What Does The Partial Rollback Of Dodd-Frank Mean For The Largest U.S. Banks?

Trefis Team , Contributor
Last week, President Trump signed into law a partial rollback of the Dodd-Frank Act after the proposed changes cleared legislative hurdles in the Senate and the House. The Crapo bill dilutes some of the stringent regulations imposed by the Dodd-Frank Act on the U.S. financial system, and is primarily aimed at making things easier for small- and medium-sized U.S. banks, which were seen as being affected by the tougher rules in a disproportionate manner compared to their larger rivals.

But the bill did have things to offer to some of the largest U.S. banks – especially the two U.S. custody banking giants, BNY Mellon and State Street. Based on the changes proposed by the new bill, and using our interactive dashboards for BNY Mellon and State Street, we expect these two banks to return more cash to investors in the near future, as their profits improve marginally over coming years. As this will increase net margins and reduce outstanding shares for the banks going forward, this implies a small upside to these banks’ valuations.

A Quick Summary Of The Changes Implemented By The Bill Aimed At Banks
The Crapo Bill, formally signed as the Economic Growth, Regulatory Relief, and Consumer Protection Act, introduces changes on several aspects of the U.S. financial industry. The following is a summary of changes that target the bank holding companies:
Increase In SIFI Threshold

• Current regulations label all banks with more than $50 billion in assets as systemically important financial institutions, and subject them to higher regulatory scrutiny, in addition to stricter capital requirements. The bill increases the SIFI threshold to $100 billion, and will raise the threshold further to $250 billion after 18 months.

• Which Banks Are Affected? The Federal Reserve Board currently includes 38 banks with assets worth more than $50 billion in its rigorous annual stress tests. This figure will fall to just 12 given the new threshold, as nearly all regional banks will now be exempt from stricter regulatory oversight. Notably, investment banking giants Goldman Sachs and Morgan Stanley will not get any respite because of their identification as Global SIFIs by the Basel Committee

• Why Does This Matter? While the banks with $100 billion to $250 billion in assets are not completely off the hook (and will be subjected to stress tests periodically), they will save millions in regulatory compliance costs linked with the stricter scrutiny.
Boost To Supplementary Leverage Ratio Figure of Custody Banks

• Current regulations require banks to leave out any deposits they have with central banks of developed nations (like the Fed and the ECB among others) while calculating their supplementary leverage ratio. Overall, this requirement has a negative impact on this key ratio figure. However, the new bill allows only the custody banks to include these deposits in their calculation of supplementary leverage ratio – resulting in an immediate boost to this figure

• Which Banks Are Affected? This change is a welcome one for BNY Mellon, State Street and Northern Trust. Despite being the third- and fourth-largest custody banks in the world, JPMorgan and Citigroup will not benefit from this change because of their diversified business models (with significant investment banking exposure).

• Why Does This Matter? BNY Mellon and State Street have regularly fared among the best at the Fed’s annual stress tests in terms of impact of a severely adverse economic conditions on their profits and capital ratio figures. As their capital ratio figures are already very strong, the relaxed leverage ratio requirements should free up considerable amount of cash for these custody banks – allowing them to return a sizable chunk to shareholders through dividends and share repurchases in the near future.
Change In Treatment Of Certain Municipal Obligations
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• The current classification of securities held by banks does not allow U.S. Municipal Securities to be included as a part of high-quality liquid assets. The bill makes these securities admissible as a level 2B liquid asset (which can be included as a part of the Tier 2 capital ratio figure, with a haircut of 25-50%) provided they are investment grade and are marketable.

• Which Banks Are Affected? As all banks hold some proportion of municipal securities, this move is likely to have a positive (albeit small) impact on all U.S. banks

• Why Does This Matter? Banks with a sizable portfolio of eligible U.S. municipal securities on their balance sheets should be able to report a small uptick in their capital ratio figures thanks to this amendment. Clearly, the positive impact will be more for banks with a larger proportion of these securities.

These charts were made using our interactive dashboard platform, which is used by CFOs and Finance teams, private equity professionals and more to build interactive models and create, share and present scenario analyses.

Original article with original foot notes is here.

Image not mine, source not known. From internet

Where to Buy: Price-to-Rent Ratio in 76 US Cities

Original Article


The price-to-rent ratio is a measure of the relative affordability of renting and buying in a given housing market. It is calculated as the ratio of home prices to annual rental rates. So, for example, in a real estate market where, on average, a home worth $200,000 could rent for $1000 a month, the price-rent ratio is 16.67. That’s determined using the formula: $200,000 ÷ (12 x $1,000).

Price-to-Rent Ratio by City

Using U.S. Census data, SmartAsset calculated the price-to-rent ratio in every U.S. city with a population over 250,000. Applying that ratio, we also calculated a projected average home price for a house or apartment that rents for $1,000 in each market.

Note that actual home values will vary based on factors such as proximity to commercial centers, access to transit and home size—rentals tend to be smaller (and therefore less expensive) than for-sale properties, so these values may overestimate true market prices.

Renting vs. Buying

The cities with the highest price-to-rent ratios are San Francisco, Honolulu and New York City, which means that they are least friendly to buyers. San Fran’s price-rent ratio of 45.02 is reflective of a market that is highly unfavorable to buyers, although with rents soaring that may soon change.

In NYC, an apartment that rents for $1,000 should cost around $433,920. That, however, represents the entire market—all five boroughs. In Manhattan and Brooklyn, the numbers look even worse. Here are the price-to-rent ratios for the five New York boroughs individually (prices for $1,000 rental in parenthesis):

Manhattan – 49.98 ($599,760)

Brooklyn – 42.31 ($507,720)

Queens – 30.05 ($360,600)

The Bronx – 32.54 ($390,480)

Staten Island – 35.83 ($429,960)

Based on its ratio of rental costs to home values, Manhattan is probably the most expensive place to buy a home in the country. At the other end of the spectrum are places like Houston, San Antonio and Dallas. These Texan markets are very favorable to home-buyers, with ratios below the national average price-to-rent ratio of 18.92.

The city with the lowest ratio in the United States is Detroit, with a price-to-rent ratio of 5.60. That means that a $1,000 rental in Detroit should sell for just $67,200. Indeed, Wayne County, in which Detroit is located, is the best county for buyers in Michigan.

Historical Price-to-Rent Ratio

National and city price-to-rent ratios have risen and fallen over the years depending on the state of the housing market. In the years before the housing crisis, as the housing market heated up, the national ratio rose from 22.73 (in 2005) to 24.50 (in 2007). Then, however, after the real estate market turned, as home prices fell and rentals grew more expensive, the ratio began to fall, dipping below 20 in 2011, down to the current rate of 18.92.

Before the housing bubble and subsequent crisis, the average hovered somewhere around 15. That indicates that we are still in a time period that is more favorable to renters than buyers from a historical perspective.

What Price-to-Rent Ratio Says About Affordability

While the price-to-rent ratio is useful for comparing buying to renting, it does not reflect the overall affordability of buying or renting in a given market. In theory, a place where renting and buying are very expensive could have the same price-to-rent ratio as a place where both renting and buying are very cheap.

Take San Francisco for example. San Fran has the highest price-to-rent ratio in the country, which indicates that renting should be more affordable than buying in the City by the Bay. However, as we all know, rentals in San Francisco are very expensive. The city’s high price-rent ratio is only reflective of the fact that buying is relatively more expensive than renting. It does not saying anything about absolute affordability of either buying or renting in that city.

City Price-to-Rent
Home Price
(for a $1,000 Rental)
San Francisco, California 45.02 $540,240
Honolulu, Hawaii 40.2 $482,400
New York, New York 36.16 $433,920
Oakland, California 35.73 $428,760
Los Angeles, California 34.69 $416,280
San Jose, California 34.56 $414,720
Seattle, Washington 33.47 $401,640
Long Beach, California 32.62 $391,440
Washington, D.C. 32.09 $385,080
San Diego, California 29.52 $354,240
Portland, Oregon 28.7 $344,400
Anaheim, California 28.55 $342,600
Boston, Massachusetts 27.56 $330,720
Denver, Colorado 26.46 $317,520
Chula Vista, California 26.02 $312,240
Jersey City, New Jersey 24.75 $297,000
Santa Ana, California 23.97 $287,640
Austin, Texas 22.67 $272,040
Anchorage, Alaska 22.51 $270,120
Colorado Springs, Colorado 22.02 $264,240
Raleigh, North Carolina 21.83 $261,960
Miami, Florida 21.76 $261,120
Lexington, Kentucky 21.67 $260,040
Albuquerque, New Mexico 21.53 $258,360
Sacramento, California 21.42 $257,040
Atlanta, Georgia 21.35 $256,200
Chicago, Illinois 21.07 $252,840
Minneapolis, Minnesota 21.06 $252,720
Newark, New Jersey 20.85 $250,200
Greensboro, North Carolina 20.44 $245,280
Virginia Beach, Virginia 20.38 $244,560
Lincoln, Nebraska 20.11 $241,320
Louisville, Kentucky 20.08 $240,960
Riverside, California 20.07 $240,840
New Orleans, Louisiana 19.97 $239,640
Bakersfield, California 19.95 $239,400
Plano, Texas 19.46 $233,520
Fresno, California 19.32 $231,840
Nashville, Tennessee 19.32 $231,840
Oklahoma City, Oklahoma 19.17 $230,040
St. Paul, Minnesota 18.93 $227,160
Phoenix, Arizona 18.71 $224,520
Cincinnati, Ohio 18.68 $224,160
Mesa, Arizona 18.15 $217,800
Henderson, Nevada 18.15 $217,800
Charlotte, North Carolina 18.12 $217,440
Wichita, Kansas 17.77 $213,240
Omaha, Nebraska 17.61 $211,320
Aurora, Colorado 17.32 $207,840
Stockton, California 17.26 $207,120
Tulsa, Oklahoma 17.19 $206,280
Kansas City, Missouri 16.92 $203,040
Las Vegas, Nevada 16.4 $196,800
Tucson, Arizona 16.24 $194,880
Baltimore, Maryland 16.15 $193,800
St. Louis, Missouri 16.09 $193,080
Columbus, Ohio 15.76 $189,120
Arlington, Texas 15.72 $188,640
Tampa, Florida 15.63 $187,560
Indianapolis, Indiana 15.3 $183,600
Fort Wayne, Indiana 15.29 $183,480
Philadelphia, Pennsylvania 15.28 $183,360
Dallas, Texas 14.97 $179,640
Houston, Texas 14.77 $177,240
El Paso, Texas 14.71 $176,520
Milwaukee, Wisconsin 14.49 $173,880
Fort Worth, Texas 14.18 $170,160
Jacksonville, Florida 14.06 $168,720
San Antonio, Texas 13.96 $167,520
Corpus Christi, Texas 13.09 $157,080
Toledo, Ohio 12.56 $150,720
Pittsburgh, Pennsylvania 12.19 $146,280
Memphis, Tennessee 12.06 $144,720
Cleveland, Ohio 10.97 $131,640
Buffalo, New York 10.73 $128,760
Detroit, Michigan 5.6 $67,200

Agree or Disagree?


New Regulations
• Require creditors (lenders) to notify applicants (borrowers) of their right to receive a copy of appraisal within three business days of receiving a loan application.

• Require creditors (lenders) to provide applicants a copy of each appraisal, and other written valuation, promptly upon completion or three business days before consummation or account opening, whichever is earlier.

• Prohibit creditors from charging for a copy of an appraisal and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuation.

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