Democrats clash on Dodd-Frank rollback bill

Democrats clash on Dodd-Frank rollback bill
© Greg Nash

Democrats are set for a serious fight over banking regulations this week as Republicans bring a bill to the floor that liberals say is a significant rollback of the Wall Street reform bill signed into law by former President Obama.

The battle pits moderate Democrats up for reelection this year in states such as Missouri, West Virginia, North Dakota and Montana against Sen. Elizabeth WarrenElizabeth Ann WarrenSanders endorses Oakland teachers strike On The Money: Dems set Tuesday vote on Trump's emergency declaration | Most Republicans expected to back Trump | Senate plots to avoid fall shutdown drama | Powell heading before Congress News media has sought to 'delegitimize' Tulsi Gabbard, says liberal journalist MORE (D-Mass.) and other progressives, and comes as the party braces for primary fights between the left and center.

The bipartisan measure to roll back critical parts of the Dodd-Frank Act is expected to pass the Senate within days, with the first procedural vote scheduled for Tuesday.

Moderate Democrats and Republicans who support the bill call it a long-overdue step to free community banks and credit unions from unnecessary regulations.

Liberal critics of the legislation, including some Democrats seen as potential White House candidates in 2020, say it uses small institutions as cover for loosening rules on major banks, putting the entire economy at risk.

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“If we lose the final vote next week, we’ll be paving the way for the next big crash,” Warren said. “It’s time for the rest of us to fight back and demand that Washington work for us, not the big bank lobbyists.”

Sponsored by Senate Banking Committee Chairman Mike CrapoMichael (Mike) Dean CrapoNew push to open banks to marijuana industry Private insurance plays a critical part in home mortgage ecosystem On The Money: Lawmakers race to pass border deal | Trump rips 'stingy' Democrats, but says shutdown would be 'terrible' | Battle over contractor back pay | Banking panel kicks off data security talks MORE (R-Idaho), the bill is the result of years of talks between Republicans and Democrats who are worried about the impact that Dodd-Frank has had on smaller financial firms and banks.

The legislation is expected to clear a filibuster easily, with Sen. Mark WarnerMark Robert WarnerHillicon Valley: Trump pushes to speed up 5G rollout | Judge hits Roger Stone with full gag order | Google ends forced arbitration | Advertisers leave YouTube after report on pedophile ring Warner questions health care groups on cybersecurity Cohen to testify before Senate Intel on Tuesday MORE (D-Va.) predicting it could receive close to 70 votes.  Sponsors are making changes to the bill in hopes that it can also pass the House.

The Democratic backers include Sens. Claire McCaskillClaire Conner McCaskillPoll: 33% of Kentucky voters approve of McConnell McCaskill: Lindsey Graham 'has lost his mind' Trey Gowdy joins Fox News as a contributor MORE (Mo.), Joe ManchinJoseph (Joe) ManchinOvernight Energy: Trump ends talks with California on car emissions | Dems face tough vote on Green New Deal | Climate PAC backing Inslee in possible 2020 run Dems face tough vote on Green New Deal Gabbard cites ‘concerns’ about ‘vagueness’ of Green New Deal MORE (W.Va.), Heidi HeitkampMary (Heidi) Kathryn HeitkampOvernight Energy: Trump taps ex-oil lobbyist Bernhardt to lead Interior | Bernhardt slams Obama officials for agency's ethics issues | Head of major green group steps down Trump picks ex-oil lobbyist David Bernhardt for Interior secretary On The Money: Shutdown Day 27 | Trump fires back at Pelosi by canceling her foreign travel | Dems blast 'petty' move | Trump also cancels delegation to Davos | House votes to disapprove of Trump lifting Russia sanction MORE (N.D.), Joe DonnellyJoseph (Joe) Simon DonnellyOvernight Energy: Trump taps ex-oil lobbyist Bernhardt to lead Interior | Bernhardt slams Obama officials for agency's ethics issues | Head of major green group steps down Trump picks ex-oil lobbyist David Bernhardt for Interior secretary EPA's Wheeler faces grilling over rule rollbacks MORE (Ind.) and Jon TesterJonathan (Jon) TesterOvernight Energy: Trump ends talks with California on car emissions | Dems face tough vote on Green New Deal | Climate PAC backing Inslee in possible 2020 run Dems face tough vote on Green New Deal How the border deal came together MORE (Mont.), all of whom are up for reelection this year in states won by President TrumpDonald John TrumpAverage tax refunds down double-digits, IRS data shows White House warns Maduro as Venezuela orders partial closure of border with Colombia Trump administration directs 1,000 more troops to Mexican border MORE.

Those senators are using the bill to flex their bipartisan bona fides, saying it shows that they are not beholden to any party when it comes to solving problems.

“When you don’t respond to these kinds of legitimate concerns from small lenders, there’s a resentment to the overall policy,” Heitkamp said. “We tend to throw the baby out with the bathwater with that kind of frustration.”

Those Democrats also said the bill can help community banks hold their own against encroaching Wall Street titans and revitalize lagging rural economies.

“I don’t think for a second that Dodd-Frank is the only reason we’re seeing consolidation in banking,” Tester said. “Technology plays a big role in that. Population shifting plays a big role in that. But on this committee, I can deal with Dodd-Frank.”

The White House has touted the bill as well. Gary Cohn, Trump’s top economic aide, said he expects the president to sign it if it passes Congress.

Trump has pledged to “dismantle” Dodd-Frank, and has talked with several banking lobbying groups about rolling back the law. He met last week with credit union advocates, who said afterward that the president had pledged to do anything he can to remove red tape for them.

The bill would exempt all banks with less than $250 billion in assets from tighter Federal Reserve oversight by raising the threshold at which a bank or firm is considered “systemically important.”

Under Dodd-Frank, banks with more than $50 billion in assets are subject to yearly stress tests and higher capital requirements and must submit an annual “living will” to explain how the firm could be liquidated without causing a financial crisis. The Crapo bill raises that threshold to $250 billion, freeing more than 20 banks and financial firms from those rules, and exempts banks with less than $100 billion from Dodd-Frank stress tests.

The bill also includes measures designed for smaller firms. It exempts banks that extend 500 or fewer mortgages a year from reporting home loan data to federal regulators and broadens the definition of qualified mortgages.

The Democratic feud over the bill spilled out into the open during a Senate Banking Committee hearing on Thursday, where Warren and Sen. Sherrod BrownSherrod Campbell BrownOn The Money: Dems set Tuesday vote on Trump's emergency declaration | Most Republicans expected to back Trump | Senate plots to avoid fall shutdown drama | Powell heading before Congress Brown, Rubio trade barbs over ‘dignity of work’ as Brown mulls presidential bid Harry Reid says he won’t make 2020 endorsement until after Nevada caucus MORE (D-Ohio), the committee’s ranking member, were vocal critics. They have dubbed the legislation the “Bank Lobbyists Act.”

“We’ve been down this road before. Whenever things are going ok in the financial system, the lobbyists flood the halls of Congress & convince politicians to roll back the rules — because what could possibly go wrong?” Warren tweeted.

Liberals claim the legislation is a stalking horse for helping banks. They say the measure would deregulate 25 of the 38 largest U.S. banks, benefiting firms that received billions of dollars in federal bailout money during the 2008 crisis.

Several major regional banks, including SunTrust, BB&T, Citizens, Fifth Third, M&T and BMO Financial Corp., are below the $250-billion threshold, putting them among the bill’s biggest beneficiaries. Those banks all have at least $100 billion in assets, with some coming close to the bill’s new threshold.

A bill truly intended to help smaller firms, liberals say, would not include banks like those.

“I hear your talk about your interest primarily in the smaller banks, but the question still stands, why should we do anything for the largest banks?” Brown said. “Why should we do anything for banks that have consistently failed to follow the rules?”

The bill’s backers say regulators will still have ample power to police risk in the financial system, noting that the largest U.S. banks will still face strict Fed oversight. They’ve pointed to comments supportive of the bill from Fed Chairman Jerome Powell.

But Democrats opposing the measure fear that the Fed could deregulate the U.S. subsidiaries of major foreign banks like Barclays, Deutsche Bank, UBS and Credit Suisse. Each has holdings of less than $250 billion in the U.S., bur far more when counting foreign assets.

Critics have also raised concerns that exempting smaller banks from mortgage data reporting would make it harder for the government to crack down on racial discrimination in lending.

Democrats backing the push are not swayed by those arguments.

“I think those views are a myth, and certainly not in the text,” Tester said. “But I’m a dirt farmer, OK? I just kind of read things as they are and don’t read a whole lot of extra stuff into it.”