Senate Advances Bill to Loosen Banking Rules, Revealing Democratic Split

WASHINGTON — The Senate took a key step Tuesday toward loosening rules imposed after the 2008 financial crisis as some Democrats joined with Republicans to vote to begin debate on legislation that would roll back restrictions on large parts of the banking industry.

In a rare demonstration of bipartisanship, the Senate voted 67-32 to allow the bill to proceed, setting the stage for a vote this week that rewrites parts of the 2010 Dodd-Frank Act.

While the bill is intended to provide relief to thousands of small and midsize banks, the prospect of deregulating the financial industry has laid bare a fissure in the Democratic Party, pitting moderate Democrats who support easing bank rules against progressives who view the bill as a gift to Wall Street.

“This deregulatory bill puts the entire economy at risk,” Sen. Elizabeth Warren, D-Mass., said Tuesday. “We’re not here to do the bidding of Wall Street banks. We’re here to do the bidding of the American people.”

The bipartisan bill, which was drafted in the Senate Banking Committee over several years, would let hundreds of smaller banks avoid some federal oversight such as stress tests, which measure a bank’s ability to weather an economic downturn.

Currently, banks with $50 billion of assets are considered “systemically important” and are governed by stricter rules. The bill would raise this threshold to $250 billion, meaning that only a handful of the biggest banks would face the toughest oversight.

The banking industry cheered the legislation’s progress on Tuesday.

“This common sense legislation will right-size financial rules and allow financial institutions to better serve their customers and communities,” said Rob Nichols, the president of the American Bankers Association.

Twelve Democrats and one independent sponsored the bill with 13 Republicans. Backers of the legislation hailed it as an example of “old school” lawmaking that harks back to a time when senators regularly worked across party lines.

Democratic senators who are facing re-election this year in states won by Donald Trump in 2016 have been especially supportive of the bill, but on Tuesday they said politics was not a factor. They said excessive regulation has driven small banks in rural America out of business, making it harder for businesses in their states to get credit.

“This election has nothing to do with this,” said Sen. Jon Tester, D-Mont. “This has everything to do with access to capital.”

Lobbyists have been pushing in recent days for tweaks to the bill that would make it more favorable to big banks, but Senate Democrats have insisted that they will oppose anything that is a giveaway to banking giants such as Citigroup, JPMorgan Chase & Co. and Goldman Sachs.

The bill could get a final vote this week on the Senate floor.

The House passed a more comprehensive financial deregulation bill last year, but senators are hopeful that the House will accept the bill that they approve with only minor changes. If they demand significant revisions, the bill is likely to fail.

“This is a moment in time,” said Sen. Heidi Heitkamp, D-N.D. “I think the House understands that, and I think the White House understands that.”