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In spite of the recent rollback of a number of Dodd-Frank regulations, small banks will not be seeing much relief from their regulatory burden, writes Zach Fox in a recent article for Banking Exchange. Fox details the items included in the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) and also discusses why the legislation’s impact on smaller banks will likely be modest.

Mortgage Relief

Items in S. 2155 pertaining to mortgage relief include an easing of eligibility standards for qualified mortgage (QM) status, an exemption for some banks from the Home Mortgage Disclosure Act (HMDA), and various other provisions related to development loans. However, most small banks (1) already qualify for QM via the small creditor exemption, (2) are too nervous about the liability of the HMDA to stop performing advanced data reporting, and (3) will likely not see significant cost savings resulting from changes to development loan regulations.

Capital Relief

Under S. 2155, community banks with assets less than $10 billion and a sufficient tangible equity leverage ratio may opt out of Basel III. While upwards of 90% of community banks will likely qualify to opt out, thereby saving their administrative staff significant time, some banking experts argue that in spite of this, banks will not save money because they won’t end up reducing their staff, but simply refocusing them elsewhere.

Mergers and Acquisitions Activity

  1. 2155 eases regulations in the small bank holding company policy statement, making it easier for banks to take on additional leverage—and become easier targets for acquisition. Banking experts are of two minds: some say M&A will accelerate, others predict it will stick to current trends—either way, the pressure on small banks to merge will persist.

The overall impact of S. 2155 is summarized well in this quote from Oliver Ireland, senior counsel for Morrison Foerster: “Regulatory compliance is really death by a thousand cuts. There is a handful that [the law] addresses, and that is going to reduce burdens, but is it going to fundamentally change the math? Probably not.”

For more details, read the article in full at Banking Exchange.