A Senate committee on Thursday voted to ease some of the financial regulations enacted in 2010, approving legislation that Republicans said would help small banks avoid burdensome rules but that Democrats charged would help big Wall Street firms as well.
The 12-10 vote in the Senate Banking Committee split along party lines, demonstrating the sharp partisan divisions that still exist nearly five years after the Dodd–Frank Wall Street Reform and Consumer Protection Act was approved in the wake of the 2008 financial crisis.
While there is bipartisan consensus that some changes are needed in Dodd-Frank to help community banks avoid burdensome regulations, Republicans and Democrats have split sharply on how to do that.
“Is Dodd-Frank perfect? Of course not,” said Sen. Sherrod Brown (D-Ohio). “But we must not undermine the key protections that the law provides to prevent another catastrophe for our economy or for our neighbor who has saved for years to buy a home.”
Brown and all nine of his Democratic colleagues on the Senate Banking Committee opposed the 216-page bill proposed by the panel’s chairman, Sen. Richard Shelby (R-Ala.).
They supported a narrower bill from Brown that the committee voted down Thursday, also on a party-line vote.
The White House has said President Barack Obama opposes Shelby’s bill.
But Shelby said he hopes that a bipartisan compromise still can be reached because of general agreement that Dodd-Frank needs some revisions.
Shelby and nearly all congressional Republicans opposed the Dodd-Frank bill in 2010, calling it an overreaction to the financial crisis that would overload financial firms with government regulation.
Urged on by the banking industry, GOP leaders have been eager to make major changes to Dodd-Frank. Shelby began working on his bill after taking over as committee chairman in January when Republicans gained the Senate majority.
The legislation, called the Financial Regulatory Improvement Act, would make numerous changes. Among them is giving regulators the discretion to ease tough new regulations on financial institutions with between $50 billion and $500 billion in assets in a move that could help large regional banks, such as US Bancorp.
Dodd-Frank requires any firm with assets of more than $50 billion to be designated a systemically important financial institution, subjecting it to greater oversight and requirements to hold more capital to cover potential losses.
Shelby’s bill would make the designation a requirement only for banks with more than $500 billion in assets. Seven banks, including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., are that large.
The mandatory $50 billion threshold “is a blunt instrument,” Shelby said.
“The total assets held by a bank are an important factor, but not the only factor that should be considered when determining whether a bank poses a risk to the entire financial system,” he said.
The bill also makes numerous changes to help small banks, such as expanding the number that would qualify for less-frequent regulatory exams.
Shelby’s legislation also would ease some new mortgage-lending requirements and make changes at the Federal Reserve, such as requiring the president of the New York Fed to be nominated by the president and confirmed by the Senate instead of appointed by the bank’s board.
In addition, the bill would establish a commission to study the Fed’s structure and submit recommendations to Congress about how to improve it.
Frank Keating, president of the American Bankers Association trade group, said the legislation “would provide much-needed regulatory relief to banks of all sizes.”
“This bill is a significant step toward removing many of the statutory and regulatory barriers that constrain banks’ ability to serve their customers and meet the needs of their local communities,” he said.
But Democrats united in opposition, saying the legislation went too far in loosening regulations.
“The chairman’s bill is good for giant banks, but it’s bad for families and it’s dangerous for the economy,” said Sen. Elizabeth Warren (D-Mass.).
Congress should not make it harder for regulators “to supervise banks with hundreds of billions of dollars in assets” or make it “easier for the big banks to offer risky mortgages,” she said.
Sen. Bob Corker (R-Tenn.) voted for Shelby’s bill and said the Democratic alternative was too narrow. He also expressed hope for a bipartisan compromise while indicating a key feature of Shelby’s legislation was a problem.
“I think its going to be incredibly hard to move from the $50-billion to the $500-billion level” for mandatory designation as a systemically important financial institution, Corker said.
House Republicans have passed several bills easing Dodd-Frank regulations in recent years, but they died in the Senate when it was under Democratic control.
Shelby needs to gain some Democratic support to overcome a potential filibuster. If he could craft a compromise, it probably would be approved by the Republican-controlled House.
But White House Press Secretary Josh Earnest indicated last week that Shelby’s bill as it stands now would not get Obama’s signature.
“I’m confident that when it comes to opposing this piece of legislation, the president will be able to work effectively with Sen. Warren and others to stop it,” Earnest said.