Dodd-Frank: What does it mean for you?

by. Alan Jackson

After the events of the last few years, not many would argue that the framework regulating American financial institutions was in need of reform. However, the main piece of legislation that was passed to bring about this very reform has caused a lot of confusion and concern among community banks.

Dodd-Frank is a sweeping set of regulations, covering 16 titles over 838 pages, with much of the rule-making left up to regulatory agencies. In fact, the law directs federal agencies to implement its provisions through 398 separate rule-making requirements.
While some of these reforms may work as intended, others could saddle community banks with unnecessary and undeserved regulation. The good news is that less than one-third of the laws set forth in Dodd-Frank have been written at this time, which means there is still time for changes to be made.

A paper published by the American Enterprise Institute last year – “The Impact of Dodd-Frank on Community Banks” – helps highlight some of the key areas where change would be most beneficial. Of the 16 titles in Dodd-Frank, it is expected that seven may impact community banks. I’ve talked about some areas of impact in previous blogs, so here are a few more:

• Title 1 – Financial Security: Proposed rules amending section 171 of this title would mandate financial institutions of all sizes comply with Basel III standards, requiring community banks to hold significantly more basic capital than current rules require. These complex standards call for tracking in 13 areas of deductions and adjustments to capital, and changes to risk-weighted assets on a quarterly basis. Many community banks will have to hire new staff or consultants to come into, and remain in, compliance.