Crapo Bill: What It is, How It Works, Criticism

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.

Hans Daniel Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states.

What Is the Crapo Bill?

The term Crapo Bill refers to an economic bill signed into law in 2018 that eases some of the restrictions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill, officially called Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2115), was sponsored by Mike Crapo, a United States Senator (R-ID) and chair of the Senate Banking Committee, and passed the Senate by a margin of 67 to 31 in March 2018.

Some of the changes introduced by the banking bill include raising the asset threshold for banks considered too big to fail as well as requirements for community banks. The bill was approved and signed by former President Donald Trump in May 2018.

Key Takeaways

• The Crapo Bill is an economic and banking bill that eases some of the restrictions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
• The bill was introduced in 2017 and signed into law by President Donald Trump in May 2018.
• The bill increased the threshold for banks deemed too big to fail from $50 billion to $250 billion.
• It also eliminates the Volcker Rule and improves lending conditions for mortgage borrowers, veterans, and student borrowers.

Understanding the Crapo Bill

The Dodd-Frank Act was passed in 2010 in the wake of the 2007-2008 financial crisis.   It 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.   Although it was meant to provide relief for consumers, it was met with a lot of resistance. Critics said the restrictions burdened banks and other financial institutions by adding more red tape and unnecessary regulations.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, or the Crapo Bill, was introduced by Republican Senator Mike Crapo of Idaho in November 2017 and became law after it was signed by President Trump on May 24, 2018.   The main goal of the bill is to roll back some of the regulations put forth by Dodd-Frank. Its primary focus is to increase the asset threshold limits that banks must meet 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 increased this threshold to $250 billion in assets, which only a relatively small number of banks—notably, Bank of America, Wells Fargo, and JP Morgan Chase—would exceed.   While the legislation was sold as a way to help community banks, several mid-sized banks also stand to benefit.

But that's not all. Other key elements of the bill include eliminating the Volcker Rule for institutions with assets of less than $10 billion.   This section of the Dodd-Frank Act prevented banks from undertaking some activity with their own investment accounts and from dealing with hedge funds and private equity funds. The bill also promises to improve access to mortgage lending for consumers, increases protections for veterans and student borrowers, and improvement for capital creation.  

Although the Crapo Bill eliminates and amends certain portions of the Dodd-Frank Act, it does not repeal it entirely.

Special Considerations

Banks that do not meet the threshold of $250 billion will eventually be exempt from the stress tests managed by the Federal Reserve Board. 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.

Although the Crapo bill increases the threshold for banks considered too big to fail, it also extends some authority to the Federal Reserve with respect to smaller institutions. According to section 401 of the bill, the Fed may, under its discretion, consider putting the same restrictions that larger banks face on institutions with assets as low as $100 billion.  

Criticism of the Crapo Bill

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).

One part of Dodd-Frank—the creation of the 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. The agency could also levy fines if these institutions were found to be taking advantage of consumers. Because its budget is controlled by the Federal Reserve, proponents say it has been protected from Congressional meddling. Opponents say that this has resulted in the CFPB overreaching.

Unlike earlier attempts, the Crapo bill focused on easing bank rules. However, critics of the Crapo Bill argue that reducing the number of banks that face more stringent oversight will increase the odds that banks will fail during a financial crisis in the future. 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.