State delegation divided on banking changes
Rep. Jim Himes has developed thick skin in nine years on Capitol Hill, but the one thing guaranteed to get under it is any suggestion that his House vote last week contributed to the gutting of the historic Dodd-Frank banking law he helped to create.
“I’ve spent nine years fending off attacks by Republicans” on Dodd-Frank, said Himes, a Connecticut Democrat. “But once in a blue moon, I’m in favor of modifications. It is universally accepted that any piece of legislation is not a holy writ.”
When it was approved by a Democratic Congress and enacted in 2010, Dodd-Frank brought unprecedented scrutiny to banks in the wake of the 2007-2008 Great Recession. One of the coauthors was Sen. Chris Dodd, D-Conn., who announced his Senate retirement that same year.
Himes was one of just 33 Democrats (out of 193) to vote last Tuesday in favor of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The state’s four other House members — all Democrats — voted against the measure.
The bill was promoted by conservative House Republicans who are frank in their desire to see Dodd-Frank gutted, if not repealed in its entirety.
But one prominent Republican, Rep. Jeb Hensarling, R-Texas, bemoaned the lack of teeth in the bill approved last week.
“I wish it did gut DoddFrank,” he said. “It didn’t.’’
Hensarling is chairman of the House Financial Services Committee, of which Himes is a member.
The small-bank argument
The new law’s main feature is exempting banks with $10 billion in assets or less from many of DoddFrank’s regulatory provisions. But it also lifts the asset threshold for determining if a bank poses a threat to the financial system if it fails.
The new level enacted last week is a five-fold increase to $250 billion — exempting some major players such as American Express, Sun Trust and BB&T.
But its backers, including Himes, insist the bill was written to answer the prayers of small and medium banks and credit unions that were subjected to the same regulatory regimen as the “too-big-to-fail” banks. The amount of time and paperwork required to comply with the law was out of sync with their minimal impact on the nation’s overall financial health, they argued.
“Dodd-Frank was designed to curb the abuses taking place on Wall Street,” said Jill Nowacki, president and CEO of the Meridenbased Credit Union League of Connecticut, which represents about 100 credit unions statewide, including 25 in Himes’ Fairfield County district. “It was never intended to trickle down and impact credit unions. However, it did.”
Connecticut’s memberowned, nonprofit credit unions hold $8.5 billion in assets and serve about 875,00 consumers. They range from small — Faith Tabernacle Baptist Church Federal Credit Union in Stamford, with $165,000 in assets — to large — Sheltonbased Sikorsky Credit Union, with just under $800 million.
Nowacki said that under previous Dodd-Frank rules, bank examinations diverted thinly staffed credit unions away from customers standing in line, and forced many out of the mortgage-lending business because of complicated regulatory and technology requirements.
About 2,000 of 8,000 credit unions have closed nationwide since DoddFrank became law. Connecticut has lost about five credit unions a year since 2014, Nowacki said, adding that “it’s not only Dodd-Frank, but that’s a large part of it.”
Some of the now-alleviated requirements imposed by Dodd-Frank were granular, but they added up to a burdensome nightmare, Nowacki said. For instance, mortgages for purchases of duplexes were deemed business rather than commercial — requiring much extra paperwork.
The switch back to classifying them as residential could “help unlock about $4 billion that credit unions can lend to small businesses, helping expand the total economic capacity of our communities,” she said in an op-ed.
Himes is no stranger to controversy surrounding Dodd-Frank. As a veteran of Goldman Sachs long before coming to Congress, Himes arguably understood the American financial-services sector better than any other lawmaker in Washington.
The bill, which was signed into law by President Trump last week, is “almost entirely relief for small institutions,” Himes said. “And I would say as one of the original authors of DoddFrank, I’d never participate in any effort to gut it.”
Himes co-wrote the section of the original DoddFrank reining in trade in high-flying derivatives. But he disappointed fellow Democrats in 2014 when he supported modifications.
Now Himes finds himself in opposition to the vast majority of members of his own party over yet another such series of revisions.
House Minority Leader Nancy Pelosi, D-Calif., called the legislation “a bad bill under the guise of helping community banks.”
She said it would take the U.S. “back to the days of unchecked recklessness.”
Rep. Rosa DeLauro, DConn., was skeptical of the claim that the new $10 billion threshold would free small banks of an undue regulatory burden.
“Despite being sold as a bill focused on helping community banks, in reality, it puts our financial system at a greater risk of another systemic failure,” she said. “These protections were put in place for a good reason: to prevent another Great Recession. This new law is nothing less than a systematic attack on those safeguards.”
And fellow Connecticut Rep. Elizabeth Esty argued the new law also would undermine protections against discrimination in housing and mortgage lending.
“When affordable housing is such a critical issue in Connecticut and in light of ongoing evidence of racial discrimination in mortgage lending practices, I am concerned that the bill would lead to a retreat in our efforts to ensure fair housing and lending policies,” she said.
Anticipating a storm, Himes has built a line of defenses. One of them is a letter from the original sponsors, Dodd and former Rep. Barney Frank, D-Mass., who was chairman of the House Financial Services Committee.
Voices of Connecticut’s progressive-liberal-activist community have, for the most part, been muted.
“Regulation is a tricky thing, and I think (Himes is) trying to find middle ground here,” said Douglas Sutherland, Chairman of Democracy for America — Fairfield County. “Small banks have been screaming a long time, so let’s see if this helps them. I don’t see it as gutting.”