Bankers worry Dodd-Frank rollback bill could be in peril

Banks fined billions over forex rigging
Banks fined billions over forex rigging

Bankers are getting anxious as lawmakers wrestle with a bill that would cut regulations.

For thousands of community banks and regional lenders, including State Street, BB&T and SunTrust, the bill would loosen rules imposed by Congress after the 2008 financial crisis. Banks argue that those rules have hurt their ability to lend money and stimulate the economy.

The bill, crafted by Republican Senator Mike Crapo of Idaho, passed the Senate last month with some Democratic support. But it could be in jeopardy in the House, where an influential Republican wants to make changes.

"We're just so close," said Cynthia Blankenship, vice chairman and corporate president at Bank of the West based in Grapevine, Texas. "This is really relief that we need desperately. It would be such a disappointment if the House couldn't get this across the finish line."

Related: What's in the Senate banking bill

House vs. Senate

In the House, Texas Republican Jeb Hensarling, chairman of the Financial Services Committee, wants to put his own stamp on the Senate's version.

He wants to add a number of measures that have already passed the House with bipartisan support, such as easing disclosure requirements on mortgage loans and letting more companies test the waters before going public.

"We're not rubber-stamping this Senate bill," Hensarling told reporters last month after the bill cleared the Senate. "We're sending a message to the Senate that we stand ready to negotiate."

Any changes in the House would send the bill back to the Senate. And moderate Senate Democrats, whose support was critical in advancing the banking bill, have sent their own message in recent weeks: They won't vote on this bill twice.

"They did the best they could to come up with a strong bipartisan bill," said Paul Merski, executive vice president for congressional relations at the Independent Community Bankers of America. "If you change it now, it's unclear you will get the same result."

Democrats who supported the bill drew backlash from more progressive members of the party, who argued that a regulatory rollback would make the financial system more vulnerable to another crisis.

Senator Elizabeth Warren of Massachusetts, who opposed the bill, wrote on Twitter after it passed that "bankers are popping champagne."

America's banks hauled in $164.8 billion in profit last year, according to the FDIC. It's tough to argue that they didn't have enough money to lend with: They had so much, in fact, that they returned a ton of it to shareholders in the form of dividends and buybacks.

What the bill would do

Crapo's bill would raise the threshold at which banks are considered "too big to fail." That trigger, now set at $50 billion in assets, would rise to $250 billion. That means more than two dozen midsize US banks would be shielded from some Federal Reserve oversight.

They would no longer have to hold as much capital to cover losses on their balance sheets. They would not be required to have plans in place to be safely dismantled if they failed. And they would have to take the Fed's bank health test only periodically, not once a year.

Community banks with less than $10 billion in assets would no longer have to comply with the so-called Volcker Rule. The rule bars financial institutions from making risky bets with money that is insured by taxpayers.

"There's no political issue here," said Blankenship, the Bank of the West executive. "Both sides see the value of community banks and realize they make most of the business loans. It's not a partisan issue."

The political impasse has left little room for formal negotiation between the two chambers, leaving the bill's future murky. But Crapo's bill comes back into focus this week as Congress returns to Capitol Hill after spring break.

"We're still in the same cloudy space prior to recess trying to figure out how this bill moves forward," said one lobbyist with a trade group that represents US banks. "There's only two choices: They have a formal negotiation and work something out or the bill dies."

A spokeswoman for Crapo, chairman of the Senate Banking Committee, declined to comment on the status of the bill. A spokeswoman for Hensarling did not respond to a request for comment.

Related: Fed's Powell sees 'no evidence' the US economy is overheating

Pressure from bankers

Bankers and their lobbyists aren't giving up.

Thousands of executives from community banks across the country descended on Washington for their annual meeting this week. They hope to make a last-minute appeal to House lawmakers to greenlight the bill and get it to President Trump for his signature.

Bankers, who strongly support Hensarling, point out that his support laid the groundwork for the Senate bill.

In West Virginia last week, Trump assured community bankers the bill "should be done fairly quickly."

"We made it a lot easier for you to lend now to great people that a short period of time ago you were not able to lend [to] because of rules, regulations, and you were lending to people that you didn't even want to lend [to]," Trump said.

Related: 10 years after the financial crisis, have we learned anything?

This week members of the Independent Community Bankers of America are expected to meet with House Speaker Paul Ryan, Majority Leader Kevin McCarthy, Majority Whip Steve Scalise, Hensarling and others on the sidelines of their annual conference.

Two weeks later, another 1,300 or so bankers who are members of the American Bankers Association will also be flying in from around the country. They hope to cajole lawmakers into advancing the bill before Congress turns its attention to other things.

"Our bankers are here with a very simple message: Take the deal," Merski said. "It would be a shame to squander this opportunity."

Fed proposal

Some bigger banks could have a respite on the way soon.

On Tuesday, the Fed took its first step during the Trump era to simplify stress tests for some larger banks.

The proposal could modestly reduce how much capital some banks would have to hold, as measured by the Fed's yearly checkup, to make sure they can still lend money during a crisis.

Those revisions would not apply to the biggest of the big banks, which pose the biggest risk to the financial system. The proposal is open to public comment for 60 days.

—CNN's Matt Egan contributed to this report.

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