House votes to roll back banking reforms
The Republicanled House backs legislation to undo much of former President Barack Obama’s banking law created after the 2008 economic crisis.
The House on Thursday voted to free Wall Street from many of the strict constraints put in place after the 2008 financial crisis, the opening salvo in what is likely to be a protracted battle over deregulation of the powerful banking industry.
Big banks, from Goldman Sachs to Bank of America, would face less scrutiny and other large financial institutions, such as insurance giant MetLife, could escape tougher rules all together under the legislation largely approved along party lines, 233-186.
The Trump administration backed the bill as part of a multi-pronged effort to ease banking regulations in order to spur economic growth. The legislation is likely to face stiff resistance in the Senate but it provides a roadmap of sorts for the policies President Donald Trump plans to put in place as he appoints new regulators. Trump, who has complained about tight lending practices, has ordered three reviews of banking rules, the first of which Treasury Secretary Steven Mnuchin is set to deliver as soon as next week.
“Our community banks are in trouble,” said Speaker Paul Ryan, R-Wis. “They are being crushed by the costly rules imposed on them by the Dodd-Frank Act. This law may have had good intentions but its consequences have been dire
for Main Street.”
Democrats and progressive groups, who argue banks need more oversight, not less, are preparing to use the issue to animate supporters still angry that Wall Street banks have not paid a bigger price for the financial crisis. Many have expressed particular concern over a provision that would curtail the powers of the Consumer Financial Protection Bureau, and reduce its independence by having its director report to the president.
A choice for banks
The bill, introduced by Rep. Jeb Hensarling, R-Dallas, offers the country’s nearly 6,000 banks a choice: If they want to avoid many of the regulatory burdens imposed during the Obama administration, they must significantly increase their emergency financial cushion. That way, even if they run into financial trouble, the banks should have enough money to survive without taxpayers’ help, supporters of the bill say.
It also eases many of the regulations called for under the Obama administration’s 2010 financial reform law, known as Dodd-Frank, giving community and regional banks a reprieve from many regulations, for example. The bill also significantly curtails the powers of the Consumer Financial Protection Bureau, a potential sticking point with Senate Democrats.
The bill, known as the Financial Choice Act, has little chance of passing in its current form through the Senate, where Republican leadership would need to attract Democratic support. Still, it is a critical part of the Trump administration’s multifront effort to ease banking industry regulations and could set the terms of a potentially explosive debate on whether, nearly a decade after the Great Recession, the banking industry is laboring under too many constraints.
“I think people are too dismissive of this bill being DOA in the Senate,” said Marcus Stanley, policy director for Americans for Financial Reform.
Trump has said bank regulators went too far after the financial crisis in cracking down on lending practices, creating an environment that has made it hard for businesses and consumers to get loans. If banks can lend more money, it will help the economy grow and create more jobs, he has said.
Ryan tweeted Thursday, “Let me put it this way: Dodd-Frank is more than a thousand pages long and has more rules and regulations than any other Obama-era law.”
Democrats have pushed back against this idea, though, saying the banking industry needs more oversight, not less. The Financial Choice Act would allow the conditions for the next financial crisis to fester, Democrats say, noting that American banks earned record profits last year despite government regulations.
Wall Street bonuses rose for the first time in three years in 2016 to an average of $138,210. The bill would eliminate rules meant to rein in Wall Street pay and force companies to release how much chief executives earn compared with their average employees, a potentially embarrassing ratio.
“This bill is a vehicle for Donald Trump’s agenda to deregulate and help out Wall Street,” Rep. Maxine Waters, Calif., the ranking Democrat on the Financial Services Committee, said on the House floor. “Here’s the bottom line: Donald Trump and Republicans want to open the door to another economic catastrophe like the Great Recession and return us to a financial system where reckless and predatory practices harm our families and communities.”
Attempts to weaken the Consumer Financial Protection Bureau have drawn particular ire from Democrats.
The legislation would strip the agency of some of its most important powers. It would no longer be able to write major rules regulating consumer financial companies, such as debt collectors, without getting approval from Congress. And it would no longer be able to levy hefty fines against financial institutions for “unfair” or “deceptive” practices.
The bureau used those powers to fine Wells Fargo $100 million last year for opening up to 2 million accounts that customers did not ask for or know about.
“This bill is a vehicle for Donald Trump’s agenda to deregulate and help out Wall Street.” Rep. Maxine Waters, D-Calif.
Went too far?
Republicans have said the agency has gone too far, and Hensarling, chair of the House Financial Services Committee, has even called for the bureau’s director, Richard Cordray, to be fired.
Democrats have defended the agency, which was created with the help of Sen. Elizabeth Warren, D-Mass., and which has pledged to fight for its independence.