Read Between the Lines


The Dodd-Frank Act will likely be tweaked by year’s end. A bi-partisan Senate bill has a better chance of approval than a previous Republican-backed House proposal that went nowhere.  The Senate bill, known as the Economic Growth, Regulatory Relief, and Consumer Protection Act, has wider support, mainly because it leaves more of Dodd-Frank intact. 

For banks with assets below $10 billion, the bill would establish a “community bank leverage ratio” of not less than 8 percent and not more than 10 percent.  Qualifying banks that exceed the ratio would be considered to have met risk-based capital requirements. 

Note to community banks: Though this is a simpler approach to assessing regulatory capital, it may not be such good news, especially for banks with unique business models that include assets with low risk weights and those with concentration issues. This provision will make tools such as stress testing more important than ever. Regulators may use the proposed range to impose a 10 percent leverage ratio on everyone. One of the only ways that banks will be able to free up capital is by using stress testing to provide evidence of their strength.

The bill would also exempt community banks from the Volcker rule, and change the asset threshold for larger banks deemed systemically important. The bill would exempt banks with less than $100 billion from SIFI rules, and 18 months after enactment, it would also exclude banks with between $100 billion and $250 billion from enhanced prudential standards – as long as the Federal Reserve considers it appropriate. Such banks would still be subject to periodic supervisory stress tests. 

The Regulators

The most likely avenue for regulatory relief will come from the agencies themselves. Regulators have latitude when it comes to enforcing rules. Who President Trump appoints will matter in how strict regulators will be in interpreting, enforcing and proposing bank regulation. But Washington moves slowly, even when it comes to appointments. Here’s a rundown of key leaders:   

The OCC 

Joseph Otting, the former president and CEO of OneWest Bank in Southern California (founded by Treasury Secretary Steven Mnuchin), became Comptroller of the Currency in late November. Otting brings a banker’s perspective to regulation, which may translate into less burdensome rulemaking. He favors empowering examiners-in-charge and has referred to the bi-partisan Senate bill as “common sense regulatory reform.”


President Trumps’ first choice to lead the Federal Deposit Insurance Corp. bowed out last summer, and his second choice – Jelena McWilliams – is now awaiting confirmation. McWilliams, chief legal officer at Fifth Third Bancorp, a Cincinnati-based regional bank, has also served as chief counsel and deputy staff director of the Senate Banking Committee and as a staff attorney at the Federal Reserve.

The Federal Reserve Board

The influential Federal Reserve Board of Governors has seven members, known as governors. They are nominated by the president and confirmed by the Senate to serve 14-year terms.  Trump has an opportunity to reshape the board with five appointments.

So far, he has replaced Chair Janet L. Yellen with Fed Governor Jerome Powell, who was sworn in as chairman in February. He also named Randal Quarles, a former Treasury official and noted skeptic of government regulation as vice chair for supervision, a powerful post created by Dodd-Frank. His third choice, Marvin Goodfriend, a conservative economist who served as senior vice president and policy advisor at the Federal Reserve Bank of Richmond before joining the faculty of Carnegie Mellon University in 2005, is awaiting uncertain Senate confirmation.  Trump has not yet filled the other open positions. So for now, the Fed has just three governors, the fewest in modern memory.

The Consumer Financial Protection Bureau

No agency has had more of a change in direction than the CFPB.  Created by Dodd-Frank, the bureau developed a reputation as a take-no-prisoners enforcer, praised by Democrats and loathed by Republicans under the Obama administration.  Trump named OMB Director Mick Mulvaney as Acting CFPB Director in November when the former director stepped down. In February, Mulvaney reissued the CFPB’s strategic plan with a new mission: “If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.”