What Contributed to Changes in Regulatory Restrictions Since 2016?
In my previous blog post, I showed that the parts of the Code of Federal Regulations (CFR) that concern the financial sector continued to grow in terms of complexity and verbosity through the first two years of the current administration. In what follows, I offer some preliminary perspectives on key drivers of change between 2016 and 2019. While much of the CFR remained unchanged through the first two years of the current administration, most of the changes were initiated under the previous administration. Moreover, the parts that generated the largest contractions were initiated under the previous administration.
A Breakdown of Changes in Regulatory Restrictions at the CFR Part Level
Table 1 below shows the breakdown in 2019 of the total number of CFR parts by federal financial regulator, as well as the number of parts that expanded or contracted in terms of the number of regulatory restrictions by 2019. Recall that regulatory restrictions include words such as “may not”, “must”, “prohibited”, “required” and “shall”.
The table shows that while the OCC had more parts that contracted than parts that expanded in terms of regulatory restrictions, all other agencies had more parts that expanded than parts that contracted. Moreover through 2019, agencies had anywhere between 60–78 percent of the parts that exhibited no change. Still, this does not tell us much about what actually changed. For that you have to examine what changed at the CFR part level (or in some cases, the subpart level, which is not available from RegData 3.2).
Parts Expanding Most
In terms of parts that expanded, 12 CFR Part 1041, otherwise known as the “Payday lending rule”, which covers payday and other short-term loans, was finalized by the CFPB and generated an increase of 474 regulatory restrictions. This increase represented 4.2 percent of the agency’s 2019 regulatory restrictions.
The part with the next highest expansion relative to total agency regulatory restrictions was 12 CFR Part 746, “Appeals Procedures”, which concerns appeals in the context of NCUA supervisory determinations. A rule change finalized in October 2017 likely explains the expansion in regulatory restrictions. The changes concerned expanding the number of determinations by the Supervisor Review Committee that a covered credit union could appeal including those related to capital, earnings, operating flexibility and supervisory oversight federally insured credit unions.
12 CFR Part 327 comes in third in terms of the highest expansion relative to total agency regulatory restrictions. A likely reason concerns a rulemaking on assessments in May 2016 for small banks that have been federally insured for at least five years. One of the changes concerned the implementation of a statistical model of the probability of a bank’s failure during the subsequent three years.
12 CFR Part 1024 (Regulation X) and 1026 (Truth in Lending — Regulation Z) exhibit the fourth and fifth highest expansions relative to total agency regulatory restrictions, respectively. Regulation X, which concerns protections for consumers who either have or apply for loans, was amended in 2017. Regulation Z changes include a rule on mortgage servicing rights finalized in March 2018.
12 CFR Part 229 (Regulation CC) exhibited the sixth highest expansion relative to total agency regulatory restrictions. In 2017, the rule was amended to help the transition toward electronic check collection and took effect on July 1, 2018.
12 CFR Part 252 (Regulation YY) exhibited the seventh highest expansion relative to total agency regulatory restrictions. The concerns enhanced prudential standards, such as company-run and supervisory stress tests, and has been modified several times in recent years.
12 CFR Part 741, “Requirements for Insurance”, exhibited the eighth highest expansion relative to total agency regulatory restrictions, and was modified in 2018.
Parts Contracting Most
12 CFR Part 325, “Stress Testing”, exhibited the highest contraction relative to total agency regulatory restrictions at -11.4 percent. In 2014, the FDIC revised certain capital rules, and while they were no longer in effect, the rules remained on the books. Part 325 was renamed and now focuses on stress test rules.
12 CFR Part 390, “Regulations Transferred from the Office of Thrift Supervision”, exhibited the second highest contraction relative to total agency regulatory restrictions at -10.1 percent. Part 390 arose with the abolishment of the Office of Thrift Supervision pursuant to Section 313 of the “Dodd-Frank Wall Street Reform and Consumer Protection Act”. As with 12 CFR Part 325, in 2014, the FDIC revised certain capital rules, and while they were no longer in effect, the rules remained on the books. Part 390 was renamed and as of April 2018 focuses on stress test rules.
12 CFR Part 391 exhibited the third highest contraction relative to total agency regulatory restrictions at -3.1 percent. Part 391, which concerned the abolishment of the Office of Thrift Supervision, was eliminated in late 2015.
12 CFR Parts 197 and 193, like Parts 390 and 391, concern the abolishment of the Office of Thrift Supervision, and generated the fourth and fifth highest contractions relative to total agency regulatory restrictions at -1.7 percent and -1.1 percent, respectively.
While financial regulatory restrictions continued to grow on net during the first two years of the current administration, the results do not reflect the full impact of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), which became law on May 24, 2018, and rule-making takes time to propose and finalize. Moreover, the full impact of EGRRCPA, not to mention the policy response to the COVID-19 pandemic, may remain unknown until at least 2021 or 2022, when the data becomes available.
What Contributed to Changes in Regulatory Restrictions Since 2016? was originally published in FinRegRag on Medium, where people are continuing the conversation by highlighting and responding to this story.