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 WarrenMore Massachusetts Voters Prefer Deval Patrick for President than Elizabeth Warren Trump's trade war — firing all cannons or closing the portholes? Poll: Most Massachusetts voters don't think Warren should run for president in 2020 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 CrapoHillicon Valley: Trump signs off on sanctions for election meddlers | Russian hacker pleads guilty over botnet | Reddit bans QAnon forum | FCC delays review of T-Mobile, Sprint merger | EU approves controversial copyright law Trump authorizes sanctions against foreign governments that interfere in US elections Cruz gets help from Senate GOP in face of serious challenge from O’Rourke 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 WarnerRussia docs order sets Trump on collision with intel community Hillicon Valley: North Korean IT firm hit with sanctions | Zuckerberg says Facebook better prepared for midterms | Big win for privacy advocates in Europe | Bezos launches B fund to help children, homeless Bipartisan trio asks US intelligence to investigate ‘deepfakes’ 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 McCaskill'Kavanaugh' chants erupt at Trump rally in Missouri The Hill's Morning Report — Sponsored by United Against Nuclear Iran — Kavanaugh, accuser say they’re prepared to testify Drug companies will love Trump's plan to get rid of drug rebates — the consumers will hate it MORE (Mo.), Joe ManchinJoseph (Joe) ManchinCook Political Report moves Texas Senate race to ‘toss-up’ The Memo: Tide turns on Kavanaugh McCaskill to oppose Kavanaugh nomination MORE (W.Va.), Heidi HeitkampMary (Heidi) Kathryn HeitkampGOP Senate candidate: Allegations against Kavanaugh 'absurd' The Memo: Tide turns on Kavanaugh McCaskill to oppose Kavanaugh nomination MORE (N.D.), Joe DonnellyJoseph (Joe) Simon DonnellyThe Memo: Tide turns on Kavanaugh McCaskill to oppose Kavanaugh nomination The Memo: Kavanaugh firestorm consumes political world MORE (Ind.) and Jon TesterJonathan (Jon) TesterMontana lawmakers cheer recommendation to ban mining north of Yellowstone Cook Political Report moves Texas Senate race to ‘toss-up’ Trump Jr. campaign event looks for new venue after Montana restaurant declines to host MORE (Mont.), all of whom are up for reelection this year in states won by President TrumpDonald John TrumpHannity urges Trump not to fire 'anybody' after Rosenstein report Ben Carson appears to tie allegation against Kavanaugh to socialist plot Five takeaways from Cruz, O'Rourke's fiery first debate 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 BrownSherrod Brown says he's 'not actively considering' running for president Election Countdown: Trump confident about midterms in Hill.TV interview | Kavanaugh controversy tests candidates | Sanders, Warren ponder if both can run | Super PACs spending big | Two states open general election voting Friday | Latest Senate polls Overnight Health Care: Senators target surprise medical bills | Group looks to allow Medicaid funds for substance abuse programs | FDA launches anti-vaping campaign for teens 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.”