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Dodd-Frank’s Banking Rules Rolled Back

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It was another one of President Trump’s early promises: an overhaul of the Dodd-Frank law that significantly tightened rules on banks and other financial institutions after the Great Recession of 2008.

On Tuesday, May 22, 2018, it happened. In a rare bipartisan vote, Congress passed changes to the Dodd-Frank law which is expected to be signed by President Trump.

How will this change affect consumers and business owners?

  • The rollback would allow many regional banks (under $250 billion in assets) to avoid mandatory annual stress tests and other financial hurdles.
  • Lower capital requirements would apply to banks known as ‘custody’ banks. These are banks such as State Street Corp. which predominately hold clients’ assets for safekeeping rather than actively involving themselves in lending of that money.
  • Many banks would be able to buy state and local government bonds easier than today.
  • The bill makes it easier for banks to provide commercial real-estate lending.
  • Banks with under $10 billion in assets could make speculative investment bets by being exempt from the Volcker rule.
  • Smaller banks would file shorter financial reports and be examined less frequently.
  • Banks would be provided access to a Social Security database to match social security numbers to a name and date of birth to help minimize fraud.
  • Fannie Mae and Freddie Mac would be required to use alternative methods outside of a person’s FICO score to determine credit worthiness.

So, the new bill provides less regulatory hurdles for many banks, allows more aggressive investment management and some looser requirements for mortgage lending. This should benefit consumers and business owners as increasing bank profits could lead to more competition for the consumer wallet.

In the short term, this could help the U.S. economy and the insurance business as more disposable income for individuals and businesses can only help loosen the purse strings on buying decisions.

But long term, could you imagine smaller banks making speculative investment risks without oversight? Could you imagine mortgage loans to riskier customers that ultimately default?  Sounds all too familiar. Already consumer credit card debt is at its highest levels. We’ll have to wait and see.

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