Multiple financial trade organizations are thrilled that Sen. Mike Rounds (R-S.D.) has reintroduced a Senate version of the Taking Account of Institutions with Low Operation Risk (TAILOR) Act, which would require agencies to tailor regulations based on business models and risk profiles of individual financial institutions.
Rep. Scott Tipton (R-Colo.) originally introduced a version in the House in the summer of 2015, with Rep. Andy Barr (R-Ky.) as a co-sponsor. The House Financial Services Committee passed the bill, along with nine others, in March 2016 and referred it to the Senate Banking Committee, of which Rounds is now chairman, in July 2016.
Under the bill, regulators would be required to tailor regulations “in a manner that limits the regulatory impact, including cost, human resource allocation and other burdens, on such institution or type of institution as is appropriate for the risk profile and business model involved.”
It also requires regulators to consider certain factors when adjusting regulatory regimes for individual financial entities:
- “(1) whether it is necessary to apply such regulatory action to individual institutions or those of similar type in order to accomplish the underlying public policy objectives of the statutory provision involved;
- “(2) the impact of such regulatory action on the ability of such institutions to flexibly serve their customers and local markets now and in the future;
- “(3) the aggregate impact of all applicable regulatory actions on the ability of such institutions to flexibly serve such customers and local markets, both now and in the future;
- “(4) the potential impact that efforts to implement the regulatory action, including through the use of examination manuals, third-party service provider actions, or other factors, may work to undercut efforts to tailor such regulatory action described [in the bill]; and
- “(5) the statutory provision authorizing the regulatory action, the congressional intent with respect to the statutory provision, and the policy objectives sought by the Federal financial regulatory agency in implementing that statutory provision.”
Among the regulators the bill would affect are the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Consumer Financial Protection Bureau. It calls for each regulatory agency to provide Congress an annual report detailing the steps taken to tailor their regulations, according to the bill’s provisions, and conduct a review of all the regulations they’ve issued since the 2010 passage of the Dodd-Frank Act. The agency then would have to revise any regulations that issued since Dodd-Frank’s passage that do not conform to the TAILOR Act.
“Financial institutions across South Dakota have been negatively impacted by burdensome, unnecessary regulations because of disproportionate compliance costs since the passage of the Dodd-Frank Act in 2010,” Rounds said in a statement. “Excessive costs and regulatory hurdles continue to hurt consumers the most. The TAILOR Act would ease the regulatory burden on smaller financial institutions so they can focus their resources on taking care of their customers, rather than spending time and money on compliance, the costs of which are ultimately passed onto the consumer in South Dakota. I look forward to working with my colleagues on this important legislation so our smaller financial institutions are better able to meet the needs of families and local businesses.”
The American Bankers Association (ABA), Credit Union National Association (CUNA), Independent Community Bankers of America (ICBA) and the alliance of state bankers association are among trade associations to express support for the legislation.
“The TAILOR Act will reduce regulatory burden for financial institutions with lower risk profiles relative to systematically significant institutions by requiring financial regulators to take risk into account when promulgating regulations,” CUNA President and CEO Jim Nussle wrote in a letter to Rounds. “Constant regulatory changes present a challenge for small depository institutions because the fixed costs of compliance are proportionately higher for smaller-sized credit unions and banks than for large institutions. Almost half of the credit unions in the United States operate with five or fewer full-time equivalent employees; the largest banks in most cases have compliance departments that exceed that number by multiples of a hundred or more.”
House Financial Committee Ranking Member Rep. Maxine Waters (D-Calif.) expressed concerns in March 2016 that the committee majority’s ultimate goal with the bill’s passage was to undercut the Dodd-Frank Act.
“While some of these proposals are modest or incremental in nature, seeking, in good faith, to make improvements to existing law, the vast majority of the bills we will consider today represent the next phase of a coordinated attack on the proper functioning of our financial markets,” Waters said. “It’s clear that the majority has been determined to use this committee to undo the important reforms we created in the wake of the 2008 financial crisis.”
Because the bill is not directly tied to the budget process, it would need 60 votes or more to pass the Senate. Republicans have a 52-48 majority in the Senate.