Senators look to Fed chief for support on easing bank rules

Senators backing a bill to exempt dozens of banks from strict federal oversight pushed the chairman of the Federal Reserve Thursday to bolster their case.

Members of the Senate Banking Committee sought confirmation from Fed Chairman Jerome Powell that a bipartisan bill to roll back parts of the Dodd-Frank Act would benefit the economy.

Powell, a Republican who has previously supported several provisions of the bill, signaled support for much of the measure without explicitly endorsing it.

“I think it gives us the tools that we need to continue to protect financial stability,” Powell said of the bill. “We have broad safety and soundness authority.”

Republicans and moderate Democrats backing the bill sought to dispel a wave of liberal criticism that the measure goes too far to deregulate major banks.

“I think it’s important to put it in perspective and not exaggerate the results and purpose of the bill,” said Sen. Heidi Heitkamp (D-N.D.), who supports the measure.

The bill, sponsored by Banking Committee Chairman Mike Crapo (R-Idaho), raises the point at which a bank is deemed big enough to warrant tighter oversight. It spikes the asset level at which a bank becomes “systemically important” from $50 billion to $250 billion, freeing dozens of regional banks from stringent rules.

Banks with less than $250 billion that aren’t otherwise targeted by the Fed would no longer be subject to yearly stress tests or higher capital requirements. Those banks will also be freed from submitting a yearly plan on how they would dismantle upon failure without triggering a credit crisis.

Powell and his predecessor, Janet Yellen, had previously backed raising the threshold for stricter supervision. The new chairman said that the Fed would still have ample ways to hone in on a bank below the threshold that posed stability concerns without easing up on larger firms.

“We have not been shy about reaching below [$250 billion]” Powell said. “The parts of the bill I’m familiar with, they really apply to banks $250 [billion] and under.”

Powell also said he supported the provision to exempt banks with less than $10 billion in assets from the “Volcker Rule” banning certain risky investments with a firm’s own capital.

The bill also exempts smaller banks from a slew of restrictions on lending to subprime borrowers and expands the scope of legal mortgage holdings. Its supporters insist it would relieve safe and relatively small banks from unnecessary regulatory burdens hindering the economy.

Powell said the bill wouldn’t relax rules on giant domestic banks or global firms without U.S. subsidiaries. 

“Our focus is very much on the small and medium-size banks,” Powell said. “We want the post-crisis regulatory initiatives like higher capital, higher liquidity, stress tests, resolutions — we want to apply those in the strongest forms to the largest institutions.”

The bill has 12 Democratic co-sponsors and no stated GOP opponents. It’s almost certain to pass the Senate and become the most substantial bipartisan effort to roll back Dodd-Frank to clear a chamber of Congress.

Democrats and progressive political groups have rallied opposition on the left. Liberals are attempting to amend the bill and add provisions that would boost oversight of some areas of the financial sector.

Banking panel Democrats opposed to the bill brought up a slew of scandals involving foreign banks such as Deutsche Bank and Santander they believe would benefit from the measure.

“Though Wall Street can’t seem to go a month without a new scandal, the Senate is set to take up a bill that would roll back critical financial stability protections and limit watchdogs’ ability to police the largest banks,” said Sen. Sherrod Brown (Ohio), the Banking panel’s ranking Democrat.

“Why should big banks that have consistently failed to follow the rules benefit from regulatory rollbacks?”