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Thursday, Jun 21, 2018
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Senate is moving to ease major banking regulations. This is how they will do it.

WASHINGTON - The Senate is slated to pass sweeping legislation this week to roll back key components of financial regulations put in place after the global financial crisis.

The passage of the legislation would be the most significant step taken by the Senate to help fulfill President Trump’s promise to loosen financial-industry regulations that the White House has said are holding back the economy. The bill, which has garnered bipartisan support, takes aim at 2010s Dodd-Frank Act and would free dozens of financial institutions from the strictest rules put in place by regulators after the financial crisis.

The legislation, sponsored by Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee, faces a procedural vote as early as Tuesday. Should it pass that hurdle, many expect it likely to receive the 60 votes necessary to pass the full Senate given the changes have Democratic support. The House has already passed legislation that would repeal larger chunks of Dodd-Frank, so proponents’ biggest remaining challenge may be to reconcile the House and Senate versions.

Read More: Here’s PolitiFact on Dodd-Frank

Here are four of some of the most significant aspects of the Senate legislation:

- How big is big? Currently, banks with more than $50 billion in assets are considered "too big to fail" and undergo the strictest regulatory scrutiny, including a yearly stress test to prove they could survive another period of economic turmoil. The proposed legislation would raise that threshold to $250 billion in assets, potentially allowing several high-profile financial institutions, including American Express, Ally Financial and Barclays, to escape the extra regulatory scrutiny.

Community and regional banks have long complained that the regulations are excessive and saddle them with extra compliance costs they don’t deserve. The change would give them more control over how much capital they keep, whether they issue dividends to shareholders or buy back stock. The Federal Reserve would retain the ability to apply extra scrutiny to some financial institutions, but overall the bill would reduce the number of banks considered "too big to fail" from 38 to 12.

"Our banks do not threaten U.S. financial market stability, and we should not be subjected to the same regulatory regime as larger banks with more complex and interconnected business models," more than a dozen banks, including American Express and Ally, said in a letter to Crapo and Sen. Sherrod Brown, D-Ohio, on Monday. "Regional and traditional lenders and our communities have been disadvantaged by a regulatory model that lumps us together with the largest, most complex banks."

Democrats and consumer groups note that it wasn’t just the country’s biggest banks that needed taxpayer bailouts during the financial crisis. The failure of smaller banks also contributed to the economic turmoil that rocked the financial system, they say. Loosening regulatory oversight of these institutions could put taxpayers at risk again, they say.

- The Volcker rule. The legislation would also offer small banks relief from one of the most controversial aspects of Dodd Frank. The so-called Volcker rule, named for former Federal Reserve chairman Paul Volcker, bars banks from making risky wagers with their own money. The rule has been criticized for being too cumbersome and time consuming.

The Senate bill would exempt small financial institutions with less than $10 billion in total assets from the rule. Such institutions do not engage in the type of risky trading that the rule aims to curb, the industry says. But leaders of at least one powerful banking regulator, the Federal Deposit Insurance Corp., say the exemption could allow risks to creep back into the financial system. "I think this would be a loophole," FDIC Vice Chairman Thomas Hoenig told The Wall Street Journal in an interview. "It does open a door."

- Mortgage data. The legislation also offers small and regional banks relief from some of the restrictions on mortgage lending put in place after the financial crisis. It would be easier, for example, to offer a loan that meets federal standards.

But Democrats and some advocacy groups are concerned that the bill would also get rid of a requirement that banks report more data on who they lend money to. This data helps regulators spot potential discrimination against minorities, they say. The Senate bill would exempt banks that make 500 or fewer mortgages a year from additional reporting requirements.

The Senate bill "would allow for the return of many of the same lending practices that caused the mortgage meltdown," said Yana Miles, senior legislative counsel for the Center for Responsible Lending, a research and policy group that seeks to curb predatory lending.

Read More: Tampa Bay has a healthy banking landscape

- What about the CFPB? The Senate legislation is as significant for what it doesn’t do as what it does. When the House passed a major rollback of Dodd-Frank last year it included measures to weaken the Consumer Financial Protection Bureau. That was important to Republicans who say the bureau, created under Dodd-Frank, has been too aggressive and needs to be reined in. The House legislation, for example, stripped the CFPB of its power to write major rules regulating consumer financial companies, such as debt collectors, without getting approval from Congress.

But that legislation failed to gain traction in the Senate, in large part because of its attack on the CFPB. That was a non-starter for Democrats who have lashed out at any efforts to weaken the agency. To attract Democratic co-sponsors in the Senate, the Crapo bill is silent on one of Republicans biggest gripes, the power of the CFPB.

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