House votes to ease regulation of banks, sending bill to Trump

The House on Tuesday passed a bill to loosen federal regulations on the banking sector, securing an election-year legislative accomplishment that is likely to be touted by members of both parties.

The 258-159 House vote sends the bill to President Trump, who has pledged to sign it.

The bill was opposed by only one Republican, while 158 Democrats voted against it.

“We’ve been losing a community bank or credit union every other day in America, and with it the hopes and dreams of millions,” said Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee. “But today, that changes. Help is on the way.”

{mosads}

The legislation represents the first significant overhaul of the banking rules passed by a Democratic Congress in the aftermath of the 2008 financial crisis.

While the legislation falls well short of Trump’s campaign pledge to “dismantle” Dodd-Frank, it also includes significant changes to the law that have long been sought by U.S. banks and credit unions.

The measure, which had been held up in the House for more than two months after passing the Senate in March, will free dozens of regional banks from stricter Federal Reserve oversight and scores more from lending and data reporting rules.

The bill’s passage is a big win for several vulnerable Senate Democrats running for reelection in states that Trump won in 2016.

Democratic Sens. Heidi Heitkamp (N.D.), Jon Tester (Mont.), Joe Donnelly (Ind.) and Joe Manchin (W.Va.) were all original co-sponsors of the legislation. They will now be able to tout passage of the measure as an example of how they are able to work across party lines.

Yet the centrists have also drawn the wrath of liberal lawmakers and activists, who have denounced the bill as a giveaway to banks that undermines the stability of the financial system.

House Minority Leader Nancy Pelosi (D-Calif.) and House Financial Services Committee ranking Democrat Rep. Maxine Waters (Calif.) urged their party colleagues to oppose the bill in a Monday letter.  

“The American people paid a very high price for the weak oversight and discriminatory lending practices that culminated in the 2008 financial crisis,” Pelosi and Waters wrote. “We must not allow the GOP Congress to drag us back to the same lack of oversight that ignited the Great Recession.”

The rollback bill does far less than House Republicans had first hoped to pass. Hensarling pushed for a more sweeping overhaul, but that bill had little chance of surviving a liberal filibuster in the Senate.

The final compromise will leave most of Dodd-Frank in place for the foreseeable future, while still providing benefits for all but some of the largest U.S. banks.

The measure will exempt dozens of regional banks from tighter regulation by raising the threshold for closer Fed oversight from $50 billion to $250 billion in assets. That frees several major regional banks, including M&T, Citizens, SunTrust, BB&T, Fifth Third and BMO Financial Corp., from some of Dodd-Frank’s strictest requirements.

Banks below the new $250 billion threshold will no longer be automatically subject to yearly Federal Reserve stress tests or higher capital requirements meant to ensure large firms are able to weather severe financial crises.

Those banks below the threshold will also be exempted from submitting a “living will” for Fed approval — a plan that outlines how a bank’s assets could be liquidated upon the firm’s failure without causing a widespread meltdown.

The Fed will still have the power to apply those enhanced prudential standards to banks below the threshold that they deem risky enough to warrant closer oversight.

For smaller firms, the bill exempts banks that extend 500 or fewer mortgages a year from reporting some home loan data to federal regulators under anti-discrimination laws. The bill also broadens the definition of qualified mortgages.

Other aspects of the legislation meant to bolster community banks and credit unions include loosening appraisal requirements for certain mortgage loans and exempting firms with less than $10 billion in assets from the Volcker Rule. Named after former Fed Chairman Paul Volcker, the rule bans banks from making risky trades with their own assets.

The bill also leaves several of the most controversial aspects of Dodd-Frank intact, including the polarizing Consumer Financial Protection Bureau (CFPB) and liquidation process under which the government would take over and dismantle a large failing bank.

House Republicans initially said the lack of action on those issues meant the bill didn’t go far enough to earn their support. But moderate Senate Democrats who spearheaded the compromise pledged to abandon the legislation if the lower chamber amended it.

The day after the bill passed the Senate, Hensarling announced that Speaker Paul Ryan (R-Wis.) had promised to block it unless the upper chamber agreed to negotiations.

Hensarling, the architect of the House’s unsuccessful efforts to repeal and replace Dodd-Frank, had sought to include bills from his committee that received almost unanimous bipartisan backing from the chamber.

The chairman, a close ally of Ryan, eased his demands in late April. Hensarling said he would give the Senate bill his blessing if its sponsors in the Senate agreed to vote on a package of House bills meant to expand capital markers access for businesses.

Ryan and House Majority Leader Kevin McCarthy (R-Calif.) announced soon after that they would hold a vote on the Senate bill before Memorial Day after Senate GOP leaders vowed to do the same for the legislation from Hensarling’s committee.

It’s unclear which House bills will be taken up by the Senate, how they will appear on the floor and whether the measures have a chance of reaching Trump’s desk.

The House bills from Hensarling aren’t expected to pass the Senate on their own, but GOP leaders have privately floated attaching them to must-pass legislation.