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Congress will kick off a busy session on Tuesday when lawmakers return from summer break, with a number of key banking priorities up for consideration.
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The fight over the Dodd-Frank Act's $50 billion threshold will determine whether some banks get a respite from tougher rules, but it may also shape how the industry and lawmakers think about threats to the financial system more broadly.
March 31
WASHINGTON — The House Financial Services Committee debated a bill Tuesday to remove a key Dodd-Frank Act size test that subjects any bank with over $50 billion in assets to heightened rules.
The Systemic Risk Designation Improvement Act, authored by Rep. Blaine Luetkemeyer, R-Mo., would replace the $50 billion cutoff with a more qualitative measure of an institution's interconnectivity, concentration and other factors to determine if it qualifies for enhanced prudential supervisory standards. The bill is popular among banks and other Dodd-Frank critics who see the $50 billion threshold as arbitrary and overly rigid.
"I view my bill as just one part of streamlining and rationalizing our financial regulatory system," Luetkemeyer said at the markup.
The proposal has already attracted significant support, including 92 Republican cosponsors and 20 Democratic cosponsors, though many Democratic lawmakers as well as the White House have remained critical of the legislation.
Rep. Carolyn Maloney, D-N.Y., introduced an amendment to the bill during Tuesday's debate that would maintain the $50 billion threshold but would require regulators to do more to tailor the enhanced rules for institutions deemed less risky. Whether a bank is eligible for tailored standards would similarly be determined by qualitative factors, like interconnectivity and business activity, instead of size alone.
"While I don't think simply doing away with the $50 billion threshold is the right answer, I am sympathetic to the concerns that some regional banks have expressed about the enhanced regulations not being properly tailored to their business models, which are very different from the largest banks," said Maloney. She called the Dodd-Frank cutoff "a necessary protection."
Recorded votes on the Maloney amendment and the Luetkemeyer bill were slated for as early as Tuesday afternoon. The bill is expected to pass, with the amendment likely to be defeated.
Still, the Maloney measure could potentially resurface as an avenue for compromise down the line, particularly given significant Democratic opposition to a fully qualitative regime for identifying systemically risky banks.
Treasury Secretary Jacob Lew criticized the Luetkemeyer measure on Monday in a letter to Financial Services Committee Chairman Jeb Hensarling, R-Texas, warning that it would "dramatically relax oversight of many of the nation's largest banks."
"While regulators should take full advantage of their existing authority to appropriately tailor rules for the diverse range of depository institutions operating in the United States, such a drastic legislative step ignores costly lessons learned from past financial crises about the damage large and complex banks can pose on the rest of the system," he said in the letter, which was first reported by Politico.
Meanwhile, the Senate Banking Committee approved a bill earlier this year that would raise the threshold to $500 billion while still giving regulators discretion to designate smaller banks as "systemically important." Yet it is still unclear how lawmakers would reconcile that approach with the one taking shape in the House should either proposal advance.
During the markup, Hensarling urged Maloney to work with Luetkemeyer before a floor vote although he criticized her amendment's still including the $50 billion threshold.
The House committee was scheduled to take up other provisions Tuesday afternoon, including several bills imposing changes to the Financial Stability Oversight Council.
The proposals would subject the FSOC to the congressional appropriations process; create new requirements for the council when naming certain nonbanks as systemically important; require the FSOC's Office of Financial Research to provide detailed work plans; put on hold any new nonbank designations until the Federal Reserve releases prudential standards for nonbanks; and expand the scope of the council to include all members of boards and commissions at regulatory agencies involved in the council, instead of just the principal head of each agency.
Those measures, which Lew also criticized, are expected to pass the panel.
