After proposing this week to "reduce unnecessary regulations" for community banks and credit unions, Democratic presidential candidate Hillary Clinton later unveiled new details about how she would seek to provide relief.
Her ideas — part of a series of plans meant to foster small-business growth — include simpler capital requirements for smaller financial institutions, efforts to clarify when community banks are exempt from federal regulations, more flexibility for community banks under the Consumer Financial Protection Bureau's mortgage rules, and steps to streamline both the examination process and reporting requirements. The plan appears targeted mostly at institutions with less than $10 billion in assets.
While it would be tough in politically divided Washington for either Clinton or Republican front-runner Donald Trump to carry through on pledges to help banks, the attention to issues community banks have cared about deeply is noteworthy, signaling that the debate over regulatory relief is likely to gain steam in coming years.
Here are four things we learned from Clinton's proposal:
Efforts to "simplify" capital rules could heat up in a Clinton presidency
Several analysts reacted coolly to Clinton's plan, saying her proposals closely resemble those discussed for some time now.
"On balance, this is a pedestrian proposal that doesn't stray far from the narrow band of generally accepted banking proposals in D.C.," Isaac Boltansky of Compass Point said in a research note.
The ideas that have already been mentioned in Clinton's proposal, detailed in a campaign fact sheet issued Thursday, include exploring "ways to further simplify capital requirements for" smaller institutions.
Various policymakers have discussed such a plan, but the methods of how they get there are wildly different. The definition of how to "simplify" capital has become highly subjective.
In July, Federal Reserve Board Gov. Daniel Tarullo said capital requirements for smaller institutions should be simpler. He suggested that the system for community banks could be patterned after earlier iterations of the Basel capital regime.
Yet that is sharply different from the legislation proposed by House Financial Services Committee Chairman Jeb Hensarling, whom Democrats would likely have to negotiate with on a congressional solution in a new term. Hensarling's bill would provide relief to institutions that can hit a simpler — and in some ways more demanding — 10% leverage ratio, without the complex risk weightings utilized in the Basel regime.
Democrats have rebuffed Hensarling's bill, arguing it would go too far in providing regulatory relief, including to large institutions. Clinton's plan took a similar tack, saying she "rejects" efforts by Republicans to use "'community banking' reform as a Trojan horse for their attempts to roll back tough rules on Wall Street."
It is unclear which approach to capital simplification Clinton favors. Yet her focus on a simpler capital regime likely ensures the debate would continue if she won.
Community banks' complaints appear to be coming through on campaign trail
While Trump proposed a broad freeze on new regulations and said he would have regulators specify which rules are unnecessary, Clinton's plan hit on specific issues small banks have raised about the regulatory process.
Touching on the compliance maze community banks face in the post-Dodd-Frank environment, Clinton would require regulators to draft "statements of less than five pages that explain, in straightforward language, how their rules will affect small firms."
The plan said Clinton would also seek to mitigate "regulatory 'creep'" that results when examiners apply rules meant for large banks to smaller ones. "While smaller institutions are often explicitly exempted from financial regulations intended for larger ones, many are spending precious resources on lawyers and consultants simply to figure out that they are in fact exempt," the fact sheet said.
Her plan also called on regulators to improve coordination of federal and state exams. Failure to coordinate exam schedules and other information often results "in unnecessarily duplicative supervision," according to the fact sheet. Her proposal also expressed support for streamlining financial reporting for banks with less than $1 billion in assets.
The CFPB's mortgage underwriting rules remain a moving target
While the Consumer Financial Protection Bureau has already taken some steps to expand the "qualified mortgage" definition for small lenders, there continue to be calls to expand it further.
Clinton's plan said the candidate backs a proposal by Senate Democrats to expand QM — which guarantees compliance with CFPB underwriting requirements — to all institutions under $10 billion in assets for mortgages that "have appropriate documentation, don't include excessive fees or interest rates, and are kept on the bank or credit union's books."
Boltansky called Clinton's support for the QM expansion "the most interesting component" of her plan "as it could impact origination dynamics in the mortgage market."
"Our sense is that this proposal will face opposition — especially from larger banks and nonbanks — but odds favor passage in the next Congress," the analyst wrote.
Political divide between big and small banks could remain with a Clinton victory
Clinton has often been criticized by progressives for not going as far in supporting restrictions on the biggest banks as her former Democratic presidential rival Bernie Sanders, or Sen. Elizabeth Warren, D-Mass.
Yet her proposal strongly indicated that her support for regulatory relief did not extend to Wall Street. The fact sheet said Clinton would "veto any effort to weaken Wall Street reform."
While the plan did not outright call for prosecuting big banks, it pointed out that small bank executives and their institutions "are appropriately held accountable" when "caught breaking the law."
"But the same can't be said for big banks," the fact sheet said. "The largest financial firms have paid more than $200 billion in fines since the financial crisis, but the executives responsible are too often let off with limited consequences—or none at all. Clinton would work to ensure that regulators and prosecutors are enforcing the laws in a tough and fair manner—holding all firms to the highest standards."
The plan also established Clinton's support for ensuring at least one member of the Fed's board of governors has "expertise in issues facing smaller financial institutions."
That requirement is in line with legislation enacted last year requiring at least one Fed governor to have community banking or supervision experience. But the Obama administration's current nominee for that slot, Allan Landon, former chief executive of the Bank of Hawaii, has been held up since January 2015.