|Today, Senate Banking marked up and reported out S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. The bill sailed through Committee. Final vote: 16 ayes and 7 nays. Democratic cosponsors refused to vote for amendments offered by opposing Democratic colleagues, and Republicans did likewise, per prior agreement.
The divisions of opinion on display at the markup were unusual for several reasons. First, the divide did not fall along party lines. Second, it was the first time a caucus has appeared divided on a big ticket item during this Congress. And this division appeared in the context of broadest set of proposed revisions to Dodd-Frank ever to make it so far legislatively.
S. 2155 — How We Got Here
S. 2155 has been months in the making. Senate Banking started out by soliciting letters from various stakeholders earlier this year for such legislation. Crapo and Brown were aiming at improving economic growth for the interests of bankers, consumers, investors, workers, retirees, and industry.
After negotiations between the Chair and Ranking Member broke down, moderate Democrats reached out to Sen. Crapo on Oct. 9 in search of a deal to address supervisory regulatory relief for credit unions and community banks — a broadly-supported goal. The bill, debated today and now headed to the Senate floor, is a product mainly of those solicitations and bipartisan negotiation.
The nine original cosponsors were:
- Joe Donnelly (D-Indiana)
- Heidi Heitkamp (D-North Dakota)
- Jon Tester (D-Montana)
- Mark Warner (D-Virginia)
- Tim Kaine (D-Virginia)
- Joe Manchin (D-West Virginia)
- Claire McCaskill (D-Missouri)
- Gary Peters (D-Michigan)
- Angus King (I-Maine)
Soon afterward, Sen. Bennet signed on, making ten. The bipartisan agreement was announced on Nov. 13, with the legislative text released four days later. (Just last night, Delaware Senators Carper and Coons also signed onto the bill as cosponsors.)
Nomenklature: Which Banks Are Risky?
The regulatory world has been moving away from a capital-based to a risk-based metric for applying regulatory approaches to the most systemically significant financial institutions. But for now, consolidated assets is the main proxy for risk.
Conventionally, we refer to:
- Regional banks — those holding between $50 billion and $250 billion in consolidated assets, and
- mid-size banks, which hold between $10 billion and $50 billion in consolidated assets.
These are not the terms that regulators and lawmakers both use to classify banks to determine the appropriate regulatory approach to apply. Regulatory approaches do not simply reflect the classifications “regional” banks and “mid-sized,” which are typically not identified here (Source: Davis, Polk).
Sen. Crapo took a moment to promote his bipartisan deal. Ranking Member Brown decried the lack of support for workers, students, and home-related borrowers. All seven non-sponsoring Democrats expressed opposition to the measure. Among the themes addressed in statements of cosponsoring members and supportive Republicans were:
- Stress Tests — The assertion was made by a couple cosponsoring Democrats that S. 2155 does not change capital requirements or stress testing for large banks. The markup made clear that the latter changes:
- All Dodd-Frank Act Stress Tests (DFAST) by eliminating the “adverse” scenario in DFA 165.
- The number of stress tests would reduce, as they would occur on a “periodic” basis.
- Whether or not these tests are significant is another, debatable matter.
- Jerome Powell, at his nomination to succeed Janet Yellen as Fed Chair, said repeatedly, if occasionally inaudibly, that DFA has systemic risk rules which are pillars and others subject to tailoring. He consistently identified the stress tests as DFA pillars.
Favorable Reviews for S 2155?
Sen Donnelly quoted DFA author Barney Frank as saying the legislation was “reasonable and balanced.” While Frank believes much of the legislation to be good, he wrote last week that lifting the $50 billion asset threshold to $250 billion is a “major mistake,” preferring a threshold of $100 billion or $125 billion. Last week, Sen. Tester asked Powell if the bill would substantially increase risk. Powell’s “no” response does not indicate he believes the measure should be adopted as introduced. Neither Frank nor Powell has endorsed S. 2155 or its systemic risk title.
Section 401 Under the Gun
Unsurprisingly, the biggest issue for most non-sponsoring Democrats was Section 401. Sen. Brown led the charge for the dissenters, introducing an ultimately doomed amendment — they all were —aimed at undoing the proposed changes to stress testing. Sen. Warren offered an amendment that would strike Section 401 entirely on the grounds that the provision makes the financial sector significantly more dangerous.
S. 2155 was reported favorably out of committee, unamended, 16-7. Now the bill heads to the Senate floor where it is likely to be buried until January or February. Meanwhile, the bill could have a rendezvous with destiny with Jeb Hensarling’s CHOICE Act, adopted by the House in June.
Once the bill reemerges on the Senate floor, it has at least 64 votes in support, as of now at least. This means that S. 2155 is all but certain to be filibuster-proof on the floor. It is unlikely that any floor amendments not supported by Crapo and the cosponsoring Democrats would be adopted.