House Approves Dodd-Frank Act

July 1, 2010

Authored by: Bryan Cave

On June 30, 2010, the House passed the Dodd-Frank regulatory reform bill in the form agreed upon by the Conference Committee the day before.  The bill, as passed, was identical to the version approved previously by the Committee except that the so-called “pay-for” amendment, which would require banks with over $50 billion in assets to cover the $19 billion cost of the financial reform legislation, was replaced by early termination of the Troubled Asset Relief Program and a 20 basis-point increase in required FDIC reserves from 1.15% to 1.35% of insured deposits by 2020.

According to Senate Banking Committee Chairman Chris Dodd, immediate TARP termination would save approximately $11 billion, an estimate of the incremental amount that would not be repaid if all remaining allocated TARP funds were spent during the three months left under its current term.   According to the Treasury’s May 2010 monthly report to Congress (issued on June 10, 2010), TARP’s projected deficit impact was estimated at $105.4 billion, with less than $550 billion of the authorized $700 billion having been spent.

The legislation allocates the funding based on increased FDIC reserves among a broader base of banks than would have been subject to the $19 billion assessment.  Banks with more than $10 billion in assets would support the FDIC reserve increase through their deposit insurance premiums, while the $19 billion assessment would have only applied to banks with over $50 billion in assets.  The Independent Community Bankers of America estimates that based on March 31, 2010 call report data, 68 banks between $10 billion and $50 billion would be subject to the higher premiums, in addition to 36 banks with over $50 billion in assets.  On the other hand, approximately 7,600 smaller banks would be exempt from the funding requirement.

While the FDIC supports the increase, it is unclear how it will be implemented.   The legislation revises the FDIC’s basis for calculating deposit insurance premiums to asset size from deposit levels, and further changes would be required in order to determine relative rates for banks above and below the $10 billion asset threshold.

The bill now proceeds to the Senate, which will not consider it until after the Fourth of July recess.  Senate approval is not assured, as only one Republican senator, Susan Collins (R-Maine) has indicated her intent to support the legislation in its current form.  Other Republican senators who previously voted in favor of the bill—Sens. Scott Brown (R-Mass.), Olympia Snowe (R-Maine) and Chuck Grassley (R-Iowa)—have not yet indicated how they are likely to vote.  In addition, other issues could crop up before the vote, given that the intervening time will provide time for further review and analysis of the bill’s provisions.