WASHINGTON — The House on Tuesday passed an identical version of the Senate’s regulatory relief package, capping off years of negotiations between Republicans and moderate Democrats and enacting the first set of provisions to ease community banks and credit unions' burden since the 2010 Dodd-Frank Act.

The bill, which passed the Senate in March, passed the House by a vote of 258 to 159. The legislation is expected to be signed by President Trump shortly. Thirty-three Democrats supported the legislation, while one Republican opposed it.

Although the bill took a more cautious approach to relief than prior legislative proposals favored by House Republicans to repeal Dodd-Frank, banking industry groups at the state and national level hailed the legislation.

Senate Banking Committee Chairman Mike Crapo
Some in the industry had warned House GOP leaders not to try to expand the Senate version out of fear that it would disturb the deal negotiated by Senate Banking Committee Chairman Mike Crapo and moderate Democrats. Bloomberg News

“Today’s successful bipartisan House vote marks a turning point in the banking policy debate in this country," said Rob Nichols, CEO of the American Bankers Association, in a statement. "For the first time in nearly a decade, lawmakers from both parties have chosen to right-size financial rules that were not working as intended and holding the economy back."

Some in the industry had warned House GOP leaders, such as Financial Services Committee Chairman Jeb Hensarling, R-Texas, not to try to expand the Senate version out of fear that it would disturb the delicate deal negotiated by Senate Banking Committee Chairman Mike Crapo, R-Idaho, and a contingent of moderate Senate Democrats.

House Republicans ultimately agreed to let the Crapo bill through as is but the Senate will separately consider added reg relief proposals — independent of the bipartisan reg relief package — passed by the House.

“I wish it did gut Dodd-Frank. It didn’t,” Hensarling said of the Senate legislation during the House debate Tuesday.

The bill’s most significant provision raises the asset threshold for “systemically important financial institutions” from $50 billion to $250 billion, reducing the number of those banks from 38 to 12. Banks between $50 billion and $100 billion in assets will see immediate regulatory relief, as they will not be subject to the enhanced regulatory scrutiny from the Federal Reserve. For those between $100 billion and $250 billion in assets, the Fed has the discretion to determine if they must continue under the prudential regulatory regime.

The bill also dials back the Volcker Rule’s restrictions on proprietary trading, exempting banks with less than $10 billion in assets and total trading assets and trading liabilities below 5% of total consolidated assets.

Last year, the House passed the Financial Choice Act, a much more sweeping rollback of Dodd-Frank, but it didn’t garner the support of any Democrats and couldn’t meet the 60-vote threshold in the Senate. That bill was led by Hensarling, who plans to leave Congress at the end of his term this year.

It included controversial provisions to eliminate the Volcker Rule in its entirety, strip the Consumer Financial Protection Bureau of its independence and end the Financial Stability Oversight Council’s ability to designate certain nonbanks as systemically important.

After that bill passed the House, the lower chamber broke it down into smaller measures with the hopes they would be included in the Senate package.

Republicans in the House, including Hensarling and Rep. Blaine Luetkemeyer, R-Mo., called on the Senate several times to consider adding more of their smaller bills to the Senate package. But the Senate warned them that Democrats would abandon the package and would ultimately kill the bill.

House Republicans said Tuesday they were still intent on having Congress consider additional measures to go further.

"The conversation cannot end with S. 2155," said Luetkemeyer, referring to the Senate bill. While the provisions in this legislation are granting important relief, there is so much more to be done. The Financial Services Committee has marked up more than 100 bills this Congress ... [that] deserve to be considered by our colleagues in the Senate”.

In the Senate, Crapo had attempted to cut a deal on deregulation with Sen. Sherrod Brown, D-Ohio, the ranking member on the Banking Committee, but they couldn’t come to an agreement. So he proceeded to negotiate with four moderate Democrats on the committee. Following those negotiations, a total of 16 Democrats and an independent joined on.

“This is a moment years in the making, and I thank my colleagues in the Senate and the House of Representatives for their partnership and contributions to this effort over the years,” Crapo said in a statement Tuesday. “This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities."

But Democrats who supported the bill faced significant backlash from the more progressive wing of the caucus, including Brown, Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., who have argued that Congress shouldn’t touch Dodd-Frank.

Moderates who were key to the Senate's passage, however, showed no signs of wavering Tuesday.

“One-size-fits-all rules from Washington have been strangling Montana’s Main Street economy and threatening our rural way of life," said Sen. Jon Tester, D-Mont., who played a central role in negotiating the bill with Crapo. "Working with Republicans and Democrats, we wrote this bill to defend Montana businesses from overreaching government regulations, to boost access to the capital needed to fuel our small business economy, and to create more jobs."

But House Democratic leaders harshly criticized the legislation, highlighting provisions that they say weaken fair lending rules and aid the nation's largest banks.

“It opens the door to lending discrimination and potentially threatens the stability of our financial system and the economy," said House Minority Leader Nancy Pelosi, D-Calif. "This is a raw deal for the American people. Americans deserve a better deal."

Rep. Maxine Waters, D-Calif., the ranking member of the Financial Services Committee, said supporters are wrongly characterizing the legislation as focused on relief for small institutions.

“Republicans are trying to pass this bill off as an effort solely designed to benefit small community banks," she said. "But the truth is the bill is packed with poisonous provisions that benefit megabanks like Wells Fargo and companies like Equifax.”

Much of the rhetoric surrounding the bill assumes that mostly all banks below $250 billion will be free of the additional regulation that comes with tougher Fed oversight designation.

But Fed Chairman Jerome Powell told the Senate Banking Committee recently that if the legislation is passed, the Fed will develop a framework to determine what makes a bank below $250 billion still systemically risky, and to keep those banks under the supervisory microscope.

While House Republicans will still likely push a separate package of deregulatory measures, it is still unclear that the Senate will take up a second package with Democrats resistant to providing more relief. And the future of additional deregulation will also hinge on which party holds the majority in either chamber of Congress after the November midterms.

Neil Haggerty

Neil Haggerty is the Congress reporter for American Banker. He previously was a financial regulation reporter at MLex Market Insight.