Small banks are benefiting from the rollback of Dodd-Frank, with the Russell 2000 bank index outperforming the S&P 500 banks by about 10 percentage points since the turn of the year.
According to Financial Times, the Economic Growth, Regulatory Relief, and Consumer Protection Act has a number of provisions that primarily target banks deemed too small to be a serious risk to the nation’s financial system. President Donald Trump said it was time to help “neighborhood banks” trying to navigate “Dodd-Frank’s brutal maze of costly regulations.”
U.S. Representative Blaine Luetkemeyer, a Republican who chairs the House subcommittee on financial institutions (FIs) and consumer credit, has even promised that the House will push for additional rollbacks to laws that he believes hurt the 5,000 or so smaller banks in the country.
“It’s important that we start taking some of the straw off the camel’s back, and we in the House have a lot of little bills that will [do] that,” said Luetkemeyer.
Though further legislation seems unlikely, regulators are already making life easier for banks in general. While the three federal bank regulators are exploring ways to loosen some rules, bankers are softening their daily supervision.
Ed Mills, Washington-based policy analyst at Raymond James, said, “We’re taking a big step back from where we were under Yellen and Tarullo, when the U.S. was the leader in establishing bank rules. Now we’ll be the leader in walking them back.”
The rollback of Dodd-Frank has also inspired U.S. banks to look into revising or eliminating more than a dozen other lesser-known rules, including the Civil War-era False Claims Act; the Securities Act of 1933; the Federal Deposit Insurance Act of 1950; the Bank Holding Company Act of 1956; the Bank Secrecy Act of 1970; a raft of lending laws, including the Community Reinvestment Act of 1977; the Telephone Consumer Protection Act of 1991; the Patriot Act of 2001 and the Sarbanes-Oxley Act of 2002, among others.
Wayne Abernathy, executive vice president at bank trade group American Bankers Association, said, “The feeling is there are many rules that are so old that they’re out of sync with what you need to promote economic growth, and that’s a conversation policymakers are now willing to have.”