Highlights of the Financial Reform passed by the House of Representatives

7/8/2010

By Charles J. Garrison, CPA

Last week, the U.S. House of Representatives passed its version of the Wall Street Reform and Consumer Protection Act. While the House-passed version is substantially similar to the final conference committee agreement, some elements are important to community banks.

To start, FDIC deposit insurance provisions will now be calculated based on a variation of net assets (assets minus tangible equity) rather than the current calculation based on domestic deposits. It is expected this will lower deposit premiums for community banks in relation to the large multi-national banks. The target ratio for the deposit insurance fund will increase from 1.15% to 1.35%.

Two other key provisions target large banks and bank holding companies, and in the House version, will not affect community banks. These provisions are the Consumer Financial Protection Bureau, whose greatest impact will be felt by banks and credit unions with assets in excess of $10 billion. The Financial Stability Oversight Council will be created to oversee large bank holding companies (assets over $50 billion) and certain non-bank financial companies.

Lastly, the “Collins” amendment was reworked to provide relief to holding companies of smaller banks. Trust Preferred Securities (TruPS) will now be excluded from Tier I capital calculation, but bank holding companies with less than $500 million in assets will be exempt from this provision. Additionally, TruPS issued before May 19, 2010, by bank holding companies of less than $15 billion will be grandfathered. Bank holding companies in excess of this limit must phase out TruPS in the Tier I calculation over three years.

The Senate is expected to vote on the measure after the July 4th recess. We will provide updates as the final measure takes shape, with an expected enactment this month.