Distant Thunder - The 2010 Financial Reform Impact Beyond Wall Street: How Smaller Banks on Main Street Dodged Major Reforms Aimed at Wall Street

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For smaller banks beyond Wall Street, last summer’s financial reform has produced more smoke than fire. While mega-banks lament the loss of lucrative and exotic stock and bond businesses, main street banks avoided regulation under the more onerous proposals. So far, the reform law — known as the Dodd-Frank Wall Street Reform and Consumer Protection Act — has not yet affected smaller non-money centers in ways anticipated before its passage.

Money Meltdown Triggers D.C. Smack Down

The 2008 financial crisis exposed some extraordinary weaknesses in the U.S. financial system, especially on Wall Street. After the worst of the financial crisis, and the pounding of the last gavel on the Congressional hearings, many regulators and money-center executives concluded that, fundamentally, the problem was the gigantic and inter-connected financial firms. Each of these financial battleships was tethered to others. If one sank, they all did.

Therefore, the focus on the law was two fold: First, identify the biggest financial ships, without which the entire system would sink. Second, disconnect institutions from each other — such as derivatives trading, insurance, lending, and certain securities dealing. Secondarily, Congress addressed a myriad of perceived smaller leaks in the financial vessel, with new laws addressing specific activities of banks, insurers, finance companies, and brokers. The heat of the financial crisis, combined with the simmering populist rage against big banks, fueled a combustible and high decibel legislative session that produced years of legislative tinkering in only a few months.

The Bottom Line for Smaller Banks

Amidst the hundreds of new laws and amendments to existing statutes are a few provisions that will directly affect independent banks throughout the country, regardless of size or location. Among the most significant are:

The Long Fuse of the Big Bomb

As dramatic as the passage of the law, some of the most significant aspects of the law are yet to come. The new law includes dozens of future trigger dates, including the following:

Craig McCrohon is a partner specializing in securities as well as mergers and acquisitions, with an emphasis on financial institutions. He served with the legal staff of the U.S. Senate Banking Committee, was the Chairman of the Chicago Bar Association Consumer Financial Services Committee, and was a member of the Illinois governor’s transition team for financial regulation. He can be reached at 312/840-7006 or cmccrohon@burkelaw.com.

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