The Senate on Tuesday took its first step toward passing a major bipartisan rollback of the tough banking rules enacted by former President Obama after the 2008 financial crisis.
Senators voted 67-32 to take up a motion to start debating a bipartisan bill to exempt dozens of banks from parts of the Dodd-Frank Act, passed in 2010 to make the financial system safer and stronger.
Republicans and a coalition of moderate Democrats voted to move ahead with the bill they call an overdue fix to Dodd-Frank that would help smaller firms boost rural and struggling economies.
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“If we miss the opportunity, it has dramatic, negative impacts on rural Americans,” said Sen. Jon Tester (D-Mont.). “And I’ll tell you, we have enough challenges in rural America.”
All votes against the bill came from liberal Democrats, who say the measure is a handout to Wall Street masked as relief for struggling community banks and credit unions.
The bill, introduced by Senate Banking Committee Chairman Mike Crapo (R-Idaho), has fueled deep divides among Democrats.
Democrats have feuded over both the policy included in the bill and the intentions of its sponsors.
Many of the bill’s leading Democratic backers are moderate senators running for reelection this year in states that overwhelmingly voted for President Trump in 2016. Liberal senators with strong progressive followings who are seen as potential 2020 presidential contenders are leading the opposition.
The bill is likely to pass the Senate, and liberal senators said they plan to offer amendments that would pressure Democrats to change or oppose the bill.
Lawmakers from both parties have worked on a Dodd-Frank update for years. Moderates backing the measure say it’s a major bipartisan achievement that can help restore the American people’s faith in Congress.
“This is old-school legislating,” said Sen. Heidi Heitkamp (D-N.D.), one of the bill’s main Democratic co-sponsors, during a Tuesday news conference. “Think about the significance of this bill as a kind of a symbolic movement forward for the United States Senate.”
Liberals have panned any talk of bipartisanship, pledging to make the process as painful as they can for supporters. Sen. Elizabeth Warren (D-Mass.) said Democrats and Republicans folded under pressure from bank lobbyists seeking to weaken Dodd-Frank.
“People from this building may forget the devastating impact of the financial crisis, but the American people have not forgotten,” Warren said. “If this bill were only about community banks, we’d be having an entirely different conversation.”
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.”
Currently, 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.
Under the bill, the threshold would be reset to $250 billion. That frees more than 20 banks and financial firms from those rules, and also exempts banks with less than $100 billion from Dodd-Frank stress tests.
Liberals insist that the new threshold is far too high and loosens rules on a slew of prominent regional banks that should be kept to higher standards.
“A bank worth a quarter-trillion dollars is not a community bank and shouldn’t be regulated like a community bank,” Warren said.
Warren also argued that the bill “undermines civil rights protection” by exempting banks that issue 500 or fewer mortgages a year from reporting home loan data to the American government. Critics of the bill say the provision would let more lenders get away with racial discrimination, while its supporters say it would save banks that can’t afford to comply with the burden.
Moderate Democrats insist those concerns are overblown and that the bill has been smeared by exaggerations from liberals.
“When you mischaracterize this bill, those mischaracterizations need to be corrected.” Heitkamp said. “I am not going to let this legislative history get papered with misstatements about this bill.”
They argue that the bill doesn’t affect the Fed’s ability to target firms below the threshold for risky activity.
While firms with less than $250 billion in assets would no longer be automatically subject to stricter oversight, the Fed still has power to apply those standards at will.
The Fed also counts a bank holding company’s combined international assets. That means the U.S.-based holdings of foreign titans like Barclays, Deutsche Bank and Credit Suisse would not likely be deregulated without a major change of Fed policy.
“I think our financial system is much stronger today because of Dodd-Frank, and I would not participate in anything that I thought was undermining that basic strength,” said Sen. Mark Warner (D-Va.), a bill co-sponsor who helped craft the stricter Wall Street rules in 2010.