Dodd-Frank Exemption for Single N.Y. Bank Advances in House

A New York City bank with $10.5 billion in assets would be the sole beneficiary of a Dodd-Frank Act exemption approved today by the House Financial Services Committee.

Emigrant Bank asked lawmakers on the committee to approve a change to the 2010 financial-regulation overhaul law that will save the institution $300 million. The committee voted 35-15 today to approve the measure.

A group of New York lawmakers, led by Republican Representative Michael Grimm, have taken up the bank’s cause, arguing that it would be unfairly punished for protecting itself during financial stress. The measure would retroactively change the date used to determine which institutions are exempt from new rules on how institutions consider trust-preferred securities.

“This would have a very, very detrimental impact on my constituents who rely on the bank,” Grimm said today. “It was an act of prudence on the part of Emigrant Bank that caused them to be captured” by the provision.

Grimm’s measure has eight co-sponsors, six of whom are from New York and on the Financial Services Committee. The measure is not currently scheduled for House floor consideration and has no companion measure in the Democrat-controlled Senate.

Senator Susan Collins, a Maine Republican, pushed for the inclusion of the new rules on how banks count trust-preferred securities during the Senate debate on Dodd-Frank in 2010. The provision, bolstered by the support of then-Federal Deposit Insurance Corp. Chairman Sheila Bair, eliminated the tier-one capital treatment for trust-preferred securities at institutions with more than $15 billion in assets.

$2.3 Billion Loan

Emigrant Bank went over the threshold when it took out a $2.3 billion loan in order to cover its uninsured deposits during the financial crisis, Richard C. Wald, the bank’s chief regulatory officer, said in May 18 testimony on the measure. By the time the bank was back under $15 billion in assets, it was past the law’s cutoff date of Dec. 31, 2009.

“Because of an effort to be exceedingly cautious with regard to addressing its liquidity during the peak of the financial crisis, Emigrant had more than $15 billion in assets on December 31, 2009 but significantly less than $15 billion when Dodd-Frank was enacted,” Wald said.

Grimm’s measure would add March 31, 2010 as another cutoff date, relieving the bank of its potential losses.

“When we find ourselves in these situations we should be responsive to mitigating unintended consequences,” Representative Spencer Bachus, an Alabama Republican and chairman of the committee, said.

Representative Barney Frank, the top Democrat on the committee and co-author of the law that bears his name, said he had no objection to the substance of the measure intended to address the problems of a single bank.

“In my judgment that’s not necessarily a bad thing,” Frank said, noting that he “proudly” sought earmarks for projects in his Massachusetts district. He also said regulators had not raised objections to the change.

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