Wall Street Denied in Latest Rewrite of Senate Banking Bill

Crapo’s legislation is largely aimed at giving small and regional banks a reprieve from regulations put in place after the 2008 financial crisis.

(Bloomberg)—Wall Street banks don’t have much to celebrate in what’s probably the final version of a bill easing financial rules that is headed for a U.S. Senate vote.

Late Wednesday, Senate Banking Chairman Mike Crapo, an Idaho Republican, proposed some last-minute changes to his overhaul of the Dodd-Frank Act. He specified that foreign banks such as Deutsche Bank AG and Barclays Plc won’t benefit from a reprieve in his legislation that’s intended to help regional U.S. lenders.

Crapo’s revisions -- filed in an amendment -- also make clear that only custody banks, including State Street Corp. and Bank of New York Mellon Corp., will win relief from a key post-crisis capital requirement. Citigroup Inc. and other lenders had been pushing lawmakers to expand a provision in the bill so they would also get a break.

And Crapo declined to make changes to the Volcker Rule that firms such as Goldman Sachs Group Inc. had been pressing for.

Another recipient of bad news is Equifax Inc., the credit company whose 2017 hack put millions of consumers at risk of identity theft. Crapo’s amendment would require it and competitors to provide free credit monitoring to some consumers after a breach.

But Equifax and its competitors could benefit from a separate section Crapo added to his bill. The provision affects Fair Isaac Corp., the creator the FICO credit score that is crucial to consumers getting a mortgage. Crapo’s revision would direct mortgage-finance giants Fannie Mae and Freddie Mac to use credit scores offered by other companies, instead of exclusively relying on FICO assessments. Equifax and other credit-reporting companies own VantageScore Solutions LLC, a potential rival to Fair Isaac.

Massive Overhaul

The bill broadly marks the biggest overhaul of Dodd-Frank since it became law eight years ago. Crapo’s legislation is largely aimed at giving small and regional banks a reprieve from regulations put in place after the 2008 financial crisis, including raising the threshold for banks subject to aggressive oversight because they’re considered “too-big-to-fail.” To-be-sure, it does include some goodies for Wall Street.

The legislation’s backers -- including at least a dozen Senate Democrats -- say smaller firms didn’t cause the meltdown and that burdensome rules are preventing them from making loans that would spur economic growth. But progressives, including Massachusetts Democrat Elizabeth Warren, have repeatedly framed the bill as an assault on consumers that will undermine crucial reforms.

The Senate is expected to vote on Crapo’s bill as soon as this week, with lawmakers beginning the process of considering amendments Thursday. While dozens of amendments have already been offered, Crapo’s proposed revisions are by far the most important. His legislation is a compromise, not rolling rules back as much as the finance industry would like and doing little to help Wall Street.

It remains to be seen whether Crapo’s efforts will win the backing of House Republicans, who must also approve the bill for it to reach President Donald Trump’s desk. Last year, the House passed much more sweeping legislation that would rip up much of Dodd-Frank. If some House GOP members demand a more aggressive rollback, Senate Democrats could walk away, causing the legislation to fail.

House Headwinds?

In a sign that there still could be issues that need to be ironed out, House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, said in a Wednesday interview that there are about four dozen bills that the House has already passed that he would like to see added to Crapo’s legislation.

The version Crapo released Wednesday puts to rest questions about whether the biggest foreign banks doing business in the U.S. -- such as Deutsche Bank, Barclays and HSBC Holdings Plc -- would piggyback on the major break mid-sized lenders are poised to get from post-crisis oversight.

It clarified that foreign banks with more than $100 billion in consolidated U.S. assets will still be subject to aggressive monitoring by the Federal Reserve, echoing what Fed officials including Vice Chairman Randal Quarles have said in recent public remarks.

The move follows criticism from some Democrats that Crapo’s legislation could free non-U.S. banks from stress testing and other burdens -- leaving them “mostly deregulated,” according to Senator Sherrod Brown of Ohio. One of the key requirements for the largest foreign banks was to set up “intermediate holding companies” in the U.S., and the latest version of the bill keeps such a requirement in place.

Intense Lobbying

Industry groups have been lobbying right up to an expected Senate vote to persuade lawmakers to amend a provision in the bill on what’s known as the supplemental leverage ratio, a change that could free up billions of dollars for Wall Street banks. The amendment Crapo released Thursday indicates the campaign failed, as custody banks such as Bank of New York Mellon and State Street that safeguard assets for their customers remain the only firms getting relief.

Still, the Fed is separately working to relax the capital requirement in a way that would benefit more lenders. The Congressional Budget Office estimated in a report earlier this week that there’s a 50 percent chance that the Fed will relax the rule for Citigroup and JPMorgan Chase & Co. should Congress pass Crapo’s bill.

For years, big banks like Goldman Sachs have been trying to relax the Volcker Rule’s ban on proprietary trading. While most of their focus has been on regulators, one change they’ve sought from lawmakers is reducing the number of agencies with authority over the rule. That, in turn, could make it easier to soften its impact. Crapo has declined to provide such relief in his legislation.

To contact the reporters on this story: Elizabeth Dexheimer in Washington at [email protected]; Jesse Hamilton in Washington at [email protected] To contact the editors responsible for this story: Jesse Westbrook at [email protected] Gregory Mott


© 2018 Bloomberg L.P

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