The Dodd Frank Act is weakened and Donald Trump keeps yet another promise made during the election campaign, softening the strict rules for finance introduced by the former president, Barack Obama, after the great crisis caused by sub-prime mortgages.
After the OK from the Senate, the US House definitively approved the revision strongly desired by the White House, with 259 votes in favor and 159 against. Numbers from which it clearly emerges that even part of the Democrats voted in favor of the measure. At this point, only Trump's signature is missing, which should arrive in a few days.
In detail, the new rules provide that small and medium-sized banks do not have to undergo the strict controls foreseen by Dodd Frank and must comply with less stringent requirements than the big companies. According to Republicans, this change will foster economic growth and bank credit, exempting institutions from unfair burdens.
However, not everyone thinks the same way, given that for many economists the "widening of the meshes" tightened around big finance after the wicked conduct that led to the worst recession that the USA has experienced over the last 80 years, could cause a new debacle in times of economic hardship.
We recall that the so-called Dodd Frank is, or perhaps it would be better to say was, the greatest Wall Street reform of the last few decades, which imposed precise rules for banks, limiting the use of derivatives and private funds and establishing the Financial Stability Oversight Council.
In January of 2017, Trump dismissed the provisions contained within the law by defining them "a disaster".
However, one important aspect must be underlined: compared to the president's original ideas, the reform was “softened”, leaving in force the limits imposed on derivatives and the government's emergency powers.
On the other hand, the threshold beyond which banks are considered systematically at risk by meeting stricter controls changes – and this is the most significant aspect of the provision approved by Congress. The limit is increased by 5 times: from 50 to 250 billion assets.
Simply put, the Federal Reserve's periodic “ax” and annual stress tests will be imposed only on the big names, considered to be of “systemic importance”. For institutions with assets between 50 and 100 billion, the tightened controls will even be eliminated, while between 100 and 250 billion the US central bank will have the possibility to establish whether or not more careful supervision is necessary.
Finally, banks under 10 billion in assets – i.e. local institutions -, with trading assets and liabilities of less than 5% of consolidated assets, will be nonor will they have to respect even the Volker Rule, the law prohibiting commercial banks from speculative trading with proprietary portfolios.
