Dodd-Frank's Impact on Traditional Banks

Article excerpt

Washington's Banking To-Do List

The Dodd-Frank Wall Street Reform and Consumer Protection Act might better be called the "Everything D.C. PolicyWonks and Consumerists Have Wanted For Ten Years, With Some Reform, And Regulatory Burden Act" For traditional banks, that's pretty much where it comes out: a potential avalanche of paper and costs.

Nearly every aspect of a typical bank will in some way be impacted by Dodd-Frank, as this graphic demonstrates. Other aspects of the law, those dealing with systemic risk, for example, aren't even reflected here.

These pages will also appear in interactive and substantially expanded form on www.ababj.com, updated as we publish print and online articles related to the law. This special ongoing resource will appear after Labor Day.

Thanks to Pittsburgh-based PWCampbell and its client, Mars National Bank, Mars, Pa., for providing the photo used here.

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"THE VAULT"

Some "hit you in the wallet" issues

Capital (Trust Preferred): BHCs under SIs billion-assets using trust preferred securities as Tier 1 capital will be "grandfathered" for what they already have, but generally banks prohibited from raising new Tier z via trust preferred. However, small BHCs subject to Fed's Small Bank Holding Company Policy Statement-generally those under $500 million--will have an exemption, subject to Fed policy.

S&L HC capital: Fed can now set S&L HC standards.

Revised or new "source of strength" rules will apply to BHCs and S&L HCs

Counter-cyclical capital: Regulators to push for more capital during economic growth but require less during down-cycle, while maintaining safety & soundness.

Capital standards: Regulators must set minimum leverage and risk-based ratios for depository institutions and holding companies within 18 months.

FDIC Guarantee Program: Upon certain triggering events, FDIC must set up a widely available program to guarantee obligations of solvent insured institutions and HCs during severe economic distress. Aid not to include equity.

Risk-retention rules for qualifying and nonqualifying mortgages and other loans coming.

THE TELLER LINE

Issues for front-line bankers

FDIC deposit insurance: $250,000 limit becomes permanent and retroactive to Jan. 1, 2008.

Transaction Account Guarantee, unlimited in size, extended two years, now mandatory and with no separate charge.

THE BOARDROOM

Issues for board-member monitoring, oversight, consideration, and action

Risk Committee: Publicly traded BHCs of over $io billion must set up risk committees comprised of independent directors and one risk-management expert. Federal Reserve may require this of smaller BHCs too.

Governance issues abound, including incentive pay disclosures to regulators.

Sarbanes-Oxley 404 (b) exemption: Public firms with capitalization of less than $75 million permanently exempted from auditor attestation.

Insider borrowing limits expanded to include extensions of credit relating to derivatives, repos, reverse repos, and securities borrowing and lending transactions.

COMPLIANCE DEPARTMENT

A selection or Deal-Frank's challenges, both new and familiar but in new digs

Bureau of Consumer Financial Protection: Many consumer laws traditionally : handled by the Federal Reserve move to BCFP, including the "truth in" banking regulations, fair-lending, and most of the Electronic Funds Transfer Act [Reg E] but not the Community Reinvestment Act. …