Copyright 2010 American Bankers AssociationAll Rights Reserved ABA Banking Journal
DODD-FRANK ACT SPECIAL REPORT; Pg. 40
Dodd-Frank’s impact on traditional banks
Steve Cocheo, executive editor
Washington’s Banking To-Do List
The Dodd-Frank Wall Street Reform and Consumer Protection Act might better be called the “Everything D.C. PolicyWonks and Consumerists Have Wanted ForTenYears, With Some Reform, And Regulatory Burden Act.” For traditional banks, that’s pretty much where it comes out: a potential avalanche of paper and costs.
Nearly every aspect of a typical bank will in some way be impacted by Dodd-Frank, as this graphic demonstrates. Other aspects of the law, those dealing with systemic risk, for example, aren’t even reflected here.
These pages will also appear in interactive and substantially expanded form on www.ababj.com, updated as we publish print and online articles related to the law. This special ongoing resource will appear after Labor Day.
Thanks to Pittsburgh-based PWCampbell and its client, Mars National Bank, Mars, Pa., for providing the photo used here. “THE VAULT” Some “hit you in the wallet” issues
Capital (Trust Preferred): BHCs under $15 billion-assets using trust preferred securities as Tier 1 capital will be “grandfathered” for what they already have, but generally banks prohibited from raising new Tier 1 via trust preferred. However, small BHCs subject to Fed’s Small Bank Holding Company Policy Statement — generally those under $500 million — will have an exemption, subject to Fed policy.
S&L HC capital: Fed can now set S&L HC standards.
Revised or new “source of strength” rules will apply to BHCs and S&L HCs
Counter-cyclical capital: Regulators to push for more capital during economic growth but require less during down-cycle, while maintaining safety & soundness.
Capital standards: Regulators must set minimum leverage and risk-based ratios for depository institutions and holding companies within 18 months.
FDIC Guarantee Program: Upon certain triggering events, FDIC must set up a widely available program to guarantee obligations of solvent insured institutions and HCs during severe economic distress. Aid not to include equity.
Risk-retention rules for qualifying and nonqualifying mortgages and other loans coming. THE TELLER LINE Issues for front-line bankers
FDIC deposit insurance: $250,000 limit becomes permanent and retroactive to Jan. 1, 2008.
Transaction Account Guarantee, unlimited in size, extended two years, now mandatory and with no separate charge. THE BOARDROOM Issues for board-member monitoring, oversight, consideration, and action
Risk Committee: Publicly traded BHCs of over $10 billion must set up risk committees comprised of independent directors and one risk-management expert. Federal Reserve may require this of smaller BHCs too. Governance issues abound, including incentive pay disclosures to regulators.
Sarbanes-Oxley 404 (b) exemption: Public firms with capitalization of less than $75 million permanently exempted from auditor attestation.
Insider borrowing limits expanded to include extensions of credit relating to derivatives, repos, reverse repos, and securities borrowing and lending transactions. THE CEO’S OFFICE Strategic and bottom-line challenges
Debit interchange fee restrictions: Federal Reserve will set interchange fees. Banks under $10 billion exempt from the Fed-set rate (but not from competition).
National bank lending limits revised to incorporate credit exposures arising from derivatives, repos, reverse repos, and securities borrowing and lending transactions. State limits will include derivatives, but are otherwise left to states.
Interest on demand deposits: Ban is lifted.
FDIC deposit insurance assessment base shifts from domestic deposits to assets (minus tangible equity). Reserve ratio hiked, target date of 9/30/20.
Bureau of Consumer Financial Protection: New agency’s rules will cover all banks (and many nonbanks), while community banks won’t be subject, routinely, to its exams. Mission to protect against “unfair, deceptive, or abusive” acts or practices will generate more legal actions (See Compliance Department.) COMPLIANCE DEPARTMENT A selection of Dodd-Frank’s challenges, both new and familiar but in new digs
Bureau of Consumer Financial Protection: Many consumer laws traditionally handled by the Federal Reserve move to BCFP, including the “truth in” banking regulations, fair-lending, and most of the Electronic Funds Transfer Act [Reg E] but not the Community Reinvestment Act. HUD’s Real Estate Settlement Procedures Act also moves over. The Bureau can issue rules, orders, and guidance to carry out federal laws. Consultation with prudential regulators required.
State consumer protection laws can be stricter than federal standard for national banks and federal savings institutions. Circumstances in which preemption of state law may apply are narrowed, though they still can apply.
State attorneys general can enforce some BCFP rules by suing national banks.
Model disclosures may be issued by the Bureau for consumer financial products. Using a model form will be deemed in compliance.
Small business loan data collection: Information must be gathered for fair-lending and community development needs-evaluation on women-owned, minority-owned, and small business credit. Data public in aggregate form.
Credit scores: Financial institutions must disclose to consumers the numerical credit score used in taking adverse action on loan applications.
Mortgage Reform and Anti-Predatory Lending Act (see Mortgage Department)
International consumer remittances: Act sets new disclosures under Reg E. MORTGAGE DEPARTMENT Issues for home lenders
Mortgage Reform and Anti-Predatory Lending Act: Dodd-Frank requires consumers be offered and receive mortgages reflecting ability to repay; that they understand; and that are not unfair, deceptive, or abusive. Legislation bars steering customers into “nonqualifying” mortgages when they could handle “qualifying.”
Ability to repay: Lenders must make good-faith effort to determine.
Foreclosure defense: Consumers may assert violations of above.
Prepayment penalties: “Qualified mortgages” use must be phased out in three years. Lenders who offer with penalties must also offer without.
Negative amortization: Special disclosures required, and counseling for first-time buyers if this is an issue.
Even more on high-cost loans & appraisals.
For a complete summary of Dodd-Frank by ABA and Dechert LLP, see www.aba.com/RegReform/default.htm PLEASE NOTE the above graphic does not reflect effective dates, regulatory deadlines, etc.
Picture, no caption, INFOGRAPHIC DESIGNED BY PHILIP DESIERE
August 24, 2010