Three Key Takeaways from Senate Banking's Split Vote for Reg Relief

WASHINGTON — Members of the Senate Banking Committee were sharply divided on regulatory reform legislation during a panel vote Thursday, but there were signs a deal may still be possible to get the bill enacted later this year.

Lawmakers approved the Financial Regulatory Improvement Act by a vote of 12-10, thanks to unanimous GOP support for the bill, crafted by Chairman Richard Shelby, R-Ala. The legislation would provide community and regional banks with regulatory relief from Dodd-Frank Act and related banking rules, as well as institute reforms at the Federal Reserve and the Financial Stability Oversight Council.

The legislation could move to the Senate floor later this year, though likely not without substantial changes to bring at least some Democrats, who unanimously opposed it, on board. Both Shelby and lead panel Democrat Sen. Sherrod Brown of Ohio committed to trying to find common ground, but whether they can do so is unclear.

"It remains our strong preference that we find a way to come together on a bipartisan basis before" the full Senate considers the bill, Shelby said at the vote.

Below are three key takeaways from the markup, including the bright spots and remaining hurdles for legislative compromise.

SIFI Threshold Still in Flux

Despite strong objections to Shelby's bill, Brown surprised some observers by suggesting that he remains willing to potentially modify a key Dodd-Frank Act $50 billion threshold, above which banks face a slew of tougher standards.

"While I disagree with the approach taken in the bill, I do agree that some banks above $50 billion shouldn't be regulated like Wall Street megabanks," Brown said in his opening statement, adding that he hopes to work with Shelby on a bipartisan measure going forward.

Brown held a subcommittee hearing on the issue of raising the $50 billion line last term, but has stayed relatively quiet on the issue since taking over as the top Democrat on the panel. He's never foreclosed on changing the line, but has emphasized that he doesn't want to introduce more risk into the banking system in the process.

The Banking Committee's proposal would automatically require banks above $500 billion of assets to comply with new rules and would let regulators designate other firms that are between $50 billion and $500 billion to make them subject to tougher supervision.

Democrats have pushed back on this approach, and left the $50 billion threshold out of their alternative legislation altogether. Brown introduced the substitute bill, which included nearly a dozen narrower regulatory relief items for small banks, at the markup on Thursday and it failed 10-12.

At the same time, Sen. Bob Corker, R-Tenn., said at the vote that he has "some issues" with Shelby's proposal for changing the $50 billion threshold.

He added after the markup that he's "open" to modifying the Dodd-Frank statute, though he argued that the Shelby proposal should be "significantly revised."

"It appears to me that the process between $50 [billion] and $500 [billion] in naming people is so cumbersome that it could be years down the road before it occurs," Corker told reporters.

Push for Compromise

Despite strong partisan votes on both the Shelby bill and the Democratic alternative, lawmakers largely reiterated a desire for compromise on regulatory reform.

"My sense is that there's an opportunity here before we go to the floor to do something that's a lot broader than what's being offered by the ranking member and maybe has some tweaks in it based on what the chairman is putting forward today," said Corker.

Sen. Joe Donnelly, D-Ind., meanwhile, signaled his willingness to work across the aisle in more ways that one.

He was the only Democrat to side with GOP lawmakers on two key amendments approved at the markup, including one that would raise a Consumer Financial Protection Bureau exam threshold from $10 billion to $50 billion and another that would prohibit federal banking and credit union regulators from participating in the Justice Department's Operation Choke Point.

He also praised the Democratic substitute, but added that Shelby's legislation contained some important measures.

"In the chairman's bill there are a number of additional things that I think could work, but there are things in there that do not work," he said. "As we look forward, Sen. Corker has said we can reach out and work together to try to create an opportunity to really put together a good, solid bill, and I want to be part of that effort as we move forward."

Sen. Heidi Heitkamp, D-N.D., another moderate on the panel, urged the committee to take up the narrow Democratic bill, which contains a number of bipartisan provisions, while also working toward bigger changes down the road.

"We have an opportunity to get real — limited, but real — relief to community bankers," she said. "It will send a message that we're ready to respond. We can do something small as we're working to do something big."

Warner Lays Down Gauntlet

Still, Democrats were not necessarily uniform in their desire to move forward, with some citing frustrations with the legislative effort so far.

Sen. Mark Warner, D-Va., who is a pro-business moderate, had some of the toughest words for the bill, particularly the process taken by Shelby and his staff in crafting it.

"Dodd-Frank is not perfect. There needs to be perfections made," Warner said. "But I have been more disappointed by this attempt than by anything I've been involved with on this committee."

Democrats did not "receive the legislative draft until ten days before the markup that's been scheduled. Then we got different versions of the draft depending on what kind of member you were. Then we had finally get the draft off the public website since it was released to the press first," he added. "I think this turned this markup into a sideshow, instead of what it should be, which is granting serious relief, in appropriate measures, to Dodd-Frank and making sure that while we protect our consumers we also don't put undue burdens."

As such, Warner vowed to oppose Shelby's bill and all amendments raised at the markup, in addition to using "every tool that I've learned over the last five years — used by both sides — to make sure that this bill as written doesn't get to the floor and doesn't proceed."

Less surprisingly, Sen. Elizabeth Warren, D-Mass., also raised strong concerns with the proposal, charging that Congress should be working to "strengthen … rules and gaps in the regulatory framework," not undermining Dodd-Frank.

"The last thing we should be doing is rolling back the rules and weakening the oversight of some of the biggest banks in this country," she said. "The last thing we should be doing is what's in the chairman's bill — making it harder for the Fed to supervise banks with hundreds of billions of dollars in assets, making it easier for the big banks to offer risky mortgages."