WASHINGTON (AP) — President Donald Trump on May 24 signed into law a measure that loosens key restraints for banks imposed after the 2008 financial crisis and Great Recession. Savoring the legislative triumph, he called it “the next step in America’s unprecedented economic comeback.”
The Republican-crafted bill passed Congress on May 22 with the help of some Democratic votes and allowed Trump to fulfill his campaign pledge of dismantling the landmark Dodd-Frank law. The 2010 law was enacted by President Barack Obama and Democrats in Congress in response to the crisis that brought millions of lost jobs and foreclosed homes.
Trump held a signing ceremony at the White House not long after announcing the cancellation of his planned June summit with North Korean leader Kim Jong Un.
The new law raises the threshold at which banks are deemed so big and plugged into the financial grid that if one were to fail it would cause major havoc. Such banks are subject to stricter capital and planning requirements.
Trump is gaining a major building block in his drive for business-friendly policy changes and easing of regulations that he says have stifled lending, economic growth and job creation.
“As a candidate, I pledged that we would rescue these community banks from Dodd-Frank, the disaster of Dodd-Frank, and now we are keeping that commitment,” Trump said at the signing event in the Roosevelt Room.
Independent Bankers Association of Texas (IBAT) President and CEO Chris Williston said community bankers are pleased to be able to serve their customers who don’t fit into “little boxes” if they don’t meet the requirements of the Dodd-Frank legislation.
“It has been almost eight years since the passage of Dodd-Frank inflicted many unintended consequences on community banks and the customers they serve, but today marks the first real step in once again allowing these banks to do what they do best—meeting the financial needs of their customers and serving their communities,” he said.
“Community banks with less than $10 billion in assets provide more than 60 percent of all small business loans under $1 million and more than 80 percent of all agricultural loans—both of which are extremely important in the great state of Texas,” he said. “[The new legislation] will provide relief from extensive reporting, data collection and various other requirements, freeing up community banks’ resources for lending and ensuring they’re able to offer competitive products and services, many of which have been discontinued in recent years due to compliance and regulatory costs.”
Williston said that credit unions and small community banks were collateral damage from the Great Recession when the Dodd-Frank rules were passed.
He thinks the new rules will allow many of the smaller banks to once again begin serving their custoemrs – particularly those that have unusual credit histories – with mortgage loans.
“When banks sold or were merged and we did exit interviews, the No. 1 thing we heard from bankers was that with these new rules it just wasn’t fun anymore,” he said. Williston said he was in D.C. when the legislation passed and his phone “began blowing up” with calls from IBAT members. “They were just very, very excited,” he said.
Trump thanked the lawmakers at the event for playing a role in moving the legislation through the Senate and later the House. A lone Democrat also was there: Sen. Heidi Heitkamp of North Dakota, among the 16 Democrats who voted for the legislation when it passed the Senate in March. Heitkamp, who won her seat six years ago by only 3,000 votes, is facing a tight re-election race in a state Trump easily carried in the 2016 presidential race.
IBAT’s Williston also thanked the Democrats that supported the legislation.
“We are also grateful to Sen. Jerry Moran and his Republican colleagues, along with a group of courageous Democrat Senators that includes Sens. Donnelly, Heitkamp, Tester and Warner, for recognizing the critical need for a bipartisan solution to the unique challenges faced by community banks and working diligently to craft a meaningful solution. IBAT also thanks House Leadership, Chairman Hensarling and his colleagues for moving this legislation forward,” he said.
The banking law also adds to Trump’s marquee pro-business legislative achievement, the sweeping tax bill enacted late last year that deeply cut taxes for corporations and wealthy individuals and offered more modest reductions for most ordinary Americans.
The law makes a fivefold increase, to $250 billion, in the level of assets at which banks are deemed to pose a major threat if they fail. The change eases regulations and oversight on more than two dozen financial institutions, including BB&T Corp., SunTrust Banks, Fifth Third Bancorp and American Express.
It was aimed at especially helping small and medium-sized banks, including community banks and credit unions.
“This is truly a great day for America, and a great day for small businesses and workers all over America,” Trump said.
But critics say the likelihood of future taxpayer bailouts will be greater now that curbs have been eased. They point to increases in banks’ lending and profits since Dodd-Frank’s enactment in 2010 as debunking the assertion that excessive regulation of the banking industry is stifling growth.
Eventually, the exempted banks will no longer have to undergo an annual stress test conducted by the Federal Reserve. The test assesses whether a bank has a big enough capital buffer to survive an economic shock and keep on lending. The banks also will be excused from submitting plans called “living wills” that spell out how a bank would sell off assets or be liquidated in the event of failure so it wouldn’t create chaos in the financial system.
The Dodd-Frank act, named after its co-authors, Democratic Sen. Christopher Dodd of Connecticut and Democratic Rep. Barney Frank of Massachusetts, boosted government oversight of banks.