Too Big or Too Small to be Regulated Under the Financial Choice Act

It has been heavily debated that the most significant changes to develop within any industry since the 2008 financial crisis has occurred in the banking industry. The 2008 financial crisis exposed many kinks in the system and these kinks attributed one of the greatest economic downturns our country has ever experienced. Now more than a decade later, the state of the banking industry has evolved, and a major force behind this evolution was a key bill passed by former President Obama’s administration. However, with the recent change in the oval office came a major policy change which led to the “dismantling of Dodd-Frank” which was dubbed as the Financial Choice Act (“FCA”) by the Trump administration. Below is an update of the FCA and its authority.

First, the question must be asked, was Dodd Franks actually repealed? The answer is NO.[1] Dodd Frank was the answer to years of banks creating and operating under their own guidelines. The government oversight of big banks that was executed under Dodd-Frank cannot just easily be appealed. However, the even though the initiative to repeal Dodd-Frank was not successful, the standards and guideline have become more relaxed for certain types of lending intuitions.[2] During the 2008 recession and its aftermath, a major obstacle that Dodd Frank sought to overcome was the issue of banks too big to fail.[3] Conversely, under the Financial Choice Act, now the question has become is the bank in question too big or too small to be regulated.[4]

One of the biggest complaints opponents of Dodd-Frank had against the law was that it treated all banks alike.[5] Because of this, big, medium and small banks all had to adhere to and be in compliance with costly regulations.[6] The biggest change under the changes made to Dodd Frank is that only banks with an increase of the so-called ‘Bank SIFI’ threshold, which increases the size at which a bank is subject to enhanced regulation by the Federal Reserve.[7] Dodd-Frank set this line at $50 billion, unindexed for inflation or economic growth.[8] The law raises this figure to $250 billion, with an important caveat that the Federal Reserve retains the discretion to apply enhanced regulatory standards to any specific bank greater than $100 billion, if the Fed feels that is warranted.[9] According to the FCA proponents, this principal change will make a huge difference to most banks because they do not fall under the Federal Reserve’s radar and will save millions by being able to lend to “worthy individuals” without spending money on government oversight.[10] The goal being, to put money in the pockets of people who need it and in turn, further boost our economy.[11]

[1] Aaron Klein, No, Dodd-Frank Was Neither Repealed Nor Gutted, Bookings (May 25, 2018), www.brookings.edu/research/no-dodd-frank-was-neither-repealed-nor-gutted-heres-what-really-happened.

[2] Id.

[3] Exequiel Herndanez, Dodd-Frank: Past, Present, and Future, Penn Wharton (May 26, 2017), https://publicpolicy.wharton.upenn.edu/live/news/1886-dodd-frank-past-present-and-future

[4] Jeff Cox, House Passes Financial Choice Act That Would Gut Dodd-Bank Banking Reform, CNBC (June 6, 2017), www.cnbc.com/2017/06/08/house-has-votes-to-pass-choice-act-that-would-gut-dodd-frank-banking-reforms.html.

[5] Id.

[6] Id.

[7] Id.

[8] Supra note 1.

[9] Id.

[10] Id.

[11] Id.