A group of senators on Monday rolled out a rare, bipartisan agreement years in the making that would relax a number of banking regulations enacted after the 2008 financial crisis.
The deal was driven by Senate Banking Chairman Mike Crapo (R-Idaho) and a handful of red-state Democrats who have long argued that the rules were stifling lending for their rural constituents. The same Democrats are facing tough reelection campaigns next year.
The compromise would ease regulations on small, community banks as well as several larger lenders that have been subject to stricter oversight because they have more than $50 billion in assets.
The release of the deal immediately drove a wedge between moderate Democrats and others in the party who have resisted making significant changes to the post-financial crisis regulatory regime. Sen. Sherrod Brown of Ohio, the top Democrat on the Banking Committee, said he opposed the proposal because it too far in rolling back regulations.
But with nine Republicans, eight Democrats and one independent senator signing on, the package had a significant head start on the way to advancing through the Senate, where bipartisan agreement is essential to passing most laws.
“Our bill is an example of how if Democrats and Republicans can put partisanship aside and work together, we can reach real compromises that support the country,” Sen. Heidi Heitkamp (D-N.D.) said.
The announcement was significant because bipartisan agreement on big changes to banking rules has been elusive in the Senate since Democrats enacted a sweeping overhaul of financial regulations in 2010.
Democrats have spent years fending off attempts by Republicans to scrap major aspects of that law, known as Dodd-Frank. The deal unveiled Monday constituted the Senate’s most significant attempt yet at rewriting the legislation.
The new agreement, which was released in summary form, would ease mortgage rules for small lenders, attempt to simplify their capital requirements and let them escape a proprietary trading ban from Dodd-Frank known as the Volcker rule.
The package would require credit bureaus to provide consumers with one free credit freeze per year and shield veterans from having certain medical debt from appearing on their credit reports.
One of the biggest proposed changes to Dodd-Frank would benefit several banks that have been subject to stricter oversight and stress testing requirements because they have more than $50 billion in assets.
A group of the banks and credit card companies, branding themselves the Regional Bank Coalition, has been lobbying Congress to scrap the asset trigger and instead have regulators tap banks for stricter oversight based on their activities.
Instead of that approach, the senators who put together Monday’s agreement would raise the $50 billion threshold to $250 billion — a move that would benefit banks such as SunTrust and Regions, but not bigger firms such as U.S. Bank, Capital One or their larger global counterparts.
The regulatory exemption would be immediately available upon enactment for banks in the $50 billion to $100 billion range. Banks between $100 billion and $250 billion would see the benefit after 18 months, but the Federal Reserve would have authority to accelerate the exemption or continue applying an extra layer of oversight to the lenders.
The Fed would also be required to stress test the banks in the $100 billion-$250 billion range on a periodic basis.
The package stopped short of bigger deregulatory proposals that many GOP lawmakers have been pushing.
In June, House Republicans passed a bill known as the Financial CHOICE Act that would repeal whole sections of Dodd-Frank and scale back the authority of the Consumer Financial Protection Bureau — the kinds of provisions that are absent from the more targeted Senate compromise.
The narrower approach in the Senate is likely to disappoint some conservatives and larger banks that wanted more. But bipartisan compromise was seen as critical to securing the kind of support that was lacking from previous efforts to undo Dodd-Frank.
"If we can find some common ground, that might very well breed more attempts in the future to get something done,” Sen. Mike Rounds (R-S.D.) said in an interview last week.
Monday’s announcement followed an earlier attempt by Crapo this year to cut a deal with Brown.
The Crapo-Brown talks fell apart weeks ago. Brown said the discussions focused too much on rolling back regulations and not enough on helping consumers — a complaint he repeated Monday when he announced his opposition to the new agreement.
"I understand my colleagues’ interest in agreeing to this legislation, but disagree on the wisdom of rolling back so many of Dodd-Frank’s protections with almost no gains for working families," he said in a statement.
When the negotiations with Brown fell apart, Crapo turned to a handful of moderate Democrats with whom he quickly worked out an agreement.
The group included Heitkamp, Jon Tester of Montana and Joe Donnelly of Indiana, who are all up for reelection next year. Mark Warner of Virginia was also at the negotiating table.
They were all part of a bipartisan group of lawmakers who in the previous Congress tried unsuccessfully to craft a deal on banking rules after a deregulation bill offered by the Senate Banking Committee chairman at the time, Richard Shelby (R-Ala.), failed to gain traction.
Analysts said it would probably take months for Congress to enact the proposals, but that the backing of moderate Democrats made it likely to happen. A spokesman for Minority Leader Chuck Schumer said he looked forward to reviewing the agreement.
"Given the package’s bipartisan support, it represents the most significant legislative step toward a regulatory realignment in the financial services sector since the Dodd-Frank Act was enacted,” Compass Point analyst Isaac Boltansky said.