GAO outlines ‘moderate’ reduction of credit from Dodd-Frank

Jan. 4, 2016 -- A study of the impact of the 2010 Dodd-Frank legislation on financial institutions indicates a moderate to minimal initial reduction in the availability of credit, according to the results revealed by the U.S. Government Accountability Office (GAO) last week.

However, the study, issued Dec. 30, also notes that “more significant effects may arise in the future and the full impact of the Dodd-Frank Act has yet to be seen as many of the regulations have yet to be implemented and insufficient time has passed to evaluate the regulations that have been implemented.”

The 2010 “Wall Street Reform and Consumer Protection Act “(known informally as the “Dodd-Frank Act”) requires or authorizes various federal agencies to issue rules to implement reforms intended to strengthen the financial services industry. The act, as amended, includes a provision for GAO to annually study these regulations.

This year’s report examines the regulatory analyses federal agencies conducted during the Dodd-Frank Act rulemakings; the possible impact of certain Dodd-Frank provisions and related regulations on credit unions and community banks, and; the possible impact of Dodd-Frank Act provisions and related regulations on financial market stability.

According to the study, the GAO stated it reviewed studies, interviewed staff from federal financial agencies and market participants, and analyzed data about the impact on credit unions and community banks of the legislation from 2010 to 2015. The study stated that credit unions, community banks and industry associations that were interviewed by the GAO noted an increased compliance burden in relation to the Dodd-Frank rules. In addition, some respondents noted a decline in specific business activities such as loans that would not be considered “qualified mortgages.”

The study notes that GAO determined that industry feedback suggests a moderate to minimal initial reduction in the availability of credit. However, the GAO did note that the data received to date do not show definitively that the Dodd-Frank regulations have had a negative impact on mortgage lending.

In April 2012, NASCUS met with GAO to discuss the legislation and the general regulatory and compliance landscape affecting credit unions. In that meeting, NASCUS stressed that significant changes in regulation require time and money in terms of training and implementation at the credit union operational level, as well as for training for examiners to get up to speed on new regulations.

Dodd-Frank Regulations: Impacts on Community Banks, Credit Unions and Systemically Important Institutions