WASHINGTON — The Senate is poised to pass the most substantial bank regulatory relief since the crisis, to many bankers' delight and progressive Democrats' alarm. But any disruption of the post-crisis regime is still eclipsed by how much the bill enshrines Dodd-Frank.

The bill, which appears headed to a vote within days and is the culmination of negotiations between Senate Banking Committee Chairman Mike Crapo, R-Idaho, and moderate Democrats, would raise the asset threshold for “systemically important" financial institutions to $250 billion from $50 billion, and make other adjustments to stress test and mortgage data collection requirements, among others.

“Republicans, who fought Dodd-Frank title by title from start to finish, now with control of the legislative and executive branches, only pursued a rationalization of Dodd-Frank over an architectural or structural redo,” said Jeffrey Stoltzfoos, a senior policy adviser at Venable. He added that Republicans are also pursuing structural changes to Dodd-Frank through regular order rather than a vehicle that could bypass the 60-vote filibuster.

“This portends of a new order in ... financial services policy — one that is less partisan and more pragmatic and one where Dodd-Frank, for better or worse, is settled law,” he said.

Mark Warner
"When people go about talking about, you know, doing away with stress tests or eliminating any kind of enhanced prudential regulations, that is not our intent," Warner said. Bloomberg News

Supporters argue the Crapo bill is meant to help community and regional banks that were not at the center of the 2008 collapse, but progressives have turned up the rhetoric in recent days ahead of a floor debate, claiming that the bill is another big-bank giveaway.

But even some critics of the Crapo package, who have complaints about specific provisions of the bill, agree that the general regulatory regime established by the Dodd-Frank Act is not threatened.

“While I am concerned about the effects that Crapo’s bill would have on big banks, it at least preserves the basic framework that Dodd-Frank established,” said Jeremy Kress, a former Federal Reserve Board attorney and a business law lecturer at the University of Michigan.

Many in the GOP have been outspoken about wanting to do away with Dodd-Frank, but the Senate filibuster and an acknowledgment by some that tougher regulation was needed after the 2008 financial collapse have prevented Republicans from scrapping the law altogether.

“This is the best shot the Republicans have of changing Dodd-Frank for the foreseeable future,” said Ian Katz, an analyst at Capital Alpha Partners. “They can try to come back to it at some point, but until they can get 60 votes in the Senate, they can't really get it done, so this bill is the closest thing to defanging Dodd-Frank that they'll get for a while.”

And the Crapo bill is coming before the Senate as Dodd-Frank has drawn praise from some unlikely quarters. Bank of America CEO Brian Moynihan recently said large banks are "fine" with the 2010 law, and that the law has resulted in a safer banking system and healthier Deposit Insurance Fund.

Even the Treasury Department under President Trump has had kind words for certain aspects of the law. The biggest takeaway from Treasury's recent report on the "orderly liquidation authority" — a Dodd-Frank-created regime for unwinding failed behemoths in a manner that prevents systemic collapse — was that the administration wanted to keep the regime in place, while proposing substantive modifications.

“The narrower [legislative] package ensures that the core tent poles of the Dodd-Frank Act remain,” said Isaac Boltansky, an analyst at Compass Point.

Still, the targeted nature of the Crapo bill is not silencing staunch advocates of the 2010 regulatory reform law who say the regulatory relief legislation goes too far, freeing certain banks above the $50 billion asset threshold from necessary prudential oversight and undermining other safeguards.

“Why should big banks that have consistently failed to follow the rules benefit from statutory or regulatory rollbacks?” said Sen. Sherrod Brown, the banking panel’s top Democrat, during a hearing Thursday with Federal Reserve Board Chairman Jerome Powell. "Most of the Wall Street banks have been repeat offenders since the crisis.”

The hearing featured more progressive Democrats like Brown frequently at odds with moderate members of the same caucus who see the legislation as making prudent adjustments.

Brown specifically raised concern over how the bill frees foreign banking giants from the "systemic" label if their U.S. activities amount to less than $250 billion.

"It's important to point out that the question particularly about foreign banks, the Deutsche Bank and Santander, those banks that have been both troubled and troubling, will be mostly deregulated under this bill because they're under $250 billion,” Brown said.

However, Powell said under his interpretation of the legislation, foreign banks would still be subject to regulatory requirements “commensurate” with their activities.

Others, such as Sen. Mark Warner, D-Va., also said the Federal Reserve can still apply tougher standards to banks with assets of $100 billion to $250 billion.

"When people go about talking about, you know, doing away with stress tests or eliminating any kind of enhanced prudential regulations, that is not our intent," Warner said. "There may be some tailoring that goes on in this new category, but, particularly for the larger institutions, status quo is going to remain."

Some critics of the Crapo bill said its passage would embolden large banks to attempt to press lawmakers for additional relief.

“There is a tremendous amount of money in these regulations for financial services and if S. 2155 passes easily, I think Wall Street will try and go back to the well,” said Marcus Stanley, policy director at Americans for Financial Reform.

Aaron Klein, a fellow in economic studies at the Brookings Institution, said Dodd-Frank supporters may see the regulatory relief bill either as a way to preserve the 2010 overhaul, or as undermining it.

“Some people argue that by modifying [Dodd-Frank] you reduce the pressure against further Dodd-Frank rollback by mollifying the needs of key constituencies,” he said. “Others argue usually these types of changes signify acquiescence to the core concept of the legislation by the other side.”

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