Crapo Bill
The Dodd-Frank threshold was set at $50 billion, above which banks would be considered too big to fail. The Crapo bill increased this threshold to $250 billion in assets, which only a relatively small number of banks — notably, Bank of America, Wells Fargo, and JP Morgan Chase — would exceed. While the legislation was sold as a way to help community banks, several mid-sized banks also stand to benefit. The Economic Growth, Regulatory Relief, and Consumer Protection Act, or the Crapo Bill, was introduced by Republican Senator Mike Crapo of Idaho in November 2017 and became law after it was signed by President Trump on May 24, 2018. The main goal of the bill is to roll back some of the regulations put forth by Dodd-Frank. Other key elements of the bill include eliminating the Volcker Rule for institutions with assets of less than $10 billion. This section of the Dodd-Frank Act prevented banks from undertaking some activity with their own investment accounts and from dealing with hedge funds and private equity funds. The term Crapo Bill refers to an economic bill signed into law in 2018 that eases some of the restrictions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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What Is the Crapo Bill?
The term Crapo Bill refers to an economic bill signed into law in 2018 that eases some of the restrictions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill, officially called Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2115), was sponsored by Mike Crapo, a United States Senator (R-ID) and chair of the Senate Banking Committee, and passed the Senate by a margin of 67 to 31 in March 2018.
Some of the changes introduced by the banking bill include raising the asset threshold for banks considered too big to fail as well as requirements for community banks. The bill was approved and signed by former President Donald Trump in May 2018.
Understanding the Crapo Bill
The Dodd-Frank Act was passed in 2010 in the wake of the 2007-2008 financial crisis. It consolidated the number of regulatory agencies responsible for financial oversight, increased the amount of capital that banks had to maintain as a cushion against market downturns, and required improved standards and levels of transparency. Although it was meant to provide relief for consumers, it was met with a lot of resistance. Critics said the restrictions burdened banks and other financial institutions by adding more red tape and unnecessary regulations.
The Economic Growth, Regulatory Relief, and Consumer Protection Act, or the Crapo Bill, was introduced by Republican Senator Mike Crapo of Idaho in November 2017 and became law after it was signed by President Trump on May 24, 2018. The main goal of the bill is to roll back some of the regulations put forth by Dodd-Frank. Its primary focus is to increase the asset threshold limits that banks must meet before being subject to certain regulations and oversight.
The Dodd-Frank threshold was set at $50 billion, above which banks would be considered too big to fail. The Crapo bill increased this threshold to $250 billion in assets, which only a relatively small number of banks — notably, Bank of America, Wells Fargo, and JP Morgan Chase — would exceed. While the legislation was sold as a way to help community banks, several mid-sized banks also stand to benefit.
But that's not all. Other key elements of the bill include eliminating the Volcker Rule for institutions with assets of less than $10 billion. This section of the Dodd-Frank Act prevented banks from undertaking some activity with their own investment accounts and from dealing with hedge funds and private equity funds. The bill also promises to improve access to mortgage lending for consumers, increases protections for veterans and student borrowers, and improvement for capital creation.
Although the Crapo Bill eliminates and amends certain portions of the Dodd-Frank Act, it does not repeal it entirely.
Special Considerations
Banks that do not meet the threshold of $250 billion will eventually be exempt from the stress tests managed by the Federal Reserve Board. These tests are designed to estimate the impact a financial shock would have on a bank based on its risk exposure and reserves. Additionally, these banks would no longer be required to provide an outline of how they would be wound down in the case that they failed.
Although the Crapo bill increases the threshold for banks considered too big to fail, it also extends some authority to the Federal Reserve with respect to smaller institutions. According to section 401 of the bill, the Fed may, under its discretion, consider putting the same restrictions that larger banks face on institutions with assets as low as $100 billion.
Criticism of the Crapo Bill
Dodd-Frank has been repeatedly criticized by the financial industry. Banks lobbied extensively to roll back capital and reporting requirements that it considered costly and onerous, but proposed legislation tended to lack bi-partisan support. This was often due to legislation focusing on dismantling the Consumer Financial Protection Bureau (CFPB).
One part of Dodd-Frank — the creation of the CFPB — had long rankled some members of Congress as well as financial companies. The CFPB was designed to protect consumers from predatory and fraudulent practices taken by banks, lenders, and other financial institutions. The agency could also levy fines if these institutions were found to be taking advantage of consumers. Because its budget is controlled by the Federal Reserve, proponents say it has been protected from Congressional meddling. Opponents say that this has resulted in the CFPB overreaching.
Unlike earlier attempts, the Crapo bill focused on easing bank rules. However, critics of the Crapo Bill argue that reducing the number of banks that face more stringent oversight will increase the odds that banks will fail during a financial crisis in the future. They also point out that data collection requirements relating to mortgages would be relaxed, allowing smaller banks and credit unions to avoid having to report this data.
Related terms:
Asset
An asset is a resource with economic value that an individual or corporation owns or controls with the expectation that it will provide a future benefit. read more
Bank : How Does Banking Work?
A bank is a financial institution licensed as a receiver of deposits and can also provide other financial services, such as wealth management. read more
Capital : How It's Used & Main Types
Capital is a financial asset that usually comes with a cost. Here we discuss the four main types of capital: debt, equity, working, and trading. read more
Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau is a regulatory agency charged with overseeing financial products and services that are offered to consumers. read more
Credit Union
A credit union is a member-owned financial cooperative that is created and operated by members and shares profits with owners. read more
Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd-Frank Wall Street Reform and Consumer Protection Act is a series of federal regulations passed to prevent future financial crises. read more
Federal Reserve System (FRS)
The Federal Reserve System, commonly known as the Fed, is the central bank of the U.S., which regulates the U.S. monetary and financial system. read more
Financial CHOICE Act
The Financial CHOICE Act is a bill that was designed to roll back regulations set forth in the Dodd-Frank Act. read more
Financial Crisis
A financial crisis is a situation where the value of assets drop rapidly and is often triggered by a panic or a run on banks. read more
Financial Stability Oversight Council (FSOC)
The Financial Stability Oversight Council (FSOC) is a council formed by the Dodd-Frank Act, charged with monitoring the financial system and its stability. read more