Repealing Dodd-Frank Hurts Bank Credit Ratings, S&P Global Says

After the Republican election victory in November, it seemed a forgone conclusion that the Dodd-Frank Act would get swept away or gutted sooner, rather than later.

Months later, the drive appears to have lost momentum. And now a recent report from S&P Global warns that repealing parts of Dodd-Frank could threaten bank credit ratings.

Analysts at KB&W weighed in on the report’s political repercussions, calling it “a mixed bag for lawmakers.”

We think Republicans will like the parts of the report that conclude that repealing Title II of Dodd-Frank (orderly liquidation authority or OLA) could increase risk to creditors and the part of the report which concludes that

“regulatory relief within limits could spur further economic growth, as banks may be more willing to increase loan growth and balance sheet size.”

The S&P report’s commentary on OLA supports Republicans’ arguments that Dodd-Frank did not end “too big to fail” and that OLA allows for some bailouts of banks and their creditors.

Republicans will cite these sections of the report to bolster their arguments to change Dodd-Frank. At the same time, Democrats will like the part of the report which concludes that repealing capital, liquidity, and resolution planning requirements for the largest banks could be viewed as a negative for creditors.

Bottom-line: the S&P report will be used by each side in the ongoing debate over banking regulation and is probably a wash politically. We do not think the report should be market moving for bank stocks.

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