Bipartisan Dodd-Frank Rollback Heads for Senate Vote, Bicameral Dealmaking

Legislation to curb recession-era rules on financial institutions is likely to pass the Senate, but how much input will House members have on the final version?

Senate Banking Committee Chairman Mike Crapo (right) questions Securities and Exchange Commission Chairman Jay Clayton as Sen. Sen. Richard Shelby (left) listens during a hearing on Sept. 26, 2017.
AP Photo/Pablo Martinez Monsivais
March 4, 2018, 8 p.m.

On Sept. 15, 2008, the financial-services firm Lehman Brothers initiated the largest bankruptcy filing in U.S. history, brought down in part by its heavy investment in subprime mortgages.

It was a signal of things to come, and it helped touch off the Great Recession, a years-long economic decline that was the impetus for new financial-industry constraints in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Nearly 10 years after Lehman, Congress is poised to roll back some of those Dodd-Frank rules in a bipartisan bill—but with more dealmaking in the Senate a possibility and a far more conservative House version waiting in the wings, how much regulation will be cut is still an open question.

With both an immigration overhaul and gun-control legislation stalling, Senate Majority Leader Mitch McConnell last Thursday put on the calendar the Economic Growth, Regulatory Relief, and Consumer Protection Act, setting up a vote this week. The bill, which would roll back several post-financial-crisis rules, holds the rare distinction of having bipartisan support in the Senate in an era when Vice President Mike Pence has cast nine tie-breaking votes since taking office, more than most modern vice presidents in their entire terms.

As of Friday, the bill has 12 Democratic cosponsors, enough to bypass a filibuster. But while most analysts say it will pass, moving on to be resolved with House members, it may still be a tight vote for the bill’s sponsor, Senate Banking Committee Chairman Mike Crapo.

“It’s still like walking a balance beam, and so far Crapo with the moderate Democrats on the Senate Banking Committee have been able to stay on that balance beam and keep the balance,” said Ian Katz, an analyst at research firm Capital Alpha Partners. “But it’s a delicate balance that can be thrown off by demands from either side, and that’s what we’re watching for.”

The Senate bill would raise the threshold at which a bank is considered “too big to fail” and thus receives closer regulatory scrutiny—from $50 billion in assets to $250 billion in assets—which is a win for regional banks like Fifth Third Bank or SunTrust, but not so much for large multinationals such as Bank of America or J.P. Morgan. Americans for Financial Reform, a pro-Dodd-Frank consumer group, estimates that the provision would lift the mandate for enhanced regulatory oversight for 25 of the 38 largest banks.

The bill also contains regulatory rollbacks for credit unions and small community banks, according to a section-by-section summary from the Banking Committee.

Progressive senators like Ohio’s Sherrod Brown and Massachusetts’s Elizabeth Warren have railed against the measure, saying it goes too far in watering down restrictions on banking practices. Brown, the ranking member on the Banking Committee, has been leading the push to convince more in his party to oppose the bill.

But if Brown, Warren, and others can’t convince Democratic cosigners to change their votes, the measure will pass the Senate.

Democratic senators in competitive 2018 midterm states won by Donald Trump in 2016, like North Dakota’s Heidi Heitkamp, West Virginia’s Joe Manchin, and Indiana’s Joe Donnelly, have backed the bill. Those three were also Trump administration targets as potential Democratic signatories to last year’s tax-code overhaul, although those overtures ultimately failed.

Another of those Democratic backers is Sen. Jon Tester of Montana, who espoused the benefits of the bill for small and medium-sized rural banks in a December markup.

“Dodd-Frank cracked down on risky financial behavior, but it also has some unintended consequences,” Tester said. “And like any piece of major legislation, it is critical that we check under the hood from time to time to ensure that it is doing what it is intended to do.”

If the Senate passes the bill, it would move to the House, which has its own more aggressive, partisan ideas of how to overhaul Dodd-Frank. Led by retiring House Financial Services Committee Chairman Jeb Hensarling, the House passed the Financial Choice Act in June 2017 along party lines.

But since then, Hensarling and his Financial Institutions and Consumer Credit Subcommittee chairman, Blaine Luetkemeyer, have taken a different tack. They’ve split off some provisions into individual bills, several of which have gotten bipartisan support in the full committee. A few have made it to a vote on the House floor, the most recent being legislation to ease operational capital-risk requirements for certain banks, passed with Democratic votes last Tuesday.

That’s all part of a plan to show senators that some House provisions have a chance to walk that partisan balance beam, and should get a chance to be in the final version.

“Our only comment is, ‘Hey, look, we’ve got a lot of stuff we’ve done over here on a bipartisan basis that’s got huge bipartisan votes, something that’s not controversial,’” Luetkemeyer said last Tuesday. “So we hope that they are willing to listen to those suggestions we have to make the bill better.”

Luetkemeyer added that the committee doesn’t want to add any provisions that could hurt its bipartisan position in the Senate.

The Financial Services Roundtable, which advocates for the U.S. financial-services industry, said it has been pushing to have several House provisions inserted into the final version of the bill, including the capital-risk requirement and a separate provision increasing transparency in rules for “living wills” for large financial institutions. Regulators require some banks to regularly report on their plans for winding their operations down safely should they fail. Both of those provisions got bipartisan House votes but aren’t in the Senate bill.

“We are continuing even within this legislation to try and improve it,” said Anthony Cimino, senior vice president and head of government affairs at the Financial Services Roundtable.

Analysts say that a manager’s amendment for the Senate bill may be in the works that could address some House wishes before it leaves the upper chamber.

Research firm Compass Point Research and Trading has compiled a list of bills cleared by the House Financial Services panel with bipartisan support, which could serve as a guidepost for the provisions Hensarling and Luetkemeyer may push in the final version. The committee has advanced some 50 bills on a significant bipartisan basis.

Luetkemeyer said some of those have a chance to get on the Dodd-Frank bill.

“I think we’ve got 25 or 30, and we’ll whittle it down to 20 and see what we come up with,” he said.

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