Group of professionals discuss finance

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Banking and Finance Law Daily, May 21, 2015

Banking Committee votes for regulatory relief

By John M. Pachkowski, J.D.

The Senate Banking Committee met in an executive session on May 21, 2015, to mark-up “The Financial Regulatory Improvement Act of 2015.”

Following debate on a number of amendments, the measure was approved along party lines by a vote of 12 to 10.

Committee chairman Sen. Richard Shelby (R-Ala) released the draft legislation on May 12, 2015. The Financial Regulatory Improvement Act of 2015 would ease restrictions on mortgage credit, reduce the examination and supervision burdens on smaller institutions, tighten up the Financial Stability Oversight Council’s process for designating systemically important financial institutions, and make technical corrections to the Dodd-Frank Act. It also would initiate an inquiry into reorganizing the Federal Reserve System (see Banking and Finance Law Daily, May 12, 2015).

Democrats on the Senate Banking Committee released their own financial services regulatory relief bill on May 19, 2015, as a counter-proposal to Shelby’s bill. The Democrats’ alternative, only nine sections long, addressed some of the subjects covered by Shelby’s draft but it omits any mention of the Financial Stability Oversight Council, systemically important financial institutions, or changes to the Federal Reserve System (see Banking and Finance Law Daily, May 19, 2015).

Concerns addressed. At the start of the mark-up, Shelby, in his opening statement, addressed “a number of concerns raised about the Committee’s process” and “explain[ed] what we did, and how we got here.” He noted, “At the committee level, the process has included nine public hearings to examine areas addressed in the bill. The hearing record, including every submission for the record, is available to every member.” Shelby added, “At the staff level, the process has included more than 40 bipartisan staff meetings, briefings, and conference calls to discuss each issue and a possible way forward.” He continued, “When it became apparent that further progress was unlikely, the majority staff informed the Ranking Member’s staff that we were going to begin drafting a more comprehensive bill. An offer to draft the bill jointly was declined by the Ranking Member’s staff” and “[i]n the interest of preserving the potential for bipartisan legislation, we attempted to draft a bill that included provisions that could and should garner bipartisan support.” Shelby concluded, “As I have said many times, I view this as just one step in a very long process” and “[i]t remains our strong preference that we find a way to come together on a bipartisan basis before we reach that point.”

One-sided wish list. In his opening statement, Sen. Sherrod Brown (D-Ohio), the Committee’s Ranking Member, highlighted the costs of the financial crisis and noted that the Dodd-Frank Act was not perfect, but at the same time, “we must not undermine the key protections that the law provides to prevent another catastrophe.” He continued that “the bill before the committee today would trample on many of these protections. And it would open the door to the same type of behavior that brought on the crisis.” He called Shelby’s proposal “a one-sided wish list—pleasing to various interest groups but lacking any provisions to help the average American trying to navigate our financial system.” Brown added, “It seems that the legislation before us today was neither designed to pass this Committee with bipartisan support, nor to be signed into law by the President.” He concluded, “I hope this is just the beginning of the conversation. We still have much work to do.”

A number of amendments were offered during the hearing. Several that were to be considered were withdrawn by their sponsors.

Brown Amendment. During debate on the Brown Amendment, which was the Democrats’ May 19th alternative, Shelby noted that, although it was “narrow and targeted,” it “over achieves.”

On the other hand, Sen. Elizabeth Warren (D-Mass) voiced her opposition against the Shelby measure. She noted that that Dodd-Frank “was not perfect,” that there is a need to address the gaps, and that the Dodd-Frank protections “should not be rolled back.”

Sen. Robert Menendez (D-NJ) said that following the financial crisis there is a need to have “strong rules of the road.” He added, that “one-size-fits-all” regulation was not the answer, but the regulation could be tailored and protections achieved “if done correctly.”

Sen. Bob Corker (R-Tenn) sought areas of “commonality” between the Shelby proposal and the Brown Amendment. He noted that there were opportunities to have something broader than the Brown Amendment and that “tweaks” were necessary. In conclusion, Corker “believed” that a bi-partisan bill was possible.

Sen. Heidi Heitkamp (D-ND) took a “different direction,” noting that there was “pent-up frustration in America.” She noted that the regulatory relief provided to community banks would “send a message” that something small can lead to getting something bigger done.

Finally, Sen. Mark Warner (D-Va) was “upset” by the whole process and called the mark-up a “side show.” He added that he would use “every tool” of Senate procedure to ensure that the Shelby measure did not proceed.

The Brown Amendment was defeated along party lines by a vote of 12 to 10.

Crapo Amendment. An amendment offered by Sen. Mike Crapo (R-Idaho) related to Operation Choke Point and is similar to an amendment he offered to the Senate’s 2016 Budget Resolution. The budget resolution amendment would establish a deficit-neutral reserve fund to end Operation Choke Point (see Banking and Finance Law Daily, March 23, 2015).

Operation Choke Point was an effort by the Justice Department to deny access to the banking and payments system to businesses that were seen as posing a high risk of payment fraud, money laundering, or other abuses.

The Independent Community Bankers of America (ICBA), along with the Credit Union National Association and the National Association of Federal Credit Unions, wrote to Crapo supporting his Banking Committee amendment. They noted that the amendment “would in no way inhibit the enforcement of anti-fraud laws.” They added that “[w]e strongly believe that before a law enforcement agency or regulator requires that a relationship be terminated with a credit union member or bank customer, the law enforcement agency or regulator must have and provide to the credit union or bank a material reason clearly related to a specific violation of the law.”

The Banking Committee approved Crapo’s amendment by a vote of 13 to 9.

Toomey Amendment. An amendment offered by Sen. Pat Toomey (R-Pa) would raise the threshold for banks exempt from direct examination and reporting requirements by the Consumer Financial Protection Bureau from $10 billion to $50 billion in assets. Brown had concerns that some institutions would not have oversight and supervision by a regulator. The amendment was approved by a vote of 13 to 9.

In a letter to Toomey, the ICBA noted that the amendment “embodies a provision of ICBA’s Plan for Prosperity and recognizes the importance of tiered regulation.” The trade group added the amendment “represents the principle of tiered regulation of financial institutions according to their asset size and the risk they pose to consumers and to safety and soundness—a principle to which ICBA is deeply committed.”

Three other amendments offered by Toomey were withdrawn during the hearing. One related to a repeal of the Orderly Liquidation Authority found in Title II of the Dodd-Frank Act and revamping the Bankruptcy Code to provide a mechanism for resolving large banks and avoiding future bailouts. A second amendment would have addressed capitalization of the government-sponsored enterprises—Fannie Mae and Freddie Mac. The final withdrawn amendment would have brought transparency to the international regulatory regime, especially the designation of the systemically important financial institutions or SIFIs. Toomey characterized the current process in the United States as the “tail wagging the dog” since in many instances, a foreign regulatory body, namely the Financial Stability Board has deemed certain non-bank firms to be globally systemically important financial institutions before the Financial Stability Oversight Council acts designating SIFIs in the United States.

Vitter Amendments. Although withdrawn during the mark-up, Sen. David Vitter offered two amendments. One amendment was to address cronyism at the Securities Investor Protection Corporation.

The second of Vitter’s amendments would have required that all bank holding companies automatically designated as SIFIs have equity capital of at least 10 percent of assets. The amendment was supported by the ICBA as “a clear, easy-to-implement solution to the persistent threat posed by too-big-to-fail institutions.” The Systemic Risk Council supported Vitter’s equity capital amendment, noting it “has long supported stronger, simpler capital requirements for large, complex institutions.”

Support and opposition. In the lead up to the mark-up hearing, a number of stakeholders voiced their support or opposition to the Shelby measure of the Democrats’ alternative.

ICYMI. The Banking Committee posted "In Case You Missed It: What They're Saying About `The Financial Regulatory Improvement Act of 2015.' " The ICYMI presented quotes from a number of organizations expressing support for Shelby’s discussion draft. The list of organizations expressing support includes Habitat for Humanity, regulatory groups, trade organizations, and individual banking institutions.

Imperative first step. All 53 state bankers associations expressed support for Shelby’s bill. In their letter, they noted “the ability of our nation’s financial institutions to support the needs of that economy has been limited by regulatory impediments that both restrict the flexibility to serve those needs and tie up substantial internal resources on unnecessary compliance exercises.” The associations added that Shelby’s bill “represents an imperative first step in that regard” that is “neither overly broad nor overly narrow.”

Focused step toward. The American Bankers Association called Shelby’s bill “a significant, but focused step toward addressing many of the statutory and regulatory barriers that keep banks from more efficiently serving the needs of their local communities.”

Meaningful relief. In a letter, the ICBA said it supported Shelby’s efforts to advance meaningful community bank relief. The trade group added, “Many of the sections reflect ICBA’s Plan for Prosperity and have been previously advanced in solid bipartisan bills.”

“Major rollback.” Although the banking industry supported Shelby’s discussion draft, Americans for Financial Reform called Shelby’s bill a “major rollback” of the Dodd-Frank Act. AFR noted, “It goes far beyond what might be reasonable regulatory relief for small community banks. Instead, it provides regulatory exemptions for some of the largest financial institutions in the country. This includes exemptions from key systemic risk protections that are directly responsive to problems revealed during the financial crisis of 2008, such as abusive and exploitative mortgage lending, poor risk management at large multi-hundred billion dollar banks, and lack of regulatory oversight for large non-bank financial institutions.”

Commenting on the Democrats’ alternative, AFR noted, “The Democratic substitute amendment represents a better approach to protecting consumers and the broader stability and security of the financial system, as well as to balancing attention to the concerns of real community banks and the need for key standards to apply across the system. As we have detailed in a separate opposition letter, Chairman Shelby’s proposed legislation constitutes a major rollback of new financial protections adopted in the Dodd-Frank Wall Street Reform Act, and would significantly undermine rules critical to safeguarding consumers and the broader public. While we have some concerns with one or two of its provisions, the Democratic substitute would not undermine basic financial or consumer protections in this manner, and it also includes important positive steps for consumers.”

Looking ahead. Following the committee’s approval of the Financial Regulatory Improvement Act of 2015, Sen. Mike Rounds (R-SD), applauded the measure’s passage. He noted, “The bill passed through committee today will provide much-needed regulatory relief to the financial services industry and the consumers they serve. South Dakota’s banking industry has been hit hard by rules stemming from Dodd-Frank, spending too much time and money on regulatory compliance. Our bill seeks to roll back of some of the ‘one-size-fits-all’ regulations within Dodd-Frank—a major win for South Dakota’s financial institutions. I hope my colleagues on both sides of the aisle will work together to pass this important legislation when it comes to the floor later this year.”

Frank Keating, ABA president and CEO, said, “With today’s vote now in the rearview mirror, we stand ready to work with Chairman Shelby, Ranking Member Brown and members of the committee to get this legislation before the full Senate and enacted as soon as possible. We firmly believe that common ground exists for financial reform in this Congress. We need to seize it and move ahead together for the sake of our customers and the broader economy.”

Camden R. Fine, ICBA president and CEO, issued a statement thanking the Senate Banking Committee “for advancing legislation with key provisions that would make common-sense reforms to community banking regulations on behalf of local communities.”

Dismantles Dodd-Frank. On the other hand, Sen. Jeff Merkley (D-Ore), one of the original co-sponsors of the Volcker Rule, said, “The partisan legislation dismantles many of Dodd-Frank's most reasonable and effective reforms. It makes it easier for banks to once again make predatory home loans. It attacks the Volcker Rule by creating a carve-out that would undoubtedly bring us back to the days of taxpayer-insured hedge funds.” He added, “We need common-sense solutions that will make it easier for our Main Street financial institutions to serve homeowners and small businesses without being hampered by unreasonable compliance burdens.”

Early, significant blow. Although Shelby’s bill passed along party lines, an article in The Hill noted that opposition by the committee’s moderate Democrats could deal the legislation “an early and significant blow” since “Shelby will have a hard time clearing a 60-vote procedural hurdle he'll need if he wants to get a vote on the Senate floor.”

Companies: Alabama Bankers Association; Alaska Bankers Association; American Bankers Association; Americans for Financial Reform; Arizona Bankers Association; Arkansas Bankers Association; California Bankers Association; Colorado Bankers Association; Connecticut Bankers Association; Credit Union National Association; Delaware Bankers Association; Fannie Mae; Florida Bankers Association; Freddie Mac; Georgia Bankers Association;

Habitat for Humanity; Hawaii Bankers Association; Heartland Community Bankers Association; Idaho Bankers Association; Illinois Bankers Association; Illinois League of Financial Institutions; Independent Community Bankers of America; Indiana Bankers Association; Iowa Bankers Association; Kansas Bankers Association; Kentucky Bankers Association; Louisiana Bankers Association; Maine Bankers Association; Maryland Bankers Association; Massachusetts Bankers Association; Michigan Bankers Association; Minnesota Bankers Association; Mississippi Bankers Association; Missouri Bankers Association; Montana Bankers Association; National Association of Federal Credit Unions; Nebraska Bankers Association; Nevada Bankers Association; New Hampshire Bankers Association; New Jersey Bankers Association; New Mexico Bankers Association; New York Bankers Association; North Carolina Bankers Association; North Dakota Bankers Association; Ohio Bankers League; Oklahoma Bankers Association; Oregon Bankers Association; Pennsylvania Bankers Association; Puerto Rico Bankers Association; Rhode Island Bankers Association; South Carolina Bankers Association; South Dakota Bankers Association; Systemic Risk Council; Tennessee Bankers Association; Texas Bankers Association; Utah Bankers Association; Vermont Bankers Association; Virginia Bankers Association; Washington Bankers Association; West Virginia Bankers Association; Wisconsin Bankers Association; Wyoming Bankers Association

MainStory: TopStory BankHolding BankingOperations BankSecrecyAct CapitalBaselAccords CFPB DoddFrankAct FederalReserveSystem FinancialStability GovernmentSponsoredEnterprises OversightInvestigations PrudentialRegulation Receiverships SCRA VolckerRule

Banking and Finance Law Daily

Introducing Wolters Kluwer Banking and Finance Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.