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Tensions Run High as Dodd-Frank Rollback Bill Nears Senate Vote

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Tensions are running high as the Dodd-Frank rollback bill, S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, designed to deregulate the banking industry is up for a Senate vote this week.

Sen. Elizabeth Warren, D-Mass., said during a Tuesday morning press briefing that the bill “increases the chances of another bailout” and vowed to “fight back” this week as the legislation is debated on the Senate floor.

Other critics like Phil Angelides, former chairman of the Financial Crisis Inquiry Commission, argue the bill “would weaken the financial system safeguards and taxpayer and consumer protections put in place in the wake of the financial crisis.”

As it stands now, the “big issue” is whether the Republicans will allow amendments to the bill, Warren said, adding that she’s got a “dozen” amendments ready to go. “I want an open amendment process,” she said. “I’m going to keep pushing for it.”

The bill would change the regulatory framework for small depository institutions with assets under $10 billion (community banks) and for large banks with assets over $50 billion, as well as revise consumer mortgage and credit-reporting regulations and the authorities of the agencies regulating the financial industry.

Under the bill, the Federal Reserve would be required to ease its capital and liquidity requirements for regional banks with $50 billion to $250 billion in assets.

Warren complained that one provision of the bill “changes one word, the Fed ‘shall’ tailor the rules, instead of ‘may.’” With “that one-word change,” she said, “banks can sue the Fed if they don’t weaken the rules the way they want.”

That provision, she said, “may be the single most dangerous.”

Meanwhile, the Congressional Budget Office released on Monday a score of the bill, stating that enacting it would increase federal deficits by $671 million over the 2018-2027 period; that increase in the deficit represents an increase in direct spending of $233 million and a decrease in revenues of $439 million.

Some of that cost and reduction in revenues, CBO said, “would be recovered through collections from financial institutions in years after 2027.” CBO also estimates that, assuming appropriation of the necessary amounts, implementing the bill would cost $77 million over the 2018-2027 period.

Warren was questioned during her Tuesday press briefing why 11 of her Democratic colleagues supported the bill, which they say will help community banks.

“If this bill were just for community banks, we’d be having a different conversation,” Warren responded. While there’s “some consensus” it will help community banks, provisions were added “that help giant banks,” which she argued “should not be regulated like a community bank.”

But Greg Valliere, chief global strategist for Horizon Investments, said in his Tuesday morning Capitol Notes briefing that Warren “doesn’t have enough support for her bank-bashing from Democrats, many of whom fear she will be a serious presidential candidate in 2020.”

Even former Massachusetts congressman Barney Frank, a Dodd-Frank co-author, concedes “that his bill was too harsh on smaller banks, which are struggling with regulatory burdens while the big banks can deploy an army of attorneys to ease compliance.”

Valliere opined that it is Frank’s concession that has persuaded over a dozen Democrats to support the bill, which he said “may win 65 to 70 votes in the Senate and has equally strong support in the House.”

Former Financial Crisis Inquiry Commission Chairman Weighs In

Angelides, who served as chairman of the Financial Crisis Inquiry Commission (from 2009 to 2011), which conducted the U.S. inquiry into the causes of the 2008 financial crisis, told Senate Banking Committee Chairman Mike Crapo, R-Idaho the bill’s sponsor in a Monday letter that he was “deeply troubled” by the potential passage of S. 2155.

Notwithstanding the “magnitude of the economic and human damage caused by the crisis and the effectiveness of post-crisis reforms in stabilizing our financial system and economy,” the Senate taking up the bill this time “is particularly astounding given that next week will mark the 10th anniversary of the collapse of Bear Stearns, one of the seminal events in the unraveling of our financial markets that plunged our nation into the Great Recession,” Angelides wrote.

The bill “would weaken the financial system safeguards and taxpayer and consumer protections put in place in the wake of the financial crisis, exposing American taxpayers, our financial system, and our economy to significant risk,” Angelides said.

Case in point: The bill’s provisions to lift the asset threshold for enhanced prudential standards and supervision from $50 billion to $250 billion “would substantially reduce oversight over 25 of the nation’s 38 largest banks, including institutions of over $100 billion in assets that were deemed ‘too big to fail’ in 2009.”

A number of financial institutions “with less than $250 billion triggered the need for bailout assistance during the crisis and history has shown, time and again, that the failure of financial firms that are not among the largest megabanks can pose systemic threats to financial stability,” Angelides told Crapo.

— Check out Trump’s Treasury Secretary Cool on ‘Too Big to Fail’ Process on ThinkAdvisor.


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