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Congress Rolls Back Part Of Dodd-Frank, Easing Rules For Midsize, Smaller Banks

Under legislation approved by the House on Tuesday, SunTrust and other banks with up to $250 billion in assets could be exempted from the toughest rules of the Dodd-Frank law.
Jim Watson
AFP/Getty Images
Under legislation approved by the House on Tuesday, SunTrust and other banks with up to $250 billion in assets could be exempted from the toughest rules of the Dodd-Frank law.

Updated at 5:44 p.m. ET

The House voted Tuesday to ease rules for midsize and regional banks in what is considered the largest undoing to date of banking rules put in place in the wake of the financial crisis. The vote was 258-159.

The Senate has already approved the bill that would allow banks with up to $250 billion in assets to escape some of the toughest rules put in place by the Dodd-Frank Act in 2010 to shore up the banking system. President Trump could sign the bill as early as this week.

Republican lawmakers said the bill aims to help small banks and credit unions be able to make more loans to families.

"The Main Street banks and credit unions that people depend on, they've been suffering," said Rep. Jeb Hensarling, a Texas Republican who chairs the House Financial Services Committee. "They've been suffering for years under the weight, the load, the volume, the complexity, the cost of heavy Washington bureaucratic red tape. They haven't been able to serve these people to get them into homes and get them into cars."

But the bill could also allow large financial firms like American Express and SunTrust to avoid tougher rules of the road, like setting aside a thicker capital cushion to help survive another financial crisis. The bill allows federal regulators some leeway in deciding which of the bigger banks would be subject to eased rules.

Institutions like JPMorgan Chase, Bank of America and Wells Fargo would continue to abide by tougher rules.

Several Democrats warned that the bill goes too far by helping very large midrange banks, several of which also failed during the financial crisis.

"Some of my colleagues may have forgotten about the bad, bad crash from 2008, but I sure haven't," said Rep. Keith Ellison a Democrat from Minnesota who is also on the Financial Services Committee. "Two point six trillion — with a 'T' — vanished from people's retirement accounts. Think about that for the moment. Why on earth would we go back there?"

Under the original Dodd-Frank regulatory rules, banks with as little as $50 billion in assets had to follow these tougher financial rules.

The bill also includes a host of other changes ranging from easing some home mortgage rules to weakening reporting requirements designed to protect against racial discrimination in lending.

The bill is part of a larger deregulation wave underway in Washington. Republicans controlling the White House and Congress have openly vowed to cut rules and red tape wherever they can.

In order to get the bill passed though, some Democrats in the Senate had to be willing to cross the aisle and vote for the new bill. And given that, the changes, aren't as dramatic as they could have been. That is according to the man whose name is on the Dodd-Frank law. Former Rep. Barney Frank says the new bill will leave the most important provisions of Dodd-Frank intact.

"I would vote against it if I was there," the former Democratic House Financial Services chairman tells NPR, but, he adds, "I understand why other people are voting for it."

After Dodd-Frank passed, Frank said he heard arguments from smaller banks that the law placed some undue burdens on them. And one of the major goals of this new bill is to fix that. Basically, the argument is these banks are not the giant, too-big-to-fail kind, so they don't need as many stress tests and related rules.

Frank said he supports the provision in the bill to exempt banks with less than $10 billion in assets from a rule that bars banks from making some kinds of risky, speculative investments. He says the small banks weren't really doing much of that anyway, but they ended up having to spend too much time and money proving they were in compliance.

Frank says he also would be OK with raising the bar for how big a bank has to be before it has to comply with a series of more strict systemic-risk-related regulations. Under Dodd-Frank, banks with $50 billion or more in assets are in that category and fall under the jurisdiction of the Financial Stability Oversight Council. Frank says he would support raising that cap to $100 billion, but Republicans pushed for the much higher $250 billion threshold.

Frank said raising the threshold to $250 billion goes too far, because the failure of two or three banks in that category could pose systemic risk problems.

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NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.