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Generally, I'm not inclined to write about legislation in process – meaning a bill that passes one house and has yet to make it into the other chamber for consideration.
However, it's not like me keep quiet about banking rules, especially proposed rules rolling back consumer or economic protections, or protections from bankers with dirty bomb briefcases.
So, I have to touch on the Senate bill passed on Wednesday last week – on the 10th anniversary of Bear Stearns failing, mind you – because it's the first crack in crisis-era rules that have safeguarded us since then.
There's good and bad in the Senate bill… but mostly bad.
Here's what's wrong with the Senate bill and what to watch for coming out of the House.
The TBTF Effect
The big deal about the Senate bill is it cuts the number of banks and shadow banks, which are essentially banks masquerading as financial services companies, considered "too big to fail."
Under Dodd-Frank, banks with more than $50 billion in assets are considered too big to fail (sometimes abbreviated as TBTF) and are subject to the tough regulations. One of my favorites is a yearly stress test to prove that they could survive another crisis of considerably less magnitude than the last crisis, but whatever.
The Senate legislation, shepherded by Banking Committee Chair Mike Crapo (R-Idaho), would raise that threshold to $250 billion in assets, potentially allowing several high-profile financial institutions (meaning shadow banks), including American Express Co. (NYSE: AXP) and Ally Financial Inc. (NYSE: ALLY), to escape extra regulatory scrutiny.
Additionally, the legislation would exempt banks with less than $10 billion in assets from the "Volcker rule," which bars banks from making risky wagers with their own money.
The bill also exempts smaller banks from having to divulge detailed data on whom they lend to.
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Another provision excludes banks originating fewer than 500 mortgages annually from having to report certain racial and income data on their mortgages.
I don't have a problem with banks with less than $10 billion being able to trade. After all, if they lose all their assets – that means their customers' deposits and assets, $10 billion, a total wipe-out – is manageable. Not that I'm advocating for $10 billion banks rolling dice like dogs with green shades on their heads and dice in their hands. But, the truth is, banks with those levels of assets don't trade much anyway.
Small banks having to report detailed data on loans is nothing but regulatory overload. Their loan committees should be responsible for making over-reporting and compliance with burdensome reporting rules unnecessary.
As for banks making fewer than 500 mortgages annually, who cares? There aren't enough mortgages in a pile that small to worry about. If a bank's only making 500 mortgages, it's unlikely to be a player anyway.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.