Originally published November 14, 2017 at 01:54a.m., updated November 14, 2017 at 01:54a.m.
The Republican leader of a key Senate panel has struck a deal with moderate Democrats to ease regulatory burdens on financial firms, setting up one of the best chances in years for lawmakers to make major changes to rules passed in the wake of the 2008 financial crisis.
The plan, unveiled Monday by Senate Banking Committee Chairman Mike Crapo, would mostly provide relief for small and regional lenders. Its revisions include freeing midsized lenders from some of the strictest post-crisis regulations and cutting compliance costs for community banks. Still, it does include some minor tweaks that Wall Street has long sought.
One of the biggest changes in Crapo's measure would be raising the threshold for labeling banks as too big to fail to $250 billion in assets from the $50 billion set in the 2010 Dodd-Frank Act. Designation as systemically important subjects the banks to stricter oversight and higher compliance costs. The Senate proposal would phase in the increase over 18 months, though banks with less than $100 billion in assets would get immediate relief.
In a statement, the banking committee said the legislative outline has the backing of nine Democrats, which would theoretically be enough yes votes for a bill to clear the Senate if most Republicans also back the proposals. Past GOP efforts to overhaul the Dodd-Frank Act have failed because Democrats argued that they went too far in gutting safeguards that are meant to protect consumers and to ensure Wall Street doesn't cause another meltdown.
"The bipartisan proposals on which we have agreed will significantly improve our financial regulatory framework and foster economic growth by right-sizing regulation, particularly for smaller financial institutions and community banks," Crapo, an Idaho Republican, said in the statement. "I thank all of the senators who have joined with us to move this forward and look forward to continuing our work to achieve a robust, bipartisan legislative product."
Raising the systemically important threshold to $250 billion would spare SunTrust Banks Inc., BB&T Corp. and American Express Co. from the Federal Reserve's toughest monitoring. But the companies would still be subject to some Fed requirements, such as stress tests that assess whether they can endure severe economic slumps. Financial firms that are too big to get relief include Capital One Financial Corp., U.S. Bancorp and PNC Financial Services Group Inc.
"I congratulate Senate Banking Committee Chairman Mike Crapo, my colleague from Arkansas, Sen. Tom Cotton, and a strong bipartisan group of senators who worked on the financial regulatory proposal announced today," said U.S. Rep. French Hill, R-Ark.
"These proposed bipartisan regulatory improvements will contribute to economic growth and enhance opportunities for our community financial institutions to help their Main Street businesses grow, expand and create jobs.
"I look forward to following the progress of this legislation and working with Senate colleagues on reforms that we can send to the president's desk."
Other changes include tweaking capital levels for custodial banks and granting banks more incentives to invest in municipal bonds. The proposal would let lenders use municipal bonds as part of their required stockpiles of easy-to-sell assets.
Banks with less than $10 billion in assets would be exempt from the Volcker Rule, a regulation hated on Wall Street that restricts banks from making risky market bets with their own capital. Crapo's measure would also scrap a Volcker Rule provision that restricts hedge funds from sharing names with affiliated banks. BlackRock Inc., the world's largest asset manager, is among firms that have lobbied for such a change. Lawmakers intend to release an actual bill by the end of the week.
Crapo began negotiating with moderate Democrats on the Banking Committee, including Sens. Jon Tester of Montana, Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana, after a breakdown in talks last month with Sherrod Brown of Ohio, the panel's top Democrat. On Monday, Brown criticized the compromise.
"I understand my colleagues' interest in agreeing to this legislation, but disagree on the wisdom of rolling back so many of Dodd-Frank's protections with almost no gains for working families," he said in a statement.
Even with bipartisan support, Crapo still faces hurdles. Republicans are bogged down with their effort to overhaul tax policy, and lawmakers will soon have to start year-end negotiations to fund the federal government. In addition, there's no guarantee all Republicans will back Crapo's approach.
Some GOP lawmakers may conclude that it's not aggressive enough in revamping rules that the Trump administration says are stifling economic growth. One sticking point might be that Crapo's proposal doesn't overhaul the structure of the Consumer Financial Protection Bureau, an agency vilified by Republicans for wrapping lenders on unnecessary red tape.
In the House, Financial Services Committee Chairman Jeb Hensarling has advanced legislation that would make much more significant changes to Dodd-Frank, like gutting the Consumer Financial Protection Bureau and repealing the Volcker Rule.
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