`Big Number' on Dodd-Frank Isn't as Big as Republicans Wanted

(Bloomberg) -- U.S. lawmakers are set to give President Donald Trump a chance to make good on his vow to “do a big number” on the Dodd-Frank Act.

Legislation set for passage by the Republican-dominated House this week is the product of years of financial-industry lobbying to soften post-crisis rules and sensitive negotiations on Capitol Hill to attract bipartisan support needed to get it through the narrowly-divided Senate.

The package may represent Congress’s last shot at dialing back Wall Street oversight before midterm elections in November that could have a significant impact on the future of bank regulation. House leaders agreed to vote on the compromise bill that Senate Republicans negotiated with moderate Democrats in exchange for a promise that a broader set of House-passed rollbacks will get a vote later this year. Senate Democrats who backed the plan sponsored by Banking Committee Chairman Mike Crapo, an Idaho Republican, have said they will oppose further changes.

“There’s one ship leaving the harbor," said Representative Bill Huizenga, a Michigan Republican who is a member of the House Financial Services Committee. “The House has to pass what the Senate has deemed is the right answer."

Democrats’ Infighting

Moderate Democrats’ support for the bill has sparked fights with progressives including Senator Elizabeth Warren of Massachusetts, who say the bill is a gift to bank lobbyists.

“House Republicans are pushing a dangerous, Wall Street-first bill that would drag us right back to the days of the Great Recession,” House Minority Leader Nancy Pelosi, a California Democrat, said on the House floor last week. “I urge my colleague to make the choice to reject this disastrous Wall Street First bill.”

The legislation gives smaller banks relief from post-crisis rules that they’ve decried as burdensome and costly. There are fewer gains for Wall Street banks and investment firms, which will have to rely on regulators appointed by Trump to dial back hated constraints such as the Volcker Rule ban on proprietary trading.

House Financial Services Committee Chairman Jeb Hensarling and Senate Majority Leader Mitch McConnell have agreed to consider additional financial deregulation measures later this year. Hensarling, who is leaving Congress at the end of 2018, has identified more than two dozen House-passed measures that he would like to see considered. But there’s no sign that Senate Democrats -- whose votes are needed for passage -- will get on board.

The legislation the House is set to vote on raises to $250 billion in assets from $50 billion the threshold for banks to face stricter Federal Reserve oversight as systemically important financial institutions. That would free companies such as American Express Co. and SunTrust Banks Inc. from higher compliance costs associated with being considered too big to fail.

Still, even if it becomes law, the Federal Reserve will ultimately determine how much relief these regional firms get -- and how soon. While losing the SIFI label frees them from some stricter oversight and annual stress tests mandated by Dodd-Frank, banks with more than $50 billion in assets are still subject to other rules including the Fed’s annual Comprehensive Capital Analysis and Review.

If the Fed does decide to make changes in response to the legislation, the process that could take months, even a year, according to Jared Seiberg, an analyst at Cowen Inc.

Biggest Losers

Among the bill’s biggest losers are large regional banks such as Capital One Financial Corp. and PNC Financial Services Group Inc., which would keep their designation as so-called SIFIs. Wall Street banks like Citigroup Inc. and JPMorgan Chase & Co. also lost out on getting relief on some capital requirements they lobbied to include.

The legislation allows big banks to include municipal bonds in required stockpiles of assets that could be sold to provide funding in a crisis. That’s a modification JPMorgan and Citigroup have sought for years.

Custody banks such as State Street Corp. and Bank of New York Mellon Corp., which specialize in safeguarding assets as opposed to traditional commercial banking, are likely to see relief from some capital requirements. The bill frees small banks from the Volcker Rule and makes a technical fix that would let some investment firms like BlackRock continue trading with some funds.

The House Rules Committee took up the legislation late Monday, setting the stage for a final vote as soon as Tuesday.

©2018 Bloomberg L.P.