It has been 10 years since the Great Recession began to take hold, and in the week ahead, the U.S. Senate is poised to vote on re-regulating the banking industry.
The financial industry came into a series of regulatory responses to the Great Recession: limits on how banks could speculate in the markets, minimum requirements for how much money they set aside, and protections for borrowers; the Dodd-Frank legislation of 2010 represented the most significant changes to how the banking system operated since rules that were put in place after the Great Depression.
And now the Senate is expected to approve rolling back some of those reforms. Banks, especially smaller ones, have complained that Dodd-Frank has meant higher costs leading to less lending, especially to small businesses.
It has contributed to fewer banks. In 2010 there were over 6,500 FDIC insured commercial banks. By last year that had fallen by 25 percent. Bank profits, meantime, have grown by 17 percent to almost $23 billion.
The Economic Growth, Regulatory Relief, and Consumer Protection Act eases mortgage lending by not requiring smaller banks to consider a borrower’s ability to repay the money. It raises the threshold for a bank to be considered “too big to fail” and thus subject to annual financial stress tests by the Federal Reserve. The bill also eases appraisal rules for certain mortgages.
Bipartisan supporters say the legislative reaction to the Great Recession treated all banks the same, regardless of size and business, costing the economy financial velocity. The potential of re-regulation in banking has contributed to a big jump in banking stocks since the 2016 election. If banks and their shareholders profit from the new rules, it would be rewarding if the economy does as well.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM; @HudsonsView.