Shelby 2.0 (June 24)

Hi Mike —

The House passed HFT as predicted yesterday, by a vote of 312-119, reauthorizing surface transportation programs through December 18 at $8.1 billion, paid for with seven revenue provisions. 132 Democrats supported the bill but 180 opposed it, most objecting to another temporary HFT re-up.  Sen. Cruz is threatening to filibuster the bill in the Senate next week if Ex-Im reauthorization is added to it.

Below, a brief update on possible elements of a Shelby 2.0 DFA reform bill, following remarks this morning by Mark Warner, and the response from Treasury Secretary Lew.



This morning at a Bloomberg breakfast, Sen. Mark Warner offered a glimpse into the ongoing internal discussions and possible points of consensus among members of Senate Banking regarding a “Shelby 2.0” — a redo of the Chair’s far-reaching set of “fixes” for the Dodd-Frank Act. BShelby’s bill, the Financial Regulatory Improvement Act, cleared the Committee in a markup in May, but only on a party-line vote, insufficient to defeat a filibuster on the floor.

Warner described a bipartisan subset of Committee members actively looking to make adjustments to Shelby’s bill, including himself and fellow Democrats Tester, Donnelly, and Heitkamp.  “There’s a group of reasonable Republicans and Democrats talking about a Dodd-Frank fix-it bill that would be focused, tailored,” he said.

He said that he’s open to eliminating some regulations, such as annual resolution plans required for regional banks, and that he believes the automatic consolidated asset cut-off figure for SIFIs is a mistake.  “We all agree that $50 billion is probably the wrong number,” he said of the SIFI threshold but did not indicate what he thought the right floor would be.  The Shelby bill makes subjecting banks with between $50 billion and $500 billion in assets to stricter SIFI-level supervision a matter of discretion resting with regulators and the FSOC, replacing the automatic $50 billion asset SIFI trigger in place today.

Warner is not leading the internal discussions and a compromise is not at hand.  Sen. Tester, the most senior of the Committee’s four moderate Democrats is coordinating a painstaking review among the four of the Shelby bill’s 50-odd provisions for possible areas of compromise.

After the SIFI trigger, the next most likely area of compromise would be on establishing a SIFI-delisting process for non-banks.  Compromise on the Fed governance and GSE reform titles looks more remote.  In the middle would be the title on community bank supervision relief and creating a QM safe harbor mortgage last held in portfolio.

Later in the day, Treasury Secretary Lew specifically opposed Shelby’s effort to shield regional banks from enhanced prudential standards for SIFIs.  He cited the bill as an example of legislation offered in the name of simplifying Dodd-Frank that would in fact “go at the heart of some of the protections that we’ve put in place.”  Lew did not refer to Shelby by name, only mentioning a bill from a “senior member of the Senate.”

Among the institutions that would be affected:  SunTrust Banks Inc., U.S. Bancorp, PNC Financial Services Group Inc. Per Lew:  “That would take some of the very largest financial institutions in our country out of the heightened scrutiny. That’s not a Main Street bank.”




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