Hensarling Goes for Seconds on Banking Overhaul

A bill rolling back Dodd-Frank rules is headed to the president’s desk. What will happen to a second bill, proposed as part of a bipartisan deal, is less clear.

House Financial Services Committee Chairman Jeb Hensarling
AP Photo/Jacquelyn Martin
May 22, 2018, 8 p.m.

Even though he’ll be out of office in January, House Financial Services Committee Chairman Jeb Hensarling says he’s not done rolling back banking regulations. But first he must woo moderate Senate Democrats.

Legislation cutting Dodd-Frank banking rules for small- and medium-sized banks is on its way to the president’s desk after the House passed the measure Tuesday. The vote comes after Hensarling got an assurance that lawmakers would take up a second package of banking provisions in exchange for advancing the Senate-passed bill.

“I was wanting to find a path forward for a number of our bills and once that path forward was added I said, ‘OK, fine, let’s get the banking bill done,’” Hensarling said.

The White House has said President Trump will sign the bill.

The bill passed by the House on Tuesday is largely a rollback of Dodd-Frank rules for community and regional banks.

“It’s a pretty good day for community banks and mid-size regional banks; for the larger banks it’s business as usual,” said Sanford Brown, a partner at Alston & Bird whose clients include community banks.

One of the bill’s biggest provisions would lift capital requirements for banks between $50 billion and $250 billion in assets. Senate Democrats who backed the bill, such as Montana’s Jon Tester and North Dakota’s Heidi Heitkamp, said the bill would help restore rural banks, which they say have dwindled since Dodd-Frank was enacted in 2010.

Hensarling had pushed for a more aggressive Dodd-Frank rollback. His Financial Choice Act—which had cuts to the Consumer Financial Protection Bureau that the Senate bill does not—passed the House along party lines, but was never likely to clear the 60-vote threshold in the Senate.

So when the Senate-passed bill came to the House, Hensarling held out in hope of adding more provisions, but the 16 moderate Senate Democrats who backed the bill were adamant in their opposition to altering the Senate version.

“I think we’ve been very clear that there was no more room on this bill,” said Virginia Democrat Mark Warner, who played a key role in negotiating the bipartisan Senate bill.

What followed was a monthlong staring contest between Hensarling and senators, until Hensarling agreed to the deal in which the Senate majority leader promised to consider a second package, which would be assembled out of about three dozen banking bills that the House has passed on a bipartisan basis in the past months.

It’s too early to tell, however, which of the bills will make the cut, Hensarling said.

Hensarling characterized this new package as a companion to the Dodd-Frank rollback, saying it will focus on promoting capital formation.

“I’ve had talks with Senate Republicans and Senate Democrats, but it’s kind of early days,” Hensarling said. “So again, we’re starting off with a bit of a universe of bills in the capital formation space that came off the House floor with strong bipartisan votes.”

Not all of those bills affect capital formation, however. Two bills that Hensarling could include are the Fair Investment Opportunities for Professional Experts Act, which opens up the types of investors that can participate in private offerings, and the Encouraging Public Offerings Act, which would allow startups to file confidential draft registrations to gauge interest in an initial public offering.

The package is likely to pass the House, but again the key to getting it to the president’s desk lies with moderate Senate Democrats.

“Whatever is done in the House, that’s all well and good, but the issue will be breaking through the procedural challenges in the Senate,” said Jim Nussle, president and CEO of the Credit Union National Association and director of the Office of Management and Budget under President George W. Bush.

It will be Hensarling’s and Senate Banking Committee Chairman Mike Crapo’s task to again convince moderate Democrats to vote for another banking bill. But the most recent bill divided Democrats. Sherrod Brown, the Banking Committee’s ranking member, opposed the legislation, and Elizabeth Warren criticized moderate Democrats for cozying up to Wall Street.

That could make it less likely that Senate Democrats will want to go back for another bite at a Dodd-Frank regulatory rollback, potentially sparking another round of infighting close to the midterm elections.

So far, some moderate Senate Democrats are holding off judgment on Hensarling’s proposed banking package.

“I will certainly take a look at anything that’s out there that’s being proposed,” Tester said.

Warner said some of the provisions around capital formation “make some sense,” but any deal must first be done between Hensarling and the Senate majority leader.

Hensarling hasn’t said he has assurances Democrats would go along with the proposed banking package, only that he is continuing talks.

Still, Hensarling—who is set to retire at the end of this session—said he hoped to put together a package by the summer.

And groups are already pushing to include provisions that were left out of the original bill. Nussle said credit unions want language exempting them from certain Consumer Financial Protection Bureau rules. Nussle also said he wants to change the CFPB organization from a single director to a multi-person commission. That move is likely to meet resistance from Democrats.

Hensarling is eager to move one last major bill with his name on it, Brown said, and bankers are eager to capitalize on the momentum of the Senate bill’s passage in the House, as large-scale bills overhauling banking regulations don’t come often.

“Unfortunately for the industry, I think it’s the last one for a while,” Brown said. “Congress, especially in banking issues, only acts in response to a crisis and then they almost always overreact.”

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