WASHINGTON — Nearly nine years after the passage of the Dodd-Frank Act, Republican and Democratic lawmakers still live in alternative universes when it comes to financial regulatory policy.
As evidenced by a Senate hearing with regulatory chiefs, most Democrats still regard last year's regulatory relief bill enacted into law as a gift to Wall Street, and view agency leaders appointed by the Trump administration as coopted by industry.
But Republicans at the hearing offered a sharp rebuke to that line of thinking, arguing that efforts to ease the regulatory burden of regional and community banks have been misrepresented by their colleagues across the aisle.
"The attack that is being made seems to imply that" reg relief "is just benefiting the wealthy," said Senate Banking Committee Chairman Mike Crapo, R-Idaho, the primary sponsor of the reg relief law known as S 2155. He noted that the increase in bank loan volume — by nearly 30% over the last five years — is a good thing, but that Democrats characterize it as banks forcing "shady loans on folks" who lack wealth.
“We’ve seen a very strong performance of the financial industry, the financial sector in the United States,” he said.
But those comments, echoed by other senators and regulators testifying at the hearing, were in sharp contrast to accusations by Sen. Sherrod Brown, D-Ohio — the panel's ranking member — and other Democrats that reg relief benefits the wealthy at the expense of workers and leaves the financial system at risk for another crisis.
“I know the president appointed all of you to your jobs, but you are independent financial regulators," Brown said. "Your job is to make the economy work for everyone — not just people like him.”
The regulators testifying at the hearing largely took the GOP's side, agreeing that consumers and small businesses are benefiting from banks' increased lending.
“It’s the farmers that are able to get access to credit and small businesses, as well as the consumers to both refinance their mortgages at better terms and to put their kids [through] school,” said Federal Deposit Insurance Corp. Chairman Jelena McWilliams.
“We have been very pleased with the economic activity and the ability of banks to lend credit," she added. "From my personal experience, as someone who barely could refinance my loan in 2008, I can tell you that consumers are better served with some of the favorable terms that banks are able to refinance their home mortgages.”
McWilliams was joined by Federal Reserve Vice Chairman of Supervision Randal Quarles, Comptroller of the Currency Joseph Otting and National Credit Union Administration Chairman Rodney Hood.
Quarles agreed that "a dynamic economy benefits everyone.”
"We see that currently in the strength of the labor market … all of that benefits the broad populous and reflects the fact that we have a strong economy that is supported by a dynamic financial sector,” he said.
But in the Democratic telling, regulators have turned a blind eye to malfeasance by the industry.
The hearing became particularly heated when Sen. Elizabeth Warren, D-Mass., pressed Otting over Wells Fargo's search for a new CEO to succeed Tim Sloan. Sloan resigned in March with the bank still trying to satisfy regulatory demands tied to its consumer protection scandals.
The agency has joined the Fed in maintaining strict scrutiny of the bank. In March, the OCC released an
Warren, who is running for president, asked whether the Office of the Comptroller of the Currency would publicly disclose its evaluation of the competence, experience and integrity of the bank's next CEO.
Otting said he would not make that information public and defended his record overseeing the bank.
“No one has been more tougher on Wells Fargo than myself,” he said.
“You mean at the OCC? That’s a low bar,” Warren replied.
“I would disagree with that. I find that insulting that you would make that comment,” Otting said.
"Good," Warren retorted. "People all across this country were scammed and squeezed by Wells Fargo. Their houses were taken away, their cars were stolen, because the bank’s executives were more concerned about making mountains of money than about following the law. And the OCC never uttered a peep about their executives who were leading it. The OCC blew it once by letting Tim Sloan take over, this time you need to show your work and make your decision public."
The political divide also manifested in how the senators characterized future policy decisions before the regulators.
Republicans didn't give the agency heads a free pass. Crapo told the regulators to be more aggressive in simplifying capital requirements. His bill last year authorized regulators to establish a "community bank leverage ratio" as low as 8%, but the agencies proposed a 9% ratio. Crapo also urged them to further simplify the Volcker Rule ban on bank trading by revamping a proposal that has drawn industry criticism.
Sen. Jerry Moran, R-Kan., said banks still haven’t seen the relief they expected from the bill.
“Unfortunately when I talk to Kansas lenders today and ask what was the consequence of 2155, it’s a bit of a shrug of shoulders, hope that something’s going to happen, we haven’t seen much relief,” Moran said.
On the other side, Democrats pressed the regulators to ensure that they do not soften oversight of banks when considering changes to the Community Reinvestment Act.
Sen. Tina Smith, D-Minn., noted that wealth accumulated by African-Americans is still a fraction of that earned by the broader population. She asked the regulators to commit to a CRA revamp that does not reduce oversight of discriminatory lending practices.
“The Community Reinvestment Act is supposed to help us to ensure that banks are serving all Americans," she said.
