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NY Fed researchers cast doubt on significance of $10B threshold for US banks


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NY Fed researchers cast doubt on significance of $10B threshold for US banks

Researchers at the Federal Reserve Bank of New York have found little support for the concern that the Consumer Financial Protection Bureau has reduced the availability of consumer credit. However, the researchers did find that CFPB supervision may make banks more risk-averse. A secondary finding in the study suggests banks do not significantly alter their growth strategies around the $10 billion asset threshold.

The CFPB has been marked by controversy since its inception. Following the 2008 financial crisis, the Dodd-Frank Act created the regulator to oversee and enforce consumer finance laws. Industry proponents have suggested the CFPB has reduced credit availability via broad rulemaking and an aggressive enforcement agenda. But a new study by New York Fed researchers suggests the CFPB has not hurt credit availability.

In an Oct. 9 blog post, the study's authors wrote that their research shows CFPB supervision had little effect on mortgage origination volume. The study focused on the $10 billion asset threshold, which subjects banks to CFPB oversight. Banks under the asset threshold are generally exempt from CFPB enforcement actions. The research focused on banks with total assets between $1 billion and $25 billion as of 2011 and sorted them into two groups: subject to CFPB supervision in 2011 or not. The study found that the "estimated effect of CFPB oversight on mortgage origination volume is economically small and generally not statistically different from zero."

However, the study did find that banks subject to CFPB regulation were less likely to originate riskier loans. The study found a 6% decline in market share for mortgages insured by the Federal Housing Administration, loans that tend to be higher-risk since they cater to borrowers with small down payments.

The $10 billion asset threshold is significant for many reasons beyond CFPB oversight. Banks over the limit have to conduct company-run stress tests and are capped at how much they can collect in debit interchange fees. While the researchers did not study those policies, the study did look at bank behavior around the $10 billion threshold. The researchers found that banks just below the $10 billion threshold did not slow their growth rate to avoid crossing the asset level. "If anything, these banks grow slightly faster on average," the authors wrote. Further, the study found no effect on noninterest expenses when crossing the threshold though researchers acknowledged the study was unlikely to detect a moderate increase in overhead spending.