House and Senate Dems Unite on Reg Relief

WASHINGTON — Democrats in the House and Senate have banded together around a regulatory relief bill for community banks, a response to broader reforms proposed by Republicans to roll back parts of the Dodd-Frank Act.

The Democratic legislation is similar to a substitute provision introduced by Sen. Sherrod Brown, D-Ohio, ranking member on the Senate Banking Committee, last month during a panel vote of more sweeping regulatory reform legislation by Sen. Richard Shelby, R-Ala., chairman of the panel.

The bill, introduced in both chambers on Wednesday, is supported by all of the Democratic members of both the Banking Committee and the Financial Services Committee — a rare show of unity.

Democrats told reporters Wednesday that the focus should be on getting the less controversial provisions passed first, before tackling some of the thornier policy issues raised in the Shelby bill.

"Let's pass the things around which we have consensus, then let's look at some of the other issues" including changes to the Federal Reserve, the Financial Stability Oversight Council and the designation of "systemically important financial institutions," Brown said at a press briefing.

The package includes nine largely bipartisan measures for community banks, including provisions to remove annual privacy notice requirements except when bank disclosures change and to extend the annual exam schedule to 18 months for healthy institutions under $1 billion of assets.

By comparison, the Shelby bill, which passed the committee down party lines, would include a much larger number of regulatory relief provisions for small and regional banks. Those include raising a key $50 billion Dodd-Frank threshold for enhanced prudential standards, in addition to mandating reforms to the insurance industry, the Fed and the FSOC.

Brown added that while banking industry groups have been supportive of the Shelby effort, the Democratic alternative being offered could ultimately prove more palatable, in part because it doesn't face the threat of a presidential veto. The White House has been critical of the Shelby bill, suggesting that it waters down key industry rules.

Shelby is "not representing their interests as well as we are, because our bill is passable and will not be vetoed and will be supported by pretty much everybody," the Ohio Democrat said. "You can write any bill you want in this town that gives away lots of things to everybody and everybody will support it, but it will collapse under its own weight. That will happen at some point if Republicans don't come back to us with, 'let's really negotiate something that matters.'"

Sen. Heidi Heitkamp, D-N.D., a freshman lawmaker who's been vocal on the need for small bank relief, added that she's hopeful passing some of the less controversial measures for community banks could clear the way for additional discussions. She warned against seeing "reforms for small banks held hostage" to the larger negotiation process.

The suggestion is at odds with the conventional wisdom for those watching the regulatory relief fight play out, which suggests that high-consensus bipartisan bills could serve as "sweeteners" in a larger package of changes.

Still, despite widespread support for the individual measures in the legislation, the Democratic bill faces long odds in the GOP-controlled Congress. Brown added that he and Shelby haven't started negotiating the details of whether a compromise deal might be worked out.

"I think they know where we stand," Brown said, reiterating Democrats' hope that their bill can pass even as lawmakers begin to discuss tougher issues like the Dodd-Frank $50 billion threshold for enhanced prudential standards.

Brown and Heitkamp both discussed their support for raising the $50 billion threshold, though Democrats have said they're concerned with Shelby's proposed reform, which would lift the asset threshold for an automatic designation to $500 billion. The FSOC would have the authority to designate banks between $50 billion and $500 billion for increased regulatory scrutiny and tougher rules.

Rep. Maxine Waters, D-Calif., who is spearheading the Democratic effort in the House with Rep. John Carney, D-Del., said at the press briefing that she's opposed to raising the $50 billion threshold, though many other Democrats have increasingly left the door open to a potential compromise on that issue.

"I strongly believe that $50 [billion] too low," said Brown, noting that most, if not all, of the members of the Banking Committee agree.

But he cautioned that a solution "is more complicated than the number."

He pointed, for example, to costly and onerous Fed stress tests and capital planning efforts that would not be modified by changing the $50 billion threshold, because they're not mandated by Dodd-Frank. (The Fed has issued a rule requiring all banks with more than $50 billion of assets to undergo the Comprehensive Capital Analysis and Review, in addition to Dodd-Frank stress tests."

"I want to see how CCAR seems to be working," said Brown.