Senator Richard Shelby Releases Draft of Financial Regulatory Reform Bill

Senate Banking Chair Richard C. Shelby (R-AL) released a draft of “The Financial Regulatory Improvement Act of 2015” that is intended to implement a wide variety of financial regulatory reforms and promote greater Congressional oversight of the Board of Governors of the Federal Reserve System (the “FRB”).

The bill is divided into 8 Titles that would implement the following reforms:

  • Title 1 concerns access to consumer credit and would (i) streamline certain bank examination and reporting requirements for community banks and (ii) exempt banks with less than $10 billion in assets from the Volcker Rule;
  • Title 2 concerns systemically important bank holding companies and would provide that only bank holding companies with over $500 billion in assets were designated automatically as systemically important, while bank holding companies with over $50 billion but less than $500 billion in assets would be subject to an individual determination by the FRB and the Financial Stability Oversight Council (“FSOC”) regarding their systemic importance;
  • Title 3 concerns FSOC’s designation process for systemically important non-bank financial companies and would impose detailed procedural requirements thereon;
  • Title 4 concerns insurance and would affirm Congressional intent that insurance activities be regulated primarily by the states under the McCarran-Ferguson Act of 1945;
  • Title 5 concerns the Federal Reserve System and would expand Congressional oversight regarding the activities of the FRB;
  • Title 6 concerns “tailored regulation” and would (i) facilitate the sharing of SEC and CFTC swaps data with foreign regulators and (ii) provide a grace period for any company that is transitioning out of the JOBS Act classification as an “emerging growth company”;
  • Title 7 concerns mortgage finance and would expand the Congressional oversight of securitization activities conducted by the Federal Housing Finance Authority (the “FHFA”); and
  • Title 8 concerns the Dodd-Frank Act and would enact various technical corrections.

The Senate Banking Committee is scheduled to mark up the legislation on May 21, 2015.

Lofchie Comment: Although the bill covers a lot of ground, it takes action in a particular way that we have supported steadily: in the greater formalization of the process by which FSOC is authorized to designate banks and non-banks as systemically significant. We have expressed the view consistently that the discretionary rules and secretive processes by which FSOC is able to designate entities are inconsistent with the rule of law.