The Congressional Budget Office issued its report on the Senate's bipartisan legislation revising the post-crisis Dodd-Frank framework, estimating that the bill would increase federal deficits by $671 million over the next ten years.
The bill is scheduled for first votes in the Senate on March 6.
The CBO said the increase is due to the bill's effects on the probability in any year that a systemically important financial institution will fail.
"CBO estimates that the probability is small under current law and would be slightly greater under the legislation," the report reads.
The bulk of the increase in deficits was estimated from the bill's provision that would repeal the automatic systemically important financial institution, or SIFI, designation of banks with less than $250 billion in total assets. The report noted that under the bill, the Federal Reserve would no longer be able to collect the supervision fees it currently charges to SIFIs, leading to a $470 million decrease in revenues over the next ten years.
Although the report noted that the reduced supervision would result in administrative cost savings for the Fed, the CBO estimated that those savings amount to only $38 million over the next ten years.
The report also weighed in on the controversial carve out for the application of the supplementary leverage ratio, or SLR, to custody banks. The bill is targeted at Bank of New York Mellon Corp., State Street Corp. and Northern Trust Corp. and would allow those companies to stop counting funds parked at the central bank toward the SLR denominator, making it easier to pass capital requirements.
As written, the bill does not extend the SLR tweaks to Citigroup Inc. and JPMorgan Chase & Co. But the CBO predicted a 50% chance that the regulators would allow both companies to similarly adjust their SLRs. From a budgetary standpoint, the CBO said the changes in capital calculation would increase the probability of failure, which in turn would increase costs to the Federal Deposit Insurance Corp.'s deposit insurance fund and the orderly liquidation fund.
The CBO estimated that the SLR changes would increase deficits by $45 million over the ten-year period.
The report predicted that some provisions of the bill would change the way banks operate. The CBO pointed to the new leverage ratio for community banks, which would offer banks with less than $10 billion in total assets an off-ramp to capital requirements. The CBO said that some community banks would take on a "small increase in the risk profile" by swapping safer assets with higher-yielding and riskier assets which would be treated the same under the leverage ratio.
