Bank Regulation: Proposed Relief Legislation & Burden on Small Banks

The 114th Congress is considering legislation to provide regulatory relief for banks. The need for such relief, some argue, results from the increased regulation that was applied in response to vulnerabilities that became evident during the financial crisis that began in 2007. In the aftermath of the crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), a wide-ranging package of regulatory reform legislation, was enacted. Bank failures spiked during the crisis, and changes to banking regulation were a key part of financial reform. As financial regulators have implemented the Dodd-Frank Act and other reforms, some in Congress claim that the pendulum has swung too far toward excessive regulation. They argue that the additional regulation has resulted in significant costs that have stymied economic growth and restricted consumers access to credit. Others, however, contend the current regulatory structure has strengthened financial stability and increased protections for consumers. They are concerned that regulatory relief for banks could negatively affect consumers and market stability. This book assesses banking regulatory relief proposals contained in bills that have been marked up by committee or have seen floor action in the 114th Congress; explains the concept of regulatory burden and the different ways it can be manifested; analyzes whether small banks are relatively more burdened by regulation than big banks; and evaluates rationales for reducing the regulatory burden on small banks relative to large banks, policy approaches to do so, and the potential consequences on other market participants of providing relief to small banks.