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Government

Senate Eases Bank Regulations Put In Place After 2008 Financial Crisis

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J. Scott Applewhite
/
AP
The Senate voted to roll back some of the safeguards put into place after the 2008 financial crisis. Several Democrats facing tough re-elections this fall joined Republicans in backing an effort to alter some key aspects of the Dodd-Frank law.

The Senate has approved a bill that eases regulations on banks. This legislation had broad bipartisan support but doesn’t go nearly as far as Republicans in the House want.

The bill’s author, Senator Mike Crapo, R-ID, says the financial reform law known as Dodd-Frank went too far when it was passed in 2010. He says it made loans more expensive and drove small banks out of business. The new legislation “is a bill designed to protect community banks and credit unions and that’s why we have such bipartisan support for it.”

The bill raises the threshold for what’s considered a systemically important bank, which causes regulators to look at a bank’s balance sheet and test how well it could weather another financial crisis.

Originally, Dodd-Frank set that line at $50 billion in assets. But the new bill raises it to $250 billion. At the higher threshold, the number of banks required to go through rigorous annual stress tests would drop to just twelve. This invoked the ire of more liberal Democrats. But ultimately seventeen moderate Democrats joined Republicans.

Now the bill has to be reconciled with one passed in the House last year. That bill went much further toward scrapping Dodd-Frank. Isaac Boltansky, a policy analyst for the investment bank Compass Point, expects the House to go along with the Senate version.

“This bill enshrines permanently the Dodd-Frank Act. Look, with this bill becoming law we ensure that the skeleton of the Dodd-Frank Act is the law of the land for the foreseeable future.”

And that’s enough of a win for one of Dodd-Frank’s authors, former Congressman Barney Frank.

“That’s why the House Republicans hate the bill, I think even more than some of the liberals. I think we wrote such a good bill that it’s impossible to demonize.”

Frank points to a key provision in the latest Senate bill which gives regulators the flexibility to conduct stress tests on banks if they see trouble.