Legislators and regulators around the world strengthened financial regulations following the 2008 financial crisis that helped cause the 2009 global recession and contributed to the severity of the 2007-2009 US recession. In the US, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law in 2010. The law created the Consumer Financial Protection Bureau (CFPB), required banks to file living wills (i.e., plans for how to wind down financial institutions in the event they become insolvent), and instituted a wide array of other new rules for the banking industry. However, as the financial crisis recedes from memory and as some participants in the banking industry voice complaints that regulations are preventing them from lending more aggressively, Congress and regulatory agencies have taken steps to curtail some regulations.
Deregulation via Legislation
In 2018, the US enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act. The law removed some Dodd-Frank regulations, notably the requirement for banks with assets of less than $250 billion to undergo yearly stress tests conducted by the Federal Reserve System. This exemption represents an increase from the previous exclusion of banks with assets less than $50 billion. It also exempts banks with less than $10 billion in assets from the Volcker Rule, a provision in Dodd-Frank that prohibits commercial banks from engaging in short-term securities trading for their own profit. While not a complete reversal of Dodd-Frank, the 2018 law exempts more banks from some regulations, and most banks are now exempt from stress tests. Only eight commercial banks had assets of $250 billion or more in 2018.
Less Stringent Regulators
In addition, as the economy has improved and the Trump Administration prefers a lighter regulatory touch, several regulatory agencies have curtailed the stringency of some rules (although some curtailments stem from the aforementioned 2018 law). For instance, the Federal Reserve Board continues to lower the rigor of its annual stress tests that model how a bank might fare in a crisis, partly because the economy and bank balance sheets continue to strengthen. The Federal Reserve Board also plans to require less detailed or less frequent living wills from most banks. Furthermore, the CFBP under the Trump Administration has taken a more conciliatory approach to regulation. For instance, in early 2019 the agency proposed withdrawing a part of the pending regulations on the payday lending industry, first proposed in 2016 and supposed to have taken effect in January 2018. The proposed regulations would have required the industry to check borrower’s ability to repay before issuing payday loans. The remaining rules would take effect in 2020. The payday lending industry is not part of the commercial banking system, but is part of the broader financial services sector.
As bank balance sheets have become stronger and banks have accumulated more capital with the improvements in the economy and in business and consumer finances, regulators feel more comfortable with less stringent oversight of the banking sector. They continue to fine tune the regulatory tools put in place following the financial crisis to adjust to a more stable economic climate. However, the occurrence of a strong recession or the discovery of financial misdeeds such as those uncovered at Wells Fargo (creating accounts clients did not request and improper insurance charges on car loans and mortgages) could bring pressure on policymakers to strengthen regulations again.
For more insights into the US commercial banking industry, see Commercial Banking: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group. This report forecasts to 2023, in nominal US dollars, the following measures of the US commercial banking industry:
- interest revenue
- noninterest revenue (e.g., fees)
- net loan and lease charge-offs
- net income
- gross loans and leases
In addition, credit union revenue is forecast in nominal US dollars to 2023.
To illustrate historical trends, the measures of commercial banking noted above and credit union revenue, as well as the number of respective firms, establishments, and employees, are provided in annual series from 2008 to 2018. In addition, segmentation for commercial bank assets, gross loans and leases, and deposits is provided in annual series from 2008 to 2018.
The scope of this report covers the commercial banks, the commercial banking subsidiaries of bank or financial holding companies, and the savings institutions (also known as savings and loans, or thrifts) that are insured by the Federal Deposit Insurance Corporation (FDIC). Credit unions are not insured by the FDIC and are excluded from commercial banking figures, but a separate overview is provided in the report.
Financial institutions that offer commercial banking, investment banking, and insurance services are typically chartered as bank holding companies. The asset management and investment banking subsidiaries of bank holding companies are excluded from the scope of this report. In addition, stand-alone investment banks, insurance underwriters, mutual funds, and other investment entities or securities brokers are excluded.
Related Focus Reports include:
About the Author
Leon Mengri is a Senior Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, which offer concise overviews of market size, product segmentation, business trends, and more.