Fed Chairman Weighs in on Financial Deregulation Bill Set for Senate Debate

Senate set to consider measure on the floor next week

Federal Reserve Chairman Jerome Powell made his first appearances as head of the central bank before Congress this week.(Tom Williams/CQ Roll Call)

Federal Reserve Chairman Jerome Powell used his first appearance before the Senate Banking Committee to endorse the main features of a financial deregulation bill that the Senate is set to debate on the floor next week. 

Powell told the panel Thursday that the “most significant” provision in the bill is the replacement of the Dodd-Frank threshold for stringent Fed regulation of banks. The 2010 Dodd-Frank law put the threshold at $50 billion in assets. The bill would raise that to $250 billion, and reduce the number of banks effected from 44 to 13.

The bill, sponsored by Senate Banking Chairman Michael D. Crapo, R-Idaho, has five Democrats on the panel as co-sponsors, including Sen. Jon Tester, D-Mont. Tester described the bill as having “overwhelming bipartisan support and hopefully will see the floor next week.” He asked Powell if the bill “put our financial system at risk?”

Powell said it would not, and added, “I think it gives us the tools that we need to continue to protect financial stability.”

Not long after the hearing, Senate Majority Leader Mitch McConnell, R-Ky., moved to proceed to the bill on the floor next week. 

Democratic opponents say the bill is a dangerous rollback of Dodd-Frank.

The bill still allows the Fed to more stringently regulate smaller banks involved in riskier businesses, Powell said. Two large international banks with less than $250 billion in U.S. assets — Germany’s Deutsche Bank and Spain’s Santander — would continue to receive the closer scrutiny as would Boston-based State Street Bank, which is considered a systemically important financial institution by international regulators, despite its $236 billion in assets, he said.

“We have not been shy about reaching below $250 billion,” Powell said.

Crapo opened the hearing with a pitch for his bill, describing it as part of the deregulatory effort that the administration has said can add 0.1 percentage points to economic growth a year for a decade.

“The primary purpose of the bill is to make targeted changes to simplify and improve the regulatory regime for community banks, credit unions, midsize banks and regional banks to promote economic growth,” Crapo said.

The Crapo bill has more than three dozen other provisions, including an exemption for banks with less than $10 billion in assets from the Volcker Rule prohibiting commercial banks from trading with customers’ money.

Crapo told reporters earlier this week that negotiations with other senators and the House are ongoing to add additional provisions to the bill. Among those could be some of the 80 or so bills advanced by the House Financial Services Committee since last autumn. The bill’s co-sponsors, including the dozen Democratic co-sponsors, would have “a say” in anything added to the bill, he said.

Ranking member Sherrod Brown of Ohio painted the bill and other deregulation efforts under way by regulators as benefiting Wall Street banks, and reflecting forgetfulness by Republicans and regulators of the widely held view that Wall Street excess caused the 2008 financial crisis.

“Wall Street can’t seem to go a month without a new scandal,” Brown said, noting the Fed’s recent actions against Wells Fargo, which is barred from growing its assets beyond $1.95 trillion until it makes changes to managerial processes blamed for the bank’s fraudulent creation of more than 2 million bank and credit card accounts.

Powell was sworn in as Fed chairman early this month and made his first appearance before Congress Tuesday when he testified before the House Financial Services Committee. The Dow Jones industrial average dropped by more than 300 points that day with some analysts perceiving as hawkish Powell’s comments about the outlook this year for federal funds rate hikes.

Powell repeated Thursday his glowing take on the economy, calling the outlook “strong” and predicting continued growth in household incomes, consumer spending, U.S. exports and business investment.

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