Financial Regulatory Relief Bill Signed Into Law — Community Banks and Credit Unions to Benefit the Most
By Gary Kasper, President at New Vista Solutions
On May 24, 2018, President Trump signed a bill that will bring much needed regulatory relief to the banking industry, especially community banks and credit unions. S.2155, known as the Economic Growth, Regulatory Relief, and Consumer Protection Act, passed the Senate in March in a bipartisan 67-31 vote. It then went to the House of Representatives where it passed on May 22 with little opposition.
This long-awaited legislation rolls back many of the restrictions and requirements of the Dodd-Frank Act of 2010. Although the benefits are far reaching throughout the financial industry, small banks with less than $10 billion in assets stand to gain the most.
Rebeca Romero Rainey, president of the Independent Community Bankers of America, stated, “This hard-fought long-awaited community bank regulatory relief legislation will put community banks in an enhanced position to foster local economic growth and prosperity.”
Let’s take a look at some of the most significant changes slated to help community banks and credit unions.
Qualified Mortgage Provision
Under the new law, banks and credit unions with less than $10 billion in consolidated assets will have safe harbor status on portfolio loans, thereby meeting the criteria for Qualified Mortgages (QM) which complies with Section 129C(a) of the Truth in Lending Act (TILA) as amended by the Dodd-Frank Act. This provision will give small banks and credit unions more room to exercise discretion and professional judgment without the onerous underwriting requirements that apply to non-QM loans.
Section 201 of the new legislation requires federal regulators to establish a community bank leverage ratio (tangible equity to average consolidated assets) in a range not less than 8 percent and not more than 10 percent. Community banks with less than $10 billion in total consolidated assets will now be exempt from the complex capital requirements that apply to all banking institutions under the Basel III rules — provided they maintain the new community bank leverage ratio.
New $3 Billion Threshold for Small Bank Holding Company Policy Statement
The new law raises the asset threshold for being eligible for the Federal Reserve Board’s Small Bank Holding Company Policy Statement from $1 billion to $3 billion. This will make qualified holding companies exempt from the risk-based capital requirements mandated under Section 171 of the Dodd-Frank Act, known as the Collins Amendment.
Exemption from the Volcker Rule
The law exempts banks and credit unions with less than $10 billion in consolidated assets and total trading assets and trading liabilities of no more than five percent of their total assets from restrictions on proprietary trading and ownership of hedge funds and private equity funds. These restrictions were originally implemented under section 619 of the Dodd-Frank Act, known as the Volcker Rule. This amendment will reduce the cost of proving compliance and the associated regulatory burden the Volcker Rule placed on community banks.
Extended Exam Schedule
The qualifying asset threshold for an 18-month exam cycle (instead of 12 months) has been increased from $1 billion to $3 billion.
HMDA Reporting Exemption
Banks and credit unions that originate less than 500 closed-end mortgages and fewer than 500 lines of credit two years in a row will be exempt from the heightened Home Mortgage Disclosure Act (HMDA) reporting requirements set forth in the Dodd-Frank Act. The institutions must also receive at least a satisfactory rating on Community Reinvestment Act assessments.
Easing of Escrow and Appraisal Requirements
Certain depository institutions and credit unions with less than $10 billion in assets that have originated 1,000 or fewer loans secured by a first lien on a principal dwelling are now exempt from escrow requirements under the Truth-in-Lending Act (TILA).
Appraisal requirements are also less stringent in rural areas where qualified appraisers are harder to find.
Elimination of Three-Day Waiting Period for TRID Disclosures
Lenders that extend a second offer of mortgage credit with a lower interest rate to a borrower are no longer required to observe the three-day waiting period required under TILA/RESPA Integrated Disclosure (TRID) rules.
These are just a few of the positive changes this new legislation will bring to the small banking community. Despite the political debate as to how this regulatory relief should be structured, it’s clear that both liberals and conservatives agreed it was time to do something — and so they did.