Senate Banking panel huddles with regulators on bank relief

Senate Banking Committee Chairman Mike Crapo (R-Idaho) said Thursday that the panel is “actively engaged” in moving forward with legislation to overhaul several Obama-era banking regulations.

Crapo said the committee is trying to unite around a proposal that reins in and revamps several aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act that Republicans have long targeted for replacement.

“We are literally actively engaged right now in moving forward with developing this legislation,” Crapo said at a hearing with federal regulators Thursday. A spokeswoman for the chairman clarified that the committee wasn’t writing legislation yet, but rather “vetting which ideas can gain the most bipartisan traction.”

“We’re engaged in an effort to identify statutorily where we can make things better,” Crapo said. “We need to get the right balance in our system so we can have the strongest economic engine that we possibly can.”

Early signs of what that balance could look like popped up in Thursday’s hearing with several top federal banking regulators. The panel included the leaders of the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency and National Credit Union Administration, along with Federal Reserve Gov. Jerome Powell, the bank’s chief regulatory supervisor.

The regulators were largely unified on broad suggestions for how lawmakers could help tailor Dodd-Frank to specific banks’ needs.

{mosads}Powell said the Fed is open to adjusting the “Volcker Rule,” which bans banks from making risky trades with their own capital. He suggested focusing the rule on firms with major investment practices while reducing the compliance burden for smaller banks.

“There is room for eliminating or relaxing aspects of the implementing regulation that do not directly bear on the Volcker Rule’s main policy goals,” Powell said in prepared testimony. He added that agencies that help enforce the rule should consider changes to “streamline and or reduce the paperwork” for smaller firms.

The regulators also suggested adjusting how the federal government tests the stability of big banks. The panel said agencies and lawmakers should consider allowing banks to submit living wills — a bank’s plan to unload its assets before it collapses upon failure — once every two years instead of annually as under current law. And all but FDIC Chairman Martin Gruenberg supported altering the $50 billion asset threshold that subjects banks to stronger federal scrutiny.

Senate Republicans are taking a more inclusive approach to curtailing Dodd-Frank than the House did with the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act, a sweeping bill replacing most of the 2010 law. Banking Committee Democrats, many of whom are red-state moderates up for reelection in 2018, have been cautiously receptive to GOP pledges to focus on relief for small banks. Leading progressives on the committee warned Republicans that they wouldn’t accept concessions to banks responsible for the 2008 crisis.

“I hope this committee can focus on the issues that will reduce burdens for small institutions in struggling communities, help consumers, and create long-term, sustainable economic growth,” said Banking Committee ranking Democrat Sen. Sherrod Brown (Ohio).

“I look forward to working with you and all of our colleagues, but it would be a shame if we forgot so soon the lessons of the Great Recession.”

Republicans and Democrats are squabbling over where to draw the line between systemically important banks that require strong oversight and smaller firms that deserve a break from regulatory burdens. That makes where to place the $50 billion asset marker a pervasive, difficult issue to resolve.

Several Republicans have suggested switching over to a system that classifies banks by risk profile rather than assets held. Powell admitted that the asset thresholds established by Dodd-Frank were “arbitrary.”

Democrats have also dug in over the future of the Consumer Financial Protection Bureau (CFPB), an agency established by Dodd-Frank to police predatory lending. Republicans are looking to place the agency under the congressional appropriations process, but that measure would get no support from Democrats.

“I really don’t understand the motivation behind stripping the bureau of its powers,” said Sen. Catherine Cortez Masto (D-Nev.). “There is a need for the CFPB.”