May 29, 2018 - As the WSJ reported, on May 24th, President Trump signed into law a bipartisan bill enacting a number of important changes to the 2010 Dodd-Frank financial reform law that are good news mainly for community and regional banks.
While it does not impact the broadly syndicated loan market in any significant way – nor was it expected to – there are a few important takeaways from the passage of the bill. First, most of the Dodd-Frank law remains in place, second, achieving bipartisan consensus to pull back bank regulation even a little is exceedingly difficult, and third, there is little likelihood that additional material financial reform legislation is forthcoming. On the other hand, with the confirmation on Thursday of Jelena McWilliams as chair of the FDIC, all three major federal banking agencies as well as the SEC and CFTC are under the leadership of Trump appointees. While no one is considering blowing up the Dodd-Frank regulations, some additional financial deregulation could come from that avenue. Indeed, the Fed and the FDIC will be voting on proposed changes to the Volcker Rule on May 30th.
So what does the reform bill do? Recent memos from Shearman & Sterling and Cadwalader dive into the specifics of the bill. To cite just a few highlights, the bill addresses prudential regulation by increasing from $50 billion to $250 billion the asset threshold at which enhanced prudential standards apply to a bank holding company and clarifies the treatment of foreign banking organizations under the new threshold. The bill also increases the asset threshold for the requirement of bank risk committees, increases thresholds for stress-testing of nonbank financial companies and bank holding companies and changes the frequency of such tests. Finally, the bill increases the threshold for the Fed to impose leverage limitations on companies that pose a grave threat to financial stability. Other provisions of the bill afford relief to certain custody banks in calculating their supplementary leverage ratios, exclude certain small banking entities from the Volcker Rule, and improve the treatment of municipal obligations for the purposes of the Liquidity Coverage Ratio Rule. Perhaps the biggest winners are community banks because the bill offers them a wide ranging set of reforms.
While the banking fix bill did not affect the loan or CLO markets, other upcoming activities might. For instance, we will report on the forthcoming Volcker Rule proposals and continue to monitor any other significant financial regulatory reforms as they are introduced. For more information, contact firstname.lastname@example.org.