Congress Is Poised to Pass Dodd-Frank Rollback for Smaller Banks

Posted May 22, 2018 1:26 p.m. EDT
Updated May 22, 2018 1:30 p.m. EDT

The House was preparing to vote Tuesday on a bill that would free thousands of small and medium-sized banks from strict rules intended to prevent another financial meltdown, one of the biggest steps to unwind the 2010 Dodd-Frank banking regulation law.

The Senate approved the legislation earlier this year, so the House vote could result in the bill going to President Donald Trump for his signature.

The legislation is symbolically important because Republicans have been railing against the Dodd-Frank law as an example of federal overreach.

But the legislation does little to alter the oversight of the country’s biggest banks. Instead, it strips away regulatory requirements that smaller banks have said are burdensome and unnecessary.

The effort has enjoyed rare bipartisan support. When the Senate voted on the bill in March, 16 Democrats voted alongside all 50 Republicans to pass it. Progressive Democrats have sharply criticized it.

The bill would relax federal oversight of banks with assets of less than $250 billion. That includes a requirement that such banks face tests to measure their ability to withstand a severe economic downturn. It would increase the threshold for a bank being deemed “systemically important” from $50 billion to $250 billion in assets, a reprieve for institutions as large as American Express and BB&T.

The bill’s changes would leave fewer than 10 U.S. big banks subject to the stricter oversight.

While the legislation offers little for the very largest banks, the Trump administration has already been working through the regulatory system to make things easier for them.

For example, the Consumer Financial Protection Bureau, an agency that is loathed by the banking industry, has largely been neutered by a Trump appointee.

Later this month, five regulators are expected to release a plan to water down the Volcker Rule, which bans banks from making market bets with depositors’ money.

And regulators have already proposed easing limits on how much the largest banks can borrow, a change that was opposed by Obama administration appointees at the Fed and the Federal Deposit Insurance Corp., who argued it was too soon to reduce capital requirements for the biggest banks.

Even under the regulatory structure banks say is too stringent, they appear to be thriving: Just a few hours before the House vote, the Federal Deposit Insurance Corp. released data showing banks had booked a record $56 billion in profits for the first quarter of the year because of tax cuts and higher revenues.