Power struggle threatens to sink bank legislation

Power struggle threatens to sink bank legislation
© Greg Nash

A power struggle between House Republicans and Senate Democrats could kill what's seen as the last chance Congress has to revise the strict banking rules enacted by former President Obama.

Speaker Paul RyanPaul Davis RyanDems unveil slate of measures to ratchet up pressure on Russia National Dems make play in Ohio special election Trump vows to hold second meeting with Putin MORE (R-Wis.) has vowed to freeze a bipartisan Senate bill to loosen the 2010 Dodd-Frank Act until senators agree to negotiate changes.

But Senate Democrats who spent years working on the measure have ruled out amending it. They say House Republicans should quickly pass the bill, calling it the most sweeping revamp of Dodd-Frank to ever earn bipartisan support.

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The battle threatens to derail one of the few major pieces of legislation with a chance to pass before the midterm elections. 

"We're not rubber-stamping the Senate bill,” said House Financial Services Committee Chairman Jeb HensarlingThomas (Jeb) Jeb HensarlingOn The Money: Fed chief lays out risks of trade war | Senate floats new Russia sanctions amid Trump backlash | House passes bill to boost business investment House passes bipartisan bill to boost business investment On The Money: US files complaints at WTO | House leaders get deal to boost biz investment | Mnuchin says US will consider Iran sanctions waivers | FCC deals blow to Sinclair-Tribune merger MORE (R-Texas). “Their bill is staying on the Speaker's desk unless and until they're willing to negotiate with the House."

The Senate on Wednesday passed a bipartisan bill to exempt dozens of banks from some of the strictest parts of Dodd-Frank. Introduced by Senate Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoOn The Money: Trump rips Fed over rate hikes | Dems fume as consumer agency pick refuses to discuss border policy | Senate panel clears Trump IRS nominee Dems fume as Trump's consumer bureau pick refuses to discuss role in border policy McConnell calls for Senate hearings on Russia sanctions MORE (R-Idaho), the bill was the product of years of talks between Republicans and Democrats concerned about Dodd-Frank’s impact on smaller lenders.

The bill was introduced in November with the support of 12 Senate Democrats, neutralizing the opposition of liberal colleagues who opposed it. It passed this week with the support of 67 senators — one of the few major bills passed under President TrumpDonald John TrumpNFL freezes policy barring players from protesting during anthem McConnell spokesman on Putin visit: 'There is no invitation from Congress' Petition urges University of Virginia not to hire Marc Short MORE backed by more than two-thirds of the chamber.

Sponsors of the deal hailed it as a bipartisan breakthrough that would provide critical relief to suffocating community banks and credit unions. They said swift House passage of the bill was essential not only for struggling communities, but for a Congress too often mired in gridlock. 

"If we're able to get this done and move forward, the message to the public is ‘yes, we can function,’ " said Sen. Heidi HeitkampMary (Heidi) Kathryn HeitkampDems pressure GOP to take legal action supporting pre-existing conditions Election Countdown: Senate, House Dems build cash advantage | 2020 Dems slam Trump over Putin presser | Trump has M in war chest | Republican blasts parents for donating to rival | Ocasio-Cortez, Sanders to campaign in Kansas Senate Dems build huge cash edge in battlegrounds MORE (D-N.D.), a sponsor of the Senate bill, last week. “This is a moment in time and I think House leadership understands that."

Senators backing the deal pushed for the House to pass their bill without delay and expected pressure to build on Republicans who’ve long sought to roll back Dodd-Frank.

But House leaders aren’t budging. Hensarling, a close Ryan ally, told reporters Thursday that the Speaker promised him the Senate bill won’t move until senators agree to negotiations.

A spokeswoman for Crapo declined to comment.

Hensarling and fellow Financial Services Committee Republicans said the Senate’s bipartisan bill should also reflect the will of the House. They insist dozens of bills from their panel that passed with little to no opposition would be uncontroversial additions to the Senate package.

The committee circulated a list of more than two dozen bills that Democrats widely backed. Most of those are intended help small businesses raise capital by loosening securities laws and other financial rules. Hensarling cited bills to ease registration requirements for mergers and acquisitions brokers and independent investors, along with a measure to crack down on human trafficking. 

"There are some tough votes in this, but these are not the tough ones,” added Rep. Bill Huizenga (R-Mich.), who chairs the Financial Services panel’s capital markets subcommittee. 

“These are things that have a lot of commonality, a lot of support, and frankly deserve to have a proper hearing."

Senate Democrats behind the deal say they don’t want to jeopardize the bill’s careful bipartisan balance. They say they’ve already included more than 40 bill and provisions passed by the House on their own or through the CHOICE Act, Hensarling’s sweeping Dodd-Frank rewrite that the Senate ignored after it passed in June 2017.

Close to half of the Democrats backing the Senate bill are up for reelection this year in states that voted overwhelmingly for Trump in 2016. The legislation opened a brutal intraparty debate between those moderates and liberal senators such as Elizabeth WarrenElizabeth Ann WarrenOn The Money: Trump rips Fed over rate hikes | Dems fume as consumer agency pick refuses to discuss border policy | Senate panel clears Trump IRS nominee Dems fume as Trump's consumer bureau pick refuses to discuss role in border policy Trump vows to hold second meeting with Putin MORE (D-Mass.) and Sherrod BrownSherrod Campbell BrownDems pressure GOP to take legal action supporting pre-existing conditions Dems fume as Trump's consumer bureau pick refuses to discuss role in border policy Manufacturers support Reed to helm Ex-Im Bank MORE (D-Ohio), who channeled the wrath of the progressive base against the bill.

Hensarling is one of the most conservative members of Congress, and his CHOICE Act was panned by senators and industry insiders as an unrealistic wish list. While Hensarling praised the Senate for taking a strong “first step” to rein in Dodd-Frank, he said the chamber’s bill falls short of what’s needed. 

"I wish the bill did 10 percent of what Sherrod Brown and Elizabeth Warren said it did,” Hensarling said.

Democratic senators, having already taken heat from the left over the bill, are wary of giving Hensarling a chance to drag the bill to the right.

Heitkamp said in a Thursday statement that reopening the bill would “prevent Congress from achieving the shared goal of providing relief for community banks and credit unions.” 

“I respect that some House Republicans want to amend our legislation,” Heitkamp said. “Our bill is the way to reach that bipartisan result that can actually pass in both chambers and become law.”

The delay has started a fresh round of lobbying for changes. While dozens of banks would be exempted from tougher federal oversight under the Senate bill, the industry would prefer to change the way regulators judge the risk of banks.

The Senate bill raises the threshold for tougher Federal Reserve oversight from $50 billion to $250 billion in assets. Bank lobbyists are pushing for lawmakers to scrap the asset threshold, which banks and lawmakers have called arbitrary, and replace it with a test that measures several factors — size included — to determine a bank’s riskiness. 

House Republicans and the financial industry are also desperate to rein in the controversial Consumer Financial Protection Bureau (CFPB). Democrats have long protected the CFPB and could abandon the bill if a provision changing the bureau is added.

House critics of the Senate bill say those issues wouldn’t be the focus of their negotiations. They insist they’re only looking to add one chamber’s bipartisan offerings to another’s and help boost the U.S. economy in the process.

"They worked hard to create a bipartisan vision for the bill that passed the Senate,” said Rep. French HillJames (French) French HillLawmakers demand answers from Mnuchin on Trump tariffs House votes to repeal auto-loan guidance, setting new precedent May brings key primaries across nation MORE (R-Ark.), a Financial Services panel member. “We're proposing to do the same."