Just how will the much-trumpeted recent changes to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act affect local financial institutions?
Signed into law by President Donald Trump in late May, the Economic Growth, Regulatory Relief and Consumer Protection Act rolls back regulations on most banks – regulations put in place in response to the 2008 financial crisis.
The legislative changes are welcome, said Ben Woodruff, Wilmington area vice president of First Citizens Bank, because they will mean that the bank will not have to undergo so-called stress tests, as it has been required to do under Dodd-Frank. First Citizens, he said, like other banks, had to devote a “significant amount of time and resources” to preparing for annual reviews to ensure it was in compliance with the regulations.
“It relieves a large burden on us,” Woodruff added. “We were in favor of [the modifications], and supported that legislation.”
Briefly, the new law permits banks with between $50 billion and $250 billion in assets to operate with less regulatory oversight from the Financial Stability Oversight Council. It also exempts banks with less than $10 billion in assets from some rules entirely.
Under Dodd-Frank, financial institutions with assets of $50 billion and above were deemed too important to the financial system to fail. The new act raises that threshold to $250 billion.
Marshall Cooper, CresCom Bank’s Wilmington area executive, said he sees the recent modifications as a return to a more balanced approach to regulation.
“Before [the financial crisis], lending guidelines and policies were much less regulated,” Cooper explained, saying Dodd-Frank was the pendulum swinging in the opposite direction.
“The cost of compliance has been continually increasing. Any reprieve would be welcome,” he said. He suggested that resources his bank is now spending on compliance could be redirected to better focus on its clients and their banking needs.
Charleston, South Carolina-based CresCom plans to take a wait-andsee approach to determine how its lending policies might be affected by the new legislation, Cooper said.
That’s also the position of Sound Bank, which has one Wilmington location, and its sister institution, West Town Bank & Trust. The two banks are subsidiaries of Illinois-based West Town Bancorp.
“These changes that were signed into law won’t take effect for several months,” said Raymond Wengel, West Town’s risk officer and inside legal counsel. “The new regulations conflict with the current ones and will need to be worked out by relevant agencies and then published to the Federal Register.
“Until they are published, we won’t know where we stand and what the exact impact will be on us. It sure looks like it will be positive. We hope it will be positive.”
The recent changes to Dodd- Frank prompted criticism that it could again open up financial systems to risks.
Wengel said the changes should not be considered a repeal.
“Dodd-Frank is still in existence in the way in which it was originally intended,” he said. “The new legislation is intended to roll back some of the more onerous aspects of the regulations. It’s going to help, but it will certainly not strip away all the consumer protections.”
Wengel cited the high cost of complying with Dodd-Frank regulations, adding that small banks, such as Sound Bank and West Town, are subject to the same regulations as big banks. Those regulations are “burdensome for community banks. They have been hit harder and must devote a higher proportion of their resources to comply," he said.
The “one-size-fits-all” approach of Dodd-Frank was problematic, said Rick DeCrescente, regional vice president of sales for Alliance Credit Union, which has two area offices.
“When [Dodd-Frank] was enacted it put a real crunch on credit unions, especially small ones. It put a lot of small credit unions out of business,” he said. “The changes will give us a lot of regulatory relief in a couple of ways. We’ll have less regulatory-related expense and restrictions. It helps us by reclassifying certain mortgage loans, so we’ll be able to approve more mortgages. And it will open up more business lending to us.”
He said, however, the changes do bring up questions about how larger institutions will be handled, especially given their role in the financial crisis.
“Our concern is that they are going to give relief to big banks in the $50-billion to $250-billion range. These big banks that are getting relief were part of the bailouts when the crisis hit. We as a credit union didn’t – and don’t – take as much risk, but we have had to go through stress tests too. Proportionately, it hit us harder,” DeCrescente said.
“We would have liked to see more recognition of what’s happened with the big banks in the past. Why isn’t Congress putting some recognition into that?”