Does the Fed’s Small Bank Policy Statement Need to Apply to Larger Firms? (H.R. 3791)
Do you support or oppose this bill?
What is H.R. 3791?
(Updated November 26, 2017)
This bill would require the Federal Reserve to expand its policy statement on the allowable debt levels of small bank holding companies to apply to firms with less than $5 billion in assets, rather than only firms with less than $1 billion in assets. The change would take effect within six months.
Covered banks would be prohibited from engaging in significantly leveraged (i.e. financed with debt) nonbanking activities, and wouldn’t be able to have a substantial amount of outstanding debt held by the public.
Any small bank holding company that is covered by the Federal Reserve’s policy statement would be exempt from the leverage and risk-based capital requirements established by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Argument in favor
Applying the Federal Reserve’s policy statement to bank holding companies with up to $5 billion in assets rather than only those with under $1 billion will allow firms to make more investments with businesses and consumers in the communities they serve.
Argument opposed
By expanding the policy statement to cover banks that are five times larger than those it originally covered, this bill could cause covered banks to engage in more risk-taking and ultimately lead to more small bank failures.
Impact
Small bank holding companies; and the Federal Reserve.
Cost of H.R. 3791
The CBO estimates that the net effects of this legislation would be insignificant.
Additional Info
In-Depth: This legislation was passed by the House Financial Services Committee on a party-line vote of 33-21, and has the support of four Republican cosponsors.
The American Bankers Association has offered its support for this bill in a letter dated December 7, 2015, explaining that:
“This legislation facilitates the ability of community banks to issue debt and raise capital and thus increase their involvement in promoting the growth of their local economies. This is extremely important as regulators have proposed through other regulations to increase capital requirements significantly for both community banks and larger institutions in the coming years.”
Democrats on the Financial Services Committee don’t see it that way, and have expressed concerns that larger banks may have more of a focus on profits than serving customers:
“We are very concerned that a bank with a $5 billion footprint would not provide the same kind of personal service a smaller institution might, and are further concerned that raising the threshold could encourage aggressive growth at a firm that is more concerned with its bottom line than the concerns of the communities it serves.”
Media:
- House Financial Services Committee Press Release
- CBO Cost Estimate
- Bloomberg
- Securities Industry and Financial Markets Association
- ABA Banking Journal (In Favor)
(Photo Credit: Wikimedia Commons user Marinus van Reymerswaele - 9gHUjnOF-8MtlA at Google Cultural Institute maximum zoom level, Public Domain)
The Latest
-
IT: Battles between students and police intensify, and... 💻 Should we regulate AI access to our private data?Welcome to Thursday, May 2nd, listeners... The battle between protesters and police intensifies on college campuses across the read more...
-
Should U.S. Implement Laws Protecting Private Data from AI Access?Artificial intelligence is rapidly integrating into our everyday lives, transforming the way we work, live, and interact with read more... Artificial Intelligence
-
Protests Grow Nationwide as Students Demand Divestment From IsraelUpdated May 1, 2024, 11:00 a.m. EST The battle between protesters and police has intensified on college campuses across the read more... Advocacy
-
IT: Rumors spread about ICC charging Israel with war crimes, and... Should states disqualify Trump?Welcome to Tuesday, April 30th, friends... Rumors spread that the International Criminal Court could issue arrest warrants for read more...