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Fred Dunkley

Fred Dunkley

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Fred Dunkley is a tech analyst, writer, and seasoned investor. Fred has years of experience covering global markets and geopolitics. 

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Is This The Death Of The Dodd Frank Act?

Cash

Lessons have presumably been learned in the banking sector 10 years after the financial crisis, and the floodgates of dangerous lending can be re-opened. At least, that’s what Senate Republicans and more than a dozen Democratic allies seem to think.

The U.S. banking sector is teetering on the edge of a tantalizing legislative prospect as the Senate prepares to scale back Obama-era regulations meant to protect consumers—and the economy as a whole--after the 2008 financial crisis.

Later this week, the Senate is scheduled for an initial procedural vote to move the roll-back to the next phase. If it becomes law, it will mean the near-death of the Dodd Frank Act.

In a rare bipartisan move, more than a dozen Democrats are supporting the Republican move to roll back banking regulations by exempting financial companies with less than $250 billion in assets from high-level Federal Reserve scrutiny.

It’s meant, according to its supporters, to level the playing field—especially for small and mid-sized regional financial companies.

The bill would essentially raise the threshold that indicates when a bank is too big to fail. Under the roll-back, the ‘too big to fail’ threshold would be $250 billion, rather than the current $50 billion.

On the smaller player field, that means more than 24 banks operating with much more lax oversight.

More specifically, it would mean that banks meeting the exemption won’t have to hold as much capital to cover balance sheet losses, nor will they be required to have safety mechanisms in place if they fail. And no more annual Fed health tests, either. Once enacted, the roll-back would mean only occasional check-ups.

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While few are arguing against a reprieve for smaller banks, others will benefit, too—and that’s where the roll-back is hitting a snag. It will also be a bonanza for banking giants, including foreign megabanks, as confirmed earlier this year by Treasury Secretary Steve Mnuchin.

Foreign megabanks and shadow banks like Deutsche Bank, Santander and Credit Suisse would enjoy a “windfall exemption from Wall Street Reform’s strict financial stability rules”. And big hedge funds would also benefit.

So while big banks—foreign and domestic—and hedge funds are anxiously awaiting a green light on regulatory relief, the opposition is sounding the alarm bells.

This massive undermining of the Dodd Frank Act, they say, is a national security threat that will inevitably lead to the same type of dangerous lending that set the 2008 financial crisis in motion.

The bill--the Economic Growth, Regulatory Relief, and Consumer Protection Act, or S. 2155--would deregulate 25 of the largest 38 banks in the US and undermine key provisions that have protected homeowners and homebuyers since 2010, according to opponents.

More ominous still, they say, the bill would render the U.S. financial system vulnerable to another crisis that would see taxpayers bailing out banks—again.

The roll-back isn’t a done deal—yet. It still has to get through fairly staunch opposition among Democrats who aren’t part of the ‘dirty dozen’ allying with Republicans on this. But the roll-back supporters seem to have the advantage. Later this week, that advantage may become clearer.

By Fred Dunkley for Safehaven.com

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