Congress passed legislation Tuesday to revise parts the Dodd-Frank financial reforms that were enacted in 2010.
The bill headed to President Trump’s desk, however, is not the sweeping replacement that he and congressional Republicans sought. Instead, it’s a bipartisan, modest change of some of the rules, mostly benefiting regional and smaller banks.
The lower chamber voted 258 to 159 to pass the bill, with 33 Democrats voting in favor.
“This is a major step forward in freeing our economy from overregulation,” said House Speaker Paul Ryan.
The House vote, scheduled months after the Senate passed the bill with strong bipartisan support, came after Senate GOP leadership reached a deal with House Financial Services Committee Chairman Jeb Hensarling, R-Texas, to simply accept the Senate-passed version, leaving other House demands for later.
Republican leaders and the administration claimed the bill’s passage as an item off their agenda’s checklist.
Yet conservatives were underwhelmed, given Trump’s promise on entering office to do “a big number” on Dodd-Frank.
“If you say you’re going to ‘do a number’ on Dodd-Frank, this isn’t much of a number,” said Norbert Michel, a financial regulatory expert at the conservative Heritage Foundation. “So yeah, it’s a letdown.”
The bill, Michel noted, doesn’t repeal any parts of the law, which conservatives have blamed for overburdened banks and choking off loan growth.
A senior White House official said that the bill is “a step toward that promise” made by Trump.
Similarly, the bill does not gut Dodd-Frank, as liberal Democrats argued in the heat of the debate.
As it moved through the Senate, Sen. Elizabeth Warren, D-Mass., criticized the bill and its Democratic backers as a giveaway to Wall Street. The bill includes provisions that would benefit the largest megabanks and others that arguably would lead to more risk among big banks, but overall it leaves the Dodd-Frank regulatory structure intact.
“It does not in any way weaken the regulations we put in there for the largest banks, or that were there to prevent the kind of crisis we had 10 years ago,” said former congressman Barney Frank, one of the law’s namesakes, speaking on CNBC.
“I wish it did gut Dodd-Frank,” said Hensarling, speaking on the House floor. “It didn’t.”
The modesty of the bill represents a victory for liberal Democrats defending Dodd-Frank. They are working against a historical trend: During good times, as the memory of past crises begins to fade, banks begin to take on excess risk, aided by financial deregulation. That, at least, is the narrative of a recent International Monetary Fund paper.
Yet, even with the economy at its strongest level in decades, Democrats have kept deregulation to a minimum.
Bartlett Naylor, an expert for the liberal consumer advocacy group Public Citizen, said that Dodd-Frank defenders have achieved relative success as Congress wasn’t able to undo more of its provisions.
In particular, the bill doesn’t touch the Consumer Financial Protection Bureau, the powerful agency created by the law to regulate mortgages, credit cards, and other financial products offered by banks.
Now, the question becomes whether the Trump administration will be able to unilaterally undo the thrust of Dodd-Frank. “The most troubling thing about this bill is it threatens to be an advertisement to the regulators” to ease off regulations administratively, Naylor said.
Tyler Gellasch, a former Senate aide involved in the drafting of Dodd-Frank, agreed that the bill isn’t the “massive rollback” many predicted when the GOP gained control of Congress, and he noted the “real deregulatory push seems to be coming separately” in the form of the administration’s effort to rewrite the Volcker Rule that bans banks from speculative trading.
The bill would exempt small banks from the Volcker Rule, freeing them from significant paperwork. It also would ease new rules on mortgages for community banks and credit unions that hold those loans on their books, rather than selling them off into the secondary market.
The legislation is a major victory for smaller banks and credit unions. The credit unions have been working toward the legislation “since Dodd-Frank passed,” said Dan Berger, head of the National Association of Federally Insured Credit Unions.
The most significant provision of the bill would be an increase in the threshold at which banks are considered big enough to be a potential threat to the economy in case of failure, and subjected to greater scrutiny. That cutoff would rise from $50 billion in assets to $250 billion, providing relief for regional banks such as SunTrust and Fifth Third.
Proponents argue that those banks are nothing like the Wall Street behemoths that have trillions of dollars in assets, but rather are more like big community banks and should be regulated as such. Critics argue that regional banks were among the ones to collapse and require bailouts in 2008.
There are a grab-bag of other measures in the bill, which was assembled by Senate Banking Committee Chairman Mike Crapo, R-Idaho, in negotiations with Democrats. The provisions range from regulatory relief for manufactured home sellers to freeing some smaller institutions from some reporting requirements tied to home lending, a provision that liberal Democrats charge will result in greater discrimination.
In enacting those modest changes, Senate Democrats up for re-election in states Trump won have gained a talking point for the campaign trail. In Montana, Democrat Jon Tester, a member of the Banking Committee who helped draft the bill, is receiving assistance in the form of ads from the American Bankers Association.
Congress may act again before the end of the year. Hensarling has said that his agreement with the Senate includes a vote on some of the House-passed bipartisan measures that were left out of the Senate package. His intention is to pass a raft of provisions to ease regulations pertaining to securities offerings and startups, based on the model of the JOBS Act signed by President Barack Obama in 2012.
