CRS Insights
Senate Banking: Financial Regulatory Improvement Act
Sean M. Hoskins, Analyst in Financial Economics (shoskins@crs.loc.gov, 7-8958)
Marc Labonte, Specialist in Macroeconomic Policy (mlabonte@crs.loc.gov, 7-0640)
Baird Webel, Specialist in Financial Economics (bwebel@crs.loc.gov, 7-0652)
May 19, 2015 (IN10278)
This Insight highlights some of the major policy proposals included in a May 12, 2015 discussion draft released by
Senator Richard Shelby that is scheduled for markup by the Senate Banking Committee. The draft encompasses a
broad package of reforms to the financial regulatory system, including some changes to the Dodd-Frank Act (P.L.
111-203).
Regulatory Relief
Some provisions of the draft are intended to provide regulatory relief for financial institutions and, supporters
argue, expand consumers' access to credit. Regulatory relief may face tradeoffs between reducing regulatory
burden and potentially reducing the benefits of regulation (e.g., safety and soundness, consumer and investor
protection, and financial stability). Some of the reforms are aimed at assisting community banks, whereas others
would apply to all institutions that perform certain regulated activities, regardless of size and whether they are
banks or nonbanks. The draft would increase certain exemptions and make modifications to certain definitions in
Consumer Financial Protection Bureau (CFPB) mortgage rules to make it easier for institutions to comply. The
draft also would expand exemptions from certain rules issued by the federal banking regulators, such as highly
rated banks with under $10 billion in assets from the Volcker Rule. Some provisions would provide banks relief
from specific regulations, whereas others would provide relief from supervisory processes, such as exams and call
reports.
Financial Stability Oversight Council
The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC), a council composed primarily of
heads of financial regulators and chaired by the Treasury Secretary. For agencies headed by a commission or
board, only the agency chair has membership on FSOC. The draft would permit other agency commissioners to
attend FSOC meetings and access FSOC information. This proposal is part of the broader debate about balancing
the relative authority of agency chairs compared with other commission members, who may have different
political affiliations.
Enhanced Regulation of Large Financial Firms
To address the "too big to fail" issue, the Dodd-Frank Act created an enhanced prudential regulatory regime
administered by the Federal Reserve (Fed) for all bank holding companies (BHCs) with more than $50 billion in
assets, which comprises fewer than 1% of all BHCs. "Regional banks" have argued that they are not a source of
systemic risk and should not automatically be subject to enhanced regulation. The discussion draft would increase
the $50 billion threshold to $500 billion and allow FSOC (by two-thirds vote, including the chair) to designate
banks with between $50 billion and $500 billion in assets that have been referred by the Fed as systemically
important and subject them to enhanced regulation. The designation process is modeled on the existing nonbank
designation process.
FSOC can designate nonbanks as systemically important financial institutions (SIFIs) subject to prudential
regulation by the Fed. To date, four institutions have been so designated. Some fear that SIFI designation will
prove to be irrevocable, even if systemic importance declines. The draft would require FSOC to provide more
information to institutions and give them more opportunities to take actions to avoid or reverse SIFI designation. It
would increase public disclosure requirements surrounding the designation process. A consideration for creating a

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designation process for banks is that it has proven time consuming for nonbanks in practice, and additional
requirements could lengthen it further.
Insurance
Insurance is largely regulated by the states, and the policy debate is often focused on the balance between state and
federal roles. The draft would generally reinforce the primary role of the states. It would require the specific
consent of individual state insurance regulators before insurance company assets could be moved as part of Fed
oversight of thrift holding companies or accessed through liens as part of the FDIC's orderly liquidation of a
financial institution under the Dodd-Frank Act. The thrift holding company language parallels current law for
BHCs. It would also require additional reporting and consultative measures surrounding ongoing international
negotiations to create insurance regulatory standards.
Federal Reserve
The draft focuses on increasing the oversight and transparency of the Fed. For example, it would increase the
frequency and specificity of information that the Fed provides Congress on monetary policy decisions, reduce the
lagged release of Federal Open Market Committee (FOMC) transcripts from five years to three, and require a vote
by the board on bank enforcement actions exceeding $1 million. Congress has attempted to balance greater Fed
oversight and accountability with a desire to maintain the Fed's independence.
The draft also modifies the Fed's governance structure. For example, it would allow Fed governors other than the
chair to hire personal staff, make the president of the New York Fed subject to presidential appointment and
Senate confirmation, shift authority on setting the interest rate on reserves from the board to the FOMC, and create
an independent commission to recommend structural changes to the Federal Reserve System.
Securities
The securities policy debate is often focused on the balance between investor protection and regulatory burden. The
draft would make it easier for certain thrift holding companies and emerging growth companies to raise capital by
reducing registration requirements. It would also reduce the disclosure requirements for compensatory benefit
plans. The draft would repeal a Dodd-Frank requirement that foreign regulators indemnify a U.S-based swap data
repository for any litigation expenses related to a data request.
Fannie Mae and Freddie Mac
The draft includes several provisions related to Fannie Mae and Freddie Mac, two government-sponsored
enterprises (GSEs) that play a significant role in the housing finance system. Housing finance reform is one of the
unresolved issues since the financial crisis, and the draft would address issues related to the operation of the GSEs
while they remain in government conservatorship. For example, the draft would require the GSEs to share more
risk each year with the private sector, and it would prohibit the government from selling its ownership stake in the
GSEs to private investors. It would prohibit some of the fees that the companies charge from being used as offsets
for legislation unrelated to housing finance reform.

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