A decade after the financial crisis dragged the United States into a recession, The House of Representatives just passed a bill that significantly changes aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank bill was introduced after risky decisions and loose lending by financial institutions resulted in the financial crisis of 2007-2008. This crisis ultimately led to the country’s worst recession since the Great Depression. The bill was designed to restore control and tighten regulations an avoid the country from having to experience another economic meltdown that forced banks into bankruptcy, homeowners to foreclosure on their home, and markets to collapse.
What the repeal of Dodd-Frank means to the banking industry
The repeal of Dodd-Frank frees up thousands of small and medium-sized banks from the harsh regulations that were supposed to prevent another financial crisis. According to the New York Times, the legislation will “leave fewer than 10 big banks in the United States subject to stricter federal oversight, freeing thousands of banks with less than $250 billion in assets from a post-crisis crackdown that they have long complained is too onerous.”
This new bill also rolls back two crucial rules implemented by Dodd-Frank:
- Mid-sized banks will no longer be in the category of “too big to fail.” By increasing the threshold at which banks must comply with certain regulations, from $50 billion to $250 billion. Thus, banks of this size will now face lower levels of scrutiny over their preparedness for another financial downturn.
- Banks with less than $10 billion in assets are now able to engage in proprietary trading. In other words, smaller banks can now trade with the bank’s own money instead of just with consumer deposits.
Who does this benefit?
By repealing Dodd-Frank, smaller businesses will have better access to loans; smaller banks make two-thirds of the country’s small business loans. This will ultimately lead to more jobs being created not only in the banking and finance sector but also in many small businesses across the nation.
Senate Banking Chairman Mike Crapo stated, “this step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities.”