The U.S. Senate Banking Committee earlier this month unveiled a bipartisan bill that would scale back portions of the Dodd-Frank Act, providing greatly desired relief for small and regional financial institutions.

The bill gave community bankers a lot to cheer about, but also contained some less favorable provisions and, in some cases, drew criticism for not going far enough on reform.

However, don’t expect to see too much political maneuvering or dramatic change to the legislation before the bill reaches the floor.

“I think based on what I’ve heard from the folks on the ground in [Washington] D.C., this is kind of it; this is the deal,” Jon Skarin, a senior vice president who deals with regulatory issues at the Massachusetts Bankers Association, told Banker & Tradesman. “I don’t think we are going to see any changes on it. If they start going back to try and get more things in or get things taken out, I don’t think it’s going to end well for anyone.”

Since Dodd-Frank was passed following the financial crisis, it has received pushback from the banking industry, with community bankers and other smaller financial institutions arguing the bill overreaches and punishes them for acts they largely did not commit.

Among other provisions, Dodd-Frank raised capital ratios, eliminated proprietary trading (the Volcker rule), further regulated derivatives, implemented stress testing for banks that reach a certain asset threshold and created the Consumer Financial Protection Bureau.

The proposal would raise the threshold for the size of an institution that regulators “deem too big to fail.” Currently, that threshold is $50 billion in assets; the new threshold would be $250 billion.

The proposal would also end stress testing entirely for banks with under $100 billion in assets, simplify capital calculations for community banks and provide some relief on the Volcker rule for banks under $10 billion in assets, among a host of other provisions.

Skarin said another less-discussed provision in the bill provides charter flexibility for federal thrifts with less than $15 billion in assets. Currently, federal thrifts are capped on the amount of non-residential lending they can do, whereas similar state-chartered mutual banks do not have this cap.

The proposed bill would remove the cap for national thrifts under $15 billion in assets. By doing so, said Skarin, banks in this size range have greater flexibility to expand into other states – at which time a federal charter might make more sense – without doing an initial public offering, and therefore preserving their mutual status, a win for the Bay State’s many mutual banks.

The bill also helps credit unions, which makes it a rare piece of legislation where community banks and credit unions find common ground.

Notably, the bill would ensure that a one- to four-family dwelling that is not the primary residence of a member will not be considered a member business loan under the Federal Credit Union Act.

At other financial institutions these loans are classified as mortgages, but at credit unions one- to four-family loans are currently classified as member business loans, said Paul Gentile, president and CEO of the Cooperative Credit Union Association. And member business loans at credit unions are capped at 12.25 percent of total assets.

“This fix simply brings equity with other financial institutions,” Gentile said. “It is important because credit unions are vital for these types of loans and being able to classify them as mortgages means credit unions can be more competitive with rates and pricing so it benefits consumers and the marketplace.”

Gentile also noted other provisions in the bill benefitting credit unions, such as those that provide relief on the Truth in Lending Act, the Home Mortgage Disclosure Act and the Real Estate Settlement Procedures Act.

The Big Picture

The bill, which has nine Republican and eight Democrat co-sponsors, has received general praise and support from both the American Bankers Association and the Independent Community Bankers of America, as well as from the Credit Union National Association and the National Association of Federally-Insured Credit Unions.

“Any tinkering with the member business loan cap [at credit unions] concerns us,” said Skarin. “But from our association’s standpoint, we have to look at the bigger picture and say there is a lot of positive things for our members.”

The proposed bill also does not touch the CFPB, a sore spot for many financial institutions. But that might have been a no-go for Democrats and there is pending legislation out of the House that seeks to rein in the CFPB.

Overall, Skarin said the bill came out bigger than he thought it would.

U.S. Senate Banking Committee Chairman Mike Crapo (R-Idaho) and the Democrats “are negotiating in good faith,” he said. “There are provisions in there one side wanted more than the other, but that’s probably how legislating should work.”