A new report from Standard and Poor’s (S&P) estimates the Dodd-Frank Act could reduce pretax earnings at the nation’s eight largest banks by as much as $34 billion annually, up from the potential $26 billion yearly impact the ratings agency predicted in November 2010.
The Aug. 9 report said most of the project cost increase arises from expectations that regulators will adopt a strict interpretation of Dodd-Frank’s ban on banks’ proprietary trading, commonly known as the Volcker Rule. S&P initially estimated the Volcker Rule could reduce earnings among the largest banks by as much as $4 billion per year. The agency now estimates a strict interpretation could cost the banks up to $10 billion.
The report also revised estimates concerning the impact of Dodd-Frank’s cap on debit card interchange fees known as the Durbin Amendment. The agency said it raised its projection of the amendment’s yearly impact even after regulators adopted less stringent rules than initially proposed.
“We’ve raised our estimate of the negative annual revenue impact on the largest banks to $5.4 billion from our previous estimate of $4.5 billion to $5 billion because the amendment has had a bigger effect than we anticipated,” the agency wrote.
It does not appear regulatory reform under Dodd-Frank will affect S&P’s ratings of the nation’s mega banks, the report stated. “However, proposed rules and regulations could change our assessments of banks’ business or risk positions (as our criteria define them), which could ultimately lead to rating actions in isolated cases.”