Dodd-Frank rollback: now is the time for fintech to show real value

Sifi threshold change could open new opportunities for fintech developments, say lawyers. By David Beach and Laura Noble

23 May 2018

Fintech initiatives at banks and financial institutions could be set to thrive, as the US prepares to roll back the Dodd-Frank Act say lawyers.

The Senate voted to repeal the act earlier this year, and on May 22 Congress also did so. Should President Trump – a vocal critic of Dodd-Frank – give consent to regulators to start the process of reconstructing the country’s financial regulatory regime, it could have huge impact on the shape of the markets and the way banks operate.

The suggested amendments, which passed through Congress 258 votes to 159, raise the threshold at which banks are subject to federal oversight from an asset base of $50bn to $250bn, and those with $100bn in assets will be subject to some but not all of the regulatory requirements. Banks that have less than $10 million in assets will also be exempt from restrictions placed on proprietary trading. Initial reports suggest that could leave less than ten US banks subject to the full requirements.

Giving a large portion of the market greater freedom to operate could mean they can spend more time implementing fintech programmes.

“By addressing the low threshold, firms should be allowed to not only worry about passing the exam, but optimising the business in a framework where recovery and resolution is the measure by which their business success is judged,” says Akber Datoo, lawyer and managing partner at D2 legal technology, a consultancy. “Meaning that now is the time for these fintech solutions to show their true value.”

The costs and processes involved in complying with Dodd-Frank have weighed heavily on US banks, and the repeal could see a swarth of new developments as firms fund new fintech initiatives.

“The fintech sector has struggled with these recovery and resolution requirements at the core of Dodd-Frank’s attempt to address financial stability,” says Datoo. “It is the exam that no bank wished to spend on to get an ‘A’ in, but neither could afford to fail.”

However, Datoo argues that the suggested reforms do not represent a return to “the laissez faire pre-Crisis days that some feared,” instead highlighting the importance of the repeal raising the federal oversight threshold to catch only those banks that are ‘too big to fail’.” He suggests that reform of the regulations were almost inevitable.

“The sheer volume of regulation, mainly through the Dodd-Frank, was never going to perfect first time around. Therefore, the amendments are a welcome step back and right-sizing of the regulatory ask.”

Frank Holmes, CEO and chief investment officer for San-Antonio based U.S. Global Investors, wrote in Forbes that “the relaxation of Dodd-Frank will be seen as Trump’s crowning fiscal achievement so far, as it has the potential to contribute greatly toward his goal of at least 3% economic growth.”

The cost of containment

A study conducted by Regional Bank Coalition shows the before and after of Dodd Frank implementation:

  • A decline of 9.8% in growth rate for total regional bank loans
  • 13.3% less in loans up to 100k
  • 18.4% less loans between $100 - $250k
  • 23.7% less loans between $250k - $1m

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