What Is the Crapo Bill?

The Crapo Bill is 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 was sponsored by Sen. Mike Crapo (R-ID), who was also chair of the Senate Banking Committee. It passed the Senate by a margin of 67 to 31 in March 2018. Some of the changes introduced include raising the asset threshold for banks considered too big to fail as well as community bank requirements. The bill was approved and signed by President Donald Trump in May 2018.

Understanding the Crapo Bill

The Dodd-Frank Act was passed in 2010 after the 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:transparency. Although it was meant to help consumers, it was met with a lot of resistance. Critics said the restrictions burdened banks and other 澳洲幸运5官方开奖结果体彩网:financial institutions by adding more red tape and unnecessary regulations.

The Crapo Bill, or the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2115), 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. It rolls back some of the regulations put forth by 澳洲幸运5官方开奖结果体彩网:Dodd-Frank. Its primary focus is to increase the asset threshold limits that banks must meet before being subject to certain regulat🦂ꦏions and oversight.

The Dodd-Frank threshold was set at $50 billion, above which banks would be considered 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:community banks, several mid-sized banks also stand to benefit.

But that's not all. Other key elements of the bill include eliminating the 澳洲幸运5官方开奖结果体彩网: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 澳洲幸运5官方开奖结果体彩网:hedge funds and 澳洲幸运5官方开奖结果体彩网:private equity funds. The bill also promises to improve access to mortgage lending for consumers, increase protections for veterans and student borrowers, and improve capital creation.

Special Considerations

Banks that don't 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💙 exposureꦕ 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 about smaller institutions. According to section 401 of the bill, the Fed may 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 澳洲幸运5官方开奖结果体彩网:financial industry. Banks lobbied extensively to roll back capital and reporting requirements they considered costly and onerous. Instead, they proposed legislation that tended to lack bi-partisan support. This was often due to legislation focusing on dismantling the 澳洲幸运5官方开奖结果体彩网⛦:Consumer F𓆉inancial 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 institut♕ions. The agency could also levy fines if these institutions were found to be taking advantage of consumers. Because its budget is controlled by the Fed, 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 argue that reducing the number of banks that face more stringent oversight will increase the odds that banks will fail during a 澳洲幸运5官方开奖结果体彩网:financial crisis in the future. They also point out that data collection requirements relating to mortgages would be relaxed, allowing smaller banks and 澳洲幸运5官方开奖结果体彩网:credit unions to avoid having to report this data.

The Bottom Line

The financial crisis led lawmakers and financial regulators to take notice of the risks that financial institutions were taking. The passage of the Dodd-Frank Act brought sweeping changes to the financial landscape. These changes included adding stress tests, tightening standards, and protecting the interests of investors and consumers. The Crapo Bill, which was signed into law in 2018, rolled back some of Dodd-Frank's provisions, including increasing the threshold for banks deemed too big to fail.