WASHINGTON – The House passed a bill Thursday 254-161 that would remove the strict $50 billion-asset threshold that subjects banks to tougher supervisory requirements, giving regulators more flexibility over what institutions are considered systemically important.
The bill was supported by most industry trade groups and Republican lawmakers, who pointed to comments by former House Financial Services Committee Chairman Barney Frank, D-Mass. Frank acknowledged that the $50 billion threshold wasn't a perfect measure of systemic importance.
But Democrats interpreted the bill as the first skirmish in a pending deregulatory effort by Republicans and President-elect Donald Trump to roll back the Dodd-Frank Act.
"This bill is the opening salvo in the Trump plan to dismantle Dodd-Frank," Rep. Maxine Waters, the top Democrat on the House banking panel, said during floor debate. "The House Republicans have been trying for six years – ever since we passed Wall Street reform and on the eve of the president-elect taking office – this is their big chance to deregulate 27 of the nation's largest banks."
The bill was introduced by Rep. Blaine Luetkemeyer, R-Mo., and would require the Financial Stability Oversight Council to use a framework to determine systemic importance. Money-center banks that are considered global systemically important financial institutions would not be affected by the bill; they would still be considered SIFIs and subjected to higher regulatory requirements.
"This is not about Wall Street banks. This is really affecting Main Street banks. The SIFI designation, really it's arbitrary," Rep. Bill Huizenga, R-Mich., said during the debate.
While $50 billion may seem large "if you look at the totality of our financial institutions is actually small," he added.
Democrats objected to the bill on principle rather than its substance.
"I oppose this bill. In fact I strongly oppose it, but I don't actually oppose the idea at all" of changing the SIFI threshold, said Rep. Denny Heck, D-Wash.
Waters said that "in order to regulate the banks, the FSOC would have to go through a byzantine and litigious process of designation, which takes two to four years to complete."
The bill is unlikely to pass out of the Senate and become law this year, but Democrats said Treasury Secretary-designate Steve Mnuchin would face a conflict of interest if he attempted to support the bill if confirmed.
Mnuchin sits on the board of CIT Bank, which would be relieved of its SIFI designation if the bill became law. The FSOC could later determine that the bank poses a systemic risk, but Democrats say Mnuchin could influence the council, which he would chair as Treasury secretary, to not designate the bank.
"Even if a potential Treasury Secretary Mnuchin decided to regulate his former employer, by the time he got around to it, the damage would likely already be done," Waters said.