Policy

Dodd-Frank Repeal Bill is Target of Contentious Amendments

Republicans likely to support a few of them on the floor

Rep. Jeb Hensarling has long targeted the Dodd-Frank financial regulation bill for repeal. (Bill Clark/CQ Roll Call File Photo)

As Rep. Jeb Hensarling’s Dodd-Frank repeal bill heads to the House floor this week, it will be the target of controversial amendments, including a couple that some Republicans are likely to support.

By late Monday, 16 amendments had been filed on the bill, which is scheduled for the House Rules Committee Tuesday evening.

The proposed amendments include one that would return to the Depression-era Glass-Steagall style of bank regulation, one that would maintain the Labor Department’s fiduciary rule, and one that would allow marijuana-related businesses access to the federal banking system.

The bill, approved by the House Financial Services Committee last month on a party-line 34-26 vote, had been slated to come to the floor before the House recess last week, but was weighed down by another divisive provision, repeal of the Durbin amendment. That Dodd-Frank feature, which cut in half what banks could charge retailers for customers’ use of debit cards, led to about $8 billion a year in savings for retailers and a similar loss for banks.

The amendment, offered by Sen. Richard J. Durbin, D-Ill., became part of the 2010 Dodd-Frank law. House lawmakers approved repeal of the amendment on the bill that moved through committee, but that provision was dropped after GOP whip counts showed it could threaten passage.

Congress passed Dodd-Frank in the wake of the 2008 financial crisis. The law was a sweeping restructuring of financial regulation and designed to prevent the financial practices that led to the crisis. It created agencies such as the Consumer Financial Protection Bureau and the Financial Stability Oversight Council and put restraints on bank practices.

Hensarling’s legislation would remove many of the limits on financial institutions and put the CFPB into the appropriations process, giving Congress more oversight of an agency that many Republicans dislike.

The Rules Committee is expected to consider amendments from Reps. Marcy Kaptur, D-Ohio, and Walter B. Jones, R-N.C., who want to strip all of Hensarling’s bill and replace it with their own proposal that would not allow commercial and investment banking in the same financial institution. That Glass-Steagall separation of those functions was repealed in 1999.

Like Hensarling, R-Texas, Kaptur blames Dodd-Frank for hurting small banks and credit unions “that did no wrong” and were not responsible for the 2008-9 financial crisis.

“We need to address the fundamental architecture of the system, of the financial system, that has placed too much emphasis on speculation to the detriment of prudent banking,” Kaptur told CQ Roll Call on Monday.

Kaptur said separating commercial banks from investment banks can do that.

Hensarling’s bill, though, takes another tack. It would exempt banks that meet higher capital requirements from heavier regulation. Most small- and medium-sized banks already meet Hensarling’s proposed capital requirements and he expects them to get regulatory relief. Big banks would either have to put up more money or continue being heavily regulated.

Jones and Rep. Mike Coffman of Colorado were the only Republicans among the 50 sponsors of the bill that is now being proposed as an amendment.

The Republican Party’s 2016 platform included a call for a “21st century Glass-Steagall.” During the campaign, President Donald Trump also used that phrase in describing his views on banking, and Treasury Secretary Steven Mnuchin had expressed support for a “21st century” version as well.

Industry watchers, though, had doubted the new administration’s desire to roll back regulations to such an extent, and Mnuchin ended speculation last month in an appearance before the Senate Banking Committee.

“We do not support the separation of banks from investment banks,” he told senators. “We think that would be a big mistake.”

For all the attention given to Glass-Steagall supporters, Kaptur’s bill is “political noise and something we put a very low probability on actually occurring,” said Brian Kleinhanzl, managing director of large cap bank research at Keefe, Bruyette & Woods.

Not that Hensarling’s bill will go any further than the House, added Kleinhanzl, whose firm sees passage as a non-event for bank stocks, which rose after Trump’s election on deregulation expectations that, so far, have not come to pass.

The Senate Republican majority is too small to enact Dodd-Frank repeal without the support of some Democrats.

House Democrats are also trying to remove a provision that would repeal the Labor Department’s fiduciary rule taking effect June 9 and requiring broker-dealers to put clients’ interests ahead of their own when they provide retirement advice. Trump had asked the department to reconsider the rule, but the department said it couldn’t delay implementation.

SEC Chairman Jay Clayton said last week that the commission would join the Labor Department in addressing questions raised by the rule. Dodd-Frank also gave the SEC the authority to address broker-dealers’ obligations to clients.

Rep. Stephen F. Lynch, D-Mass., has an amendment to remove Hensarling’s repeal of the Labor Department’s rule. He proposed the same amendment at the committee markup. Every Republican and one Democrat voted against it.

Republican Matt Gaetz and Democrat Darren Soto, both freshmen from Florida, filed an amendment that would keep federal regulators from punishing banks for providing financial services to marijuana-related businesses in states where such business is legal. The amendment would also keep regulators from providing incentives to banks not to provide financial services to such businesses.

Some of the amendments are technical in nature, such as one from Rep. Trey Hollingsworth, R-Ind., a freshman on the House Financial Services Committee.

Hollingsworth’s amendment would allow closed-end funds, a type of investment pool with a fixed number of shares, that meet certain requirements, to operate under the streamlined registration and offering process currently available to publicly traded companies.

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