Texas Bankers AssociationHouse and Senate conferees approved the conference report of the 2,000-page financial regulatory reform bill at about 5:40 a.m. today after a 20-hour marathon session. The House is expected to begin considering the final legislation on Tuesday.
The banking industry remains strongly opposed to the bill, even though it includes the laudable key principles the association's bankers have supported since the beginning of the reform debate. They include creating a systemic risk council, creating a robust method for handling the failure of large institutions, ending the concept of too-big-to-fail, closing gaps in regulatory oversight, and enhancing consumer protection.
“But these important provisions are overshadowed by a number of other provisions in the bill that run far afield from Wall Street reform and will ultimately harm Main Street," ABA President and CEO Ed Yingling said. "The consequences involved are very real and will have a very negative impact on traditional banks, on consumers and on the broader economy. Above all, the capability of traditional banks to provide the credit needed to move the economy forward has been undermined in numerous ways."
Yingling added that ABA, banks nationwide and state associations like TBA have worked tirelessly to ensure that members of the House and Senate understood and recognized these concerns.
"While we have had some success in this regard, in the final analysis, the legislation in question simply does more harm than good and will make it exceedingly difficult for banks to be the drivers of economic growth and recovery going forward,” he said.
ABA's legislative experts will be analyzing the bill and will provide a detailed summary soon. Meanwhile, here are some general descriptions of a few key provisions:
Collins amendment on capital. The amendment originally would have excluded trust preferred securities and other financial instruments from holding-company Tier 1 capital. The conferees agreed to grandfather existing trust preferred securities for all bank holding companies with less than $15 billion in total assets. Holding companies with more than $15 billion in total assets would have five years to comply with the measure, including a three-year phase-in period.
Durbin interchange fee amendment. The industry-opposed amendment would direct the Federal Reserve to set prices on debit-card interchange fees. The Fed would be required to consider the cost of protecting against fraud when determining whether fees are “reasonable and proportional,” and merchants would be allowed to offer discounts for certain payment types.
Preemption. Conferees adopted preemption language that would allow the Office of the Comptroller of the Currency to preempt state laws if they "prevent or significantly" interfere with the business of banking. Industry advocates fought for the strongest possible preemption language.
Accounting oversight. Thanks to the intense efforts of industry advocates, accounting oversight would be a function of the reg reform bill's Systemic Risk Oversight Council. One of the council's duties will be to “review and, as appropriate ... submit comments to the Securities and Exchange Commission and any standard-setting body with respect to an existing or proposed accounting principle, standard, or procedure."
SOX Section 404(b) exemption. Conferees agreed to a long-sought industry-backed provision that would permanently exempt companies with less than $75 million in market capitalization from complying with the Sarbanes-Oxley Act’s Section 404(b) auditor attestation requirements.
Thrift charter. The bill preserves the thrift charter going forward.
Volcker rule. Conferees adopted a modified version of the measure that would ban certain types of proprietary trading. It also would cap a bank's investment in private equity or hedge funds at 3 percent of the institution's tangible private equity.
Risk retention. The bill subjects lenders to a 5 percent risk retention requirement on securitized loans sold into the secondary market. But conferees agreed to retain an industry-backed safe harbor for traditionally underwritten residential mortgage loans -- a key industry priority.
Derivatives. Conferees agreed to allow banks to continue using derivatives to hedge banks’ own risk, but other derivatives business must be conducted in separately capitalized subsidiaries of the holding company. Industry advocates fiercely opposed stricter language that would have forced all derivatives activities out of the bank.
CFPB. The final bill creates a new Consumer Financial Protection Bureau housed under the Federal Reserve with authority to regulate all consumer financial products sold by banks. Banks with less than $10 billion in assets are subject to CFPB rules, but prudential regulators will cover such banks’ examination and enforcement.
Deposit insurance. The final bill changes the assessment base to assets minus tangible capital. It also permanently increases deposit insurance coverage to $250,000, retroactive to Jan. 1, 2008, and it extends the Transaction Guarantee Program through 2012.
Business checking. The bill authorizes banks to pay interest on corporate checking accounts, effective one-year from the date of enactment.
Bank Tax. The bill pays for itself by authorizing a special assessment on financial institutions with more than $50 billion in assets and hedge funds with more than $10 billion in assets. FDIC will collect the fees -- which could total up to $19 billion -- over the next five years.