The Senate voted Wednesday to pass a bill that would be the biggest bank deregulation since 1999 and would roll back parts of the 2010 Dodd-Frank financial overhaul.
More than a dozen Democrats joined the Republicans to pass the bill, sending it to the House, where conservative Republicans may seek to attach further provisions to roll back the 2010 law. Republicans will be trying to straddle the line between the extensive reversal of bank regulation that they seek and keeping on board the Senate Democrats who will be needed to clear the measure.
The 67-31 Senate vote on passage of the bill came after the chamber earlier adopted a substitute amendment and then agreed to waive applicable budget resolutions after Vermont independent Sen. Bernie Sanders said the bill would raise the deficit.
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The measure, sponsored by Senate Banking Chairman Michael D. Crapo would ease regulations on all but the biggest banks. The Idaho Republican was able to keep the support of about 15 Democrats and Maine independent Sen. Angus King during the bill’s two-week sojourn on the Senate floor. King and a dozen Democrats are co-sponsors.
Most Democrats oppose the bill, arguing that the Dodd-Frank financial overhaul has made the financial system safer and Wall Street more accountable. Dodd-Frank was enacted in the wake of the financial crisis.
The bill now heads to the House where Financial Services Chairman Jeb Hensarling has been making noises about adding as many as 29 banking, financial services and securities measures that his committee has approved with at least some Democratic support. The Texas Republican said he expects changes in the House and that differences will be settled in conference.
Senate Democrats voting for the bill have warned their support could be jeopardized if the bill is much altered.
The bill’s marquee provision would raise the Dodd-Frank asset threshold for close scrutiny by the Federal Reserve to $250 billion from the current $50 billion. The Federal Reserve would have 18 months to determine whether any banks with $100 billion to $250 billion in assets should remain under the most stringent regulatory regime. The bill also would exempt banks with less than $10 billion in assets from the Volcker rule that bars federally insured banks from trading with depositors’ money.
Several of the bill’s more contentious provisions took up much of the debate. The bill originally mandated that credit reporting agencies provide free credit monitoring services to active duty military personnel, but the substitute amendment took away the right of those receiving the free services to sue the credit bureaus.
Monitoring, which involves alerting the consumer if anything changes in a credit report, became of greater concern in the wake of a breach last year at Equifax Inc., which said hackers got access to data on more than 145 consumers. That breach raised concerns that the hackers could wait months or years before using the data.
Senate Banking ranking member Sherrod Brown of Ohio, a vocal opponent of the bill, had portrayed the move as giving something to veterans, but then taking away their rights.
Sen. Chris Coons, one of the co-sponsors of the bill, was also unhappy with the change. Coons and fellow Delaware Democratic Sen. Thomas R. Carper had signed onto the bill after getting credit-related benefits for veterans added.
But both voted to limit debate on the substitute amendment. Coons said in an interview that state attorneys general would still be able to enforce issues arising from the free credit monitoring that the bill mandates for active duty military.
“I was disappointed that the right of private action is not in the manager’s amendment,” Coons said.
The association representing credit reporting companies had lobbied for the change, arguing that military personnel getting a free product shouldn’t be able to file class-action lawsuits against the bureaus.
“If you are going to force us to give away our product for free to 2 million people then we don’t think that we should be sued for giving away our product for free to 2 million people,” said Francis Creighton, president of the Consumer Data Industry Association.
Sen. Richard C. Shelby, a senior member of the Senate Banking Committee, said he also worked to get free credit reporting for military personnel, but that he also agreed that class-action suits having to do with that service should be barred.
“A lot of us believe at the end of the day the consumer gets 16 cents and the lawyers get $10 million sometimes,” the Alabama Republican said about class action lawsuits.
Another contentious issue has been over a section of the bill that favors three banks — State Street, Northern Trust and New York Mellon — that are the biggest players in the custodial banking sector. Custody banks keep the assets of those with lots of assets, such as mutual funds.
The bill would allow the three banks to exclude assets they hold in custody for others, so long as those assets are held at a central bank, when computing how much in reserves they must hold.
Sen. Heidi Heitkamp defends the measure as another “tailoring” of regulation, like the many portions of the bill aimed at community banks. In this case, the legislation is trying to tailor regulation to these custody banks. The North Dakota Democrat said a similar measure was adopted by the House Financial Services Committee on a 60-0 vote in October.
Tennessee GOP Sen. Bob Corker tried to amend or eliminate the provision because of concerns that this advantage in computing a bank’s leverage ratio “could open this provision to a wider group of financial institutions.” One of the causes of the financial crisis is widely held to be the practice by some of the biggest banks to hold 30 times as much debt as they held in equity. Since then, regulators have required banks to maintain much lower leverage ratios.
There is a worry that big banks could take advantage of the provision and use it as a way to boost their leverage, but that seems like a stretch to Sanford Brown, an attorney who represents banks before regulators.
“The Fed and the [Office of the Comptroller of the Currency] have enough leeway in evaluating capital adequacy that they will not let some of the big four get away with reducing their capital as a result of this legislation,” said Brown, referring to the four U.S. banks with more than $1 trillion in assets — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup.