. Of the 67 votes in favor of the rollback, 17 came from Democratic senators. House Financial Services Committee chair Rep. Jeb Hensarling, R-Texas, said on Thursday that members of the House have said they will not pass the bill in its current form, but will instead work on their own version to reconcile with what senators have already suggested.

Dodd-Frank was enacted to protect investors from another financial crisis. Here’s what members of Congress are looking to alter:

‘Too big to fail’

As the law currently stands, banks with assets in excess of $50 billion are deemed as being potentially “too big to fail,” and are therefore subject to a host of rigorous testing and regulation. That includes annual stress tests.

Some have argued the $50 billion threshold is too low and hits medium-sized financial institutions as well as community lenders, hindering their ability to both loan and grow.

The Senate bill seeks to raise the “too big to fail” threshold to $250 billion, which means institutions such as American Express and Barclays could be exempt from the regulation.

Federal Reserve Chair Jerome Powell said during congressional testimony last month that he did not believe any banks were still too big to fail.

Volcker Rule

The Senate bill also aims to eliminate Volcker Rule requirements on banks with assets under $10 billion. The Volcker Rule prohibits banks from making risky investments with their own money.

After its implementation, financial institutions were forced to overhaul their trading operations.

Fed officials have said that banks, particularly those with smaller trading desks, spend too much time interpreting and trying to follow this rule.

Mortgage lending

The Senate is also seeking to give small banks a reprieve from mortgage lending rules that require banks to disclose detailed information on whom they are lending to.

Banks originating less than 500 loans each year would no longer have to report racial data, including the race and ethnicity of their borrowers.

Smaller banks with less than $10 billion in assets would not be required to follow the underwriting standards set forth under Dodd-Frank, which aimed to ensure institutions were not loaning to people who were likely to default.

Credit freezes

In the wake of a slew of massive hacks in recent years, notably the Equifax cyberattack that exposed the sensitive information of more than 147 million Americans, Congress is seeking to require the three major credit agencies – Equifax, TransUnion and Experian – to freeze and unfreeze consumers’ credit reports for free.

What’s next

Rep. Hensarling indicated that members of the House are said to be looking to ease more restrictions than what the Senate has approved. While the Senate bill passed with bipartisan support, weakening additional parts of Dodd-Frank in the Republican-dominated House could trigger some issues in the Senate, where the Republican majority is more delicate.

The White House has come out in support of the Senate bill, saying in a statement on Wednesday that “the bill provides much-needed relief from the Dodd-Frank Act for thousands of community banks and credit unions and will spur lending and economic growth without creating risks to the financial system.”