Thirty-three Democrats joined a majority of Republicans in the House to pass a bill Tuesday that would weaken some of the banking regulations put in place after the 2008 financial crisis.
The measure will now head to President Donald Trump’s desk, and he is expected to sign it before Memorial Day, CNN reported.
A little more than a week after Trump assumed office, he said he wanted to “do a big number” on the regulations in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. He called the law a “disaster” and said it was “virtually impossible” for smaller businesses to get loans.
But banks of all sizes have been doing pretty well, it turns out. Fourth-quarter profits for community banks increased 17 percent from a year earlier, when not considering the short-term tax hit, according to the FDIC. The Roosevelt Institute found profit for FDIC-insured banks, including community banks, has been following an upward trajectory for some time.
Although much of Dodd-Frank’s regulations will remain in place, the passage of the bill means there would be fewer than 10 large banks that have more rigorous oversight by the Federal Reserve. The bill would change the definition of “systemically important financial institution” to only require banks with $250 billion or more in assets to undergo regular stress tests to make sure they can handle a financial crisis, instead of requiring banks with $50 billion or more in assets to do so. Financial institutions would not have to have plans to safely dismantle their institutions if they fail or hold as much capital to cover their losses.
The measure would also water down the Volcker Rule, which stopped banks from making risky bets with customers’ money. Now, community banks with less than $10 billion in assets no longer have to comply. Banks hate the rule and many Republicans would prefer to get rid of the Volcker rule altogether, rather than soften it, as they proposed to do with the Financial Choice Act, which the House voted for last year.
In addition to these changes, mortgage lenders would enjoy loosened regulations. Institutions with up to $10 billion in assets would not be obligated to follow the strictest federal underwriting requirements for qualified mortgages. There would be some conditions in place as a safeguard, however, such as assessing borrowers financial health and ensuring that loans are not interest-only. There are also measures affecting students’ private loans so that lenders can’t declare a student loan is in default when the person dies or declares bankruptcy. One provision that civil rights groups, including the NAACP and the Leadership Conference on Civil and Human Rights, opposed, would excuse the majority of banks from adhering to anti-discrimination reporting requirements.
The bill would give big banks such as JPMorgan and Citigroup changes they’ve wanted for years, by changing how municipal debt can be classified. Custody banks, including State Street Corp. and Bank of New York Mellon Corp. that safeguard assets, would probably see their capital requirements eased. Bloomberg reported that BlackRock, the world’s largest asset manager, got one of the revisions they lobbied for, which gets rid of a part of the Volcker Rule that doesn’t allow hedge funds to share names with affiliated banks.
In March, Sen. Elizabeth Warren (D-MA) criticized Democrats who threw their support behind the bill sponsored by Sen. Mike Crapo (R-ID), rankling some of her fellow Democrats. Virginia Democratic Sens. Tim Kaine and Mark Warner, as well as Claire McCaskill (D-MO) and Heidi Heitkamp (D-ND), were among some of the Senate Democrats who voted for the bill.
“I don’t understand how anybody in the United States Senate votes for a bill that’s going to increase the likelihood of taxpayer bailouts,” Warren said on Meet The Press in March.
Heitkamp responded to the criticism by telling radio host Hugh Hewitt, “She has her perspective and her point of view, but the truth will prevail. We’re going to spend a lot of time correcting the myths, correcting the misstatements about this bill.”
According to the Financial Times, Republicans dominated the top recipients of contributions from commercial banks in the 2016 election cycle, but in 2018, many Democratic Senators were in the top 20 recipients, including Heitkamp, Doug Jones (D-AL), Joe Donnelly (D-IN), Warner, Kaine, McCaskill, and Jon Tester (D-MT) — all of whom voted for the banking deregulation.
Ahead of the vote, House Democratic leader Nancy Pelosi (CA) and Rep. Maxine Waters (D-CA) encouraged their fellow Democrats not to vote for the bill.
“It’s a bad bill under the guise of helping community banks,” Pelosi said in a debate on the House floor before the vote.