Crapo's Regulation Relief Bill: Signed into Law
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Regulatory burdens imposed on the financial services industry have grown over time. Some of these requirements have become obsolete or unnecessary.
In 2006, I introduced a bill to reduce those unnecessary burdens to benefit consumers and aid the economy. The purpose of this legislation, The Financial Services Regulatory Relief Act of 2006 (S. 2856), is to lessen the regulatory burden, so banks, thrifts, and credit unions can better serve their customers and communities.
Over a two-year time period, the Senate Banking Committee held three hearings with numerous witnesses to move from the general objective of creating reform to specific proposals that achieve this result.
The legislation received overwhelming support in the Senate, passing unanimously May 25, 2006; it passed the House on September 27, 2006. The President signed the bill into law on October 13, 2006.
Among the provisions included in the bill are:
1. Regulation B Relief. The SEC's proposed Regulation B has sparked broad opposition from Members of Congress, the Federal banking agencies, and the banking industry. If implemented in its current form, Regulation B would force banks and thrifts to push out traditional banking activities such as custodial and trust services to securities affiliates or discontinue such services altogether.
The Financial Services Regulatory Relief Act of 2006 directs the SEC to consult with and seek the concurrence of the Federal banking agencies in implementing the exceptions to the definition of broker under Section 201 of the Gramm-Leach-Bliley Act ("GLBA").
In addition, it specifies that no rules previously issued by the SEC on this subject, including Regulation B, shall have any force or effect. If any Federal banking agency objects to the SEC's final rule, it may seek review of the rule in the D.C. Circuit Court, with deference granted to neither the SEC nor the Federal banking agency.
2. Development of Simplified Model Privacy Forms. This section directs the regulatory agencies to develop a model form of privacy notice to satisfy the requirements of GLBA that is succinct, comprehensible and enables consumers to compare privacy practices among financial institutions.
A financial institution that elects to provide the model form developed by the agencies would be deemed in compliance with the disclosures required under Section 503 of GLBA.
3. Collateral Modernization. This section allows the Secretary of the Treasury to determine the types of securities that may be pledged in lieu of surety bonds and requires that the securities by valued at current market rates. This improved regulatory flexibility will allow banks to offer their customers options to meet pledging requirements, reduce administrative costs, and free up capital for more efficient uses such as lending, investments or dividends to shareholders.
In addition to these items, the bill also contains items that provide relief for community banks and credit unions.
For community banks, these items include:
- Directing the Federal banking agencies to review the call report every five years to delete items that are no longer relevant;
- Increasing asset-size eligibility for an 18-month exam cycle for well-rated, well-capitalized banks from $250 million to $500 million;
- Increasing the exemption from the management interlocks restriction from $20 million in assets to $50 million; and
- Eliminating the duplicative oversight and disparate treatment of savings associations under the federal securities laws by providing the same exemptions for savings associations that are currently available to banks with respect to investment adviser and broker-dealer activities.
For credit unions, the bill includes provisions that:
- Allow credit unions to negotiate for nominal land rents on military installations,
- Increase the current 12-year maturity loan limit for credit unions to 15 years,
- Allow credit unions to provide basic check cashing and wire transfer services to anyone in their field of membership, and
- Update the definition of net worth so merging credit unions would not be penalized as a result of a pending accounting rule change.
As a member of the Banking Committee, I have many opportunities to speak on banking-related issues. The following are some of my statements on Reg Relief:
- Mark-up of the Crapo Regulatory Relief bill, Financial Services Regulatory Relief Act of 2006, held on May 4, 2006
- Reg Relief hearing held on March 1, 2006
- Reg Relief hearing held on June 21, 2005
- Reg Relief hearing held on June 22, 2004
- Banking Committee hearing on the Current Condition of the Banking and Credit Union Industry held on April 20, 2004
- Banking Committee hearing on Money Laundering and Terrorist Financing Threats held on April 4, 2006
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