DEFINITION of Crapo Bill

The Crapo Bill is the nickname for Economic Growth, Regulatory Relief, and Consumer Protection Act  (S.2115), which passed the Senate by a margin of 67 to 31 in March 2018. It is named after Mike Crapo, a United States Senator (R-ID) and chairman of the Senate Banking Committee, who sponsored the bill.

The Crapo bill is designed to roll back parts of the Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank. This legislation was passed in 2010 in the wake of the 2008 financial crisis.  (See also: The 2007-08 Financial Crisis In Review.)

Dodd-Frank consolidated the number of regulatory agencies responsible for financial oversight, increased the amount of capital that banks had to maintain as a cushion against market downturns, and required improved standards and levels of transparency.

Dodd-Frank has been repeatedly criticized by the financial industry. Banks lobbied extensively to roll back capital and reporting requirements that it considered costly and onerous, but proposed legislation tended to lack bi-partisan support. This was often due to legislation focusing on dismantling the Consumer Financial Protection Bureau (CFPB). Unlike earlier attempts, the Crapo bill focused on easing bank rules.

Boosts Asset Threshold to $250 Billion from $50 Billion

The primary focus of the Crapo bill is to increase the asset threshold that banks must pass before being subject to certain regulations and oversight. The Dodd-Frank threshold was set at $50 billion, above which banks would be considered “too big to fail.”

The Crapo bill would increase this threshold to $250 billion in assets, which only a relatively small number of banks, such as Bank of America, Wells Fargo, and JP Morgan Chase, would exceed. While the legislation has been sold as a way to help community banks, several mid-sized banks would also benefit.

Banks that do not meet the $250 billion threshold will eventually be exempt from the stress tests managed by the Federal Reserve. These tests are designed to estimate the impact a financial shock would have on a bank based on its risk exposure and reserves. Additionally, these banks would no longer be required to provide an outline of how they would be wound down in the case that they failed.

Critics of the bill have argued that reducing the number of banks that face more stringent oversight will increase the odds that banks will fail during a future financial crisis. They also point out that data collection requirements relating to mortgages would be relaxed, allowing smaller banks and credit unions to avoid having to report this data.

One part of Dodd-Frank – the creation of the Consumer Financial Protection Bureau (CFPB) – had long rankled some members of Congress as well as financial companies. The CFPB was designed to protect consumers from predatory and fraudulent practices taken by banks, lenders, and other financial institutions, and could levy fines if it found that consumers were being taken advantage of.

Because its budget is controlled by the Federal Reserve, proponents have said that it has been protected from Congressional meddling. Opponents say that this has resulted in the CFPB overreaching. (See more: How the Consumer Financial Protection Bureau Works.)

In order to pass into law, the Crapo bill must be reconciled with the Financial CHOICE Act, which was passed by the U.S. House of Representatives in 2017. The House version seeks to roll back Dodd-Frank even further, with a specific focus on the CFPB. (See also: Financial CHOICE Act.)