LegiStorm

Summary:

T he financial crisis and the ensuing legislative and regulatory responses greatly affected the banking industry . M any new regulations — mandated or authorized by the Dodd - Frank Wall Street Reform and Consumer Protection Act ( P.L. 111 - 203 ) or promu lgated under the authority of bank regulators — have been implemented in recent years . In addition, econom ic and technological trends continue to affect banks. As a result, Congress is faced with many issues related to the bank industry , including issues con cerning prudential regulation , consumer protection , “ t oo b ig t o f ail ” (TBTF) banks , community bank s , regulatory agency design and independence , and market and economic trends . For example, t he Financial CHOICE Act ( H.R. 10 ) and the Economic Growth, Regulatory Relief, and Consumer Protection Act ( S. 2155 ) propose wide ranging changes to the financial regulatory system, and include provisions related to many of these bank ing issues. Prudential R egulation . This type of regulation is design ed to ensure banks are safely profitable and unlikely to fail. R egulatory ratio requirements agreed to in the international agreement known as the Basel III Accords and the Volcker R ule are examples . Ratio requirements require banks to hold a certain amount of capital on their balance sheets to better en able them to avoid failure . The Volcker R ul e prohibits certain trading activities and affiliations at banks. Proponents argue the rules appropriately balance the need for safety and soundness with regulatory burden. Opponents argue that current rules are overly complex , unduly burdensome , a nd d ifficult to enforce . Consumer P rotection . Certain laws and regulations protect consumers from unfair, deceptive, or abusive acts and practices. R egulation s promulgated by the Consumer Financial Protection Bureau (CFPB) and certain mortgage lending rules ar e contentious issues in this area . Observers disagree over whether CFPB authorities, structure, regulations , and enforcement actions appropriate ly balance the benefit of protecting consumers and the potential costs of unnecessarily burdening banks and rest ricting credit availability. A s imilar debate is about whether mortgage rules appropriately protect consumers and effectively align certain market incentives or unnecessarily reduce the availability of mortgages . “ Too Big To Fail ” Banks. R egulators also re gulate for systemic risk s , such as those associated with TBTF financial institutions that may contribute to systemic instability . Dodd - Frank Act provisions include enhanced prudential regulation for TBTF banks and changes to resolution processes in the event one failed . Proponents of these changes assert they will eliminate or reduce excessive risk - taking at , and bailouts for , these large banks . Opponents assert that market forces and bankruptcy law are more effective and less distortionary than the new regula tions and resolution authorities. Community B anks . T he number of relatively small banks has declined substantially in recent decades. Some analysts assert market forces and removal of regulatory barriers to interstate branching and banking are having a large effect , given that small banks are exempt from many recent regulations and have been consolidating for decades . Others assert small institutions have limited resources and are being unnecessarily burdened by regulation, especially because such ban ks are unlikely to contribute to systemic risk. Regulatory A gency D esign and I ndependence. How regulatory agencies are structured and promulgate rules are also issues . Some assert that financial agencies ’ relatively high degree of independence from the President and Congress results in too little accountability in rulemaking ; thus, their leadership structures, funding, and rulemaking procedures should be altered. Opponents of such measures maintain that fi nancial regulator independence should be maintained because it allows regulations to be promulgated by technical experts with s ome insulation from political considerations. Recent M arket and E conomic T rends . Changing economic forces may also pose issues to the banking industry. Increases in regulation could drive certain financial activi ties into a relatively lightly regulated “ shadow banking ” sector. Innovat iv e financial technology may alter the way certain financial services are delivered. Interest rates are likely to begin rising soon after a long period of low rates , which could present risks to banks. C ompetition and regulatory differences between banks and nonbanks with different charter types is an ongoing issue.