WASHINGTON — The House Financial Services Committee approved a bill 34-22 Wednesday that would require financial regulators to tailor rules to ensure they are appropriate for small banks — but the measure continues to face significant Democratic opposition.
The Taking Account of Institutions with Low Operation Risk, or TAILOR Act, would force regulators to assess whether a regulation or guidance is suitable for an institution based on its business model. It is promoted by Republicans as a fairly innocuous bill that would provide regulatory relief to thousands of small institutions, but Democrats said it was an attempt to roll back the Dodd-Frank Act.
"The TAILOR Act, I believe, is a bold attack on the Dodd-Frank financial reform law," Rep. Maxine Waters, the top Democrat on the panel, said during debate on Wednesday. "This bill would allow every bank and financial institution overseen by agencies like the Federal Deposit Insurance Corp. or the Consumer Financial Protection Bureau to challenge rulemakings in court if they felt a regulation was not uniquely tailored to their business needs."
But Chairman Jeb Hensarling, R-Texas, argued that Congress had to act because the situation is untenable for small banks.
"We are losing a community financial institution a day in America and they are not dying of natural causes, they are drowning in a sea of regulatory burden," he said.
Hensarling said it was a "very modest bill," worrying that it would not "do that much good because frankly I do not trust the regulators."
"But at least there is an option, an option to tailor these rules for a smaller financial institution," he said.
The bill lacks specifics on how regulators would be directed to customize regulations and would require a five year look-back to examine how existing rules could be "tailored."
That sparked concerns by Waters, who said it would require regulators to "ignore requirements of all other laws passed by Congress and subject all new regulations to a vague and impossible to meet standard. This includes an undefined standard of appropriateness."
But Rep. Scott Tipton, R-Colo., who sponsored the bill, argued that it would improve regulator efficiency.
"Not only will this legislation provide relief for community banks and credit unions but will also allow regulators to focus their resources working with institutions that actually need attention," he said.
The bill has only two Democratic co-sponsors, including Rep. Ed Perlmutter, D-Colo., who introduced legislation last Friday that would also take an activity-based approach to bank regulation, easing regulatory requirements for "traditional banks."
The TAILOR Act heads now to the full House, where it is likely to be approved. But it faces an uphill battle in the Senate, where Democrats are likely to continue to object to it.
Sen. Richard Shelby added a provision to a Senate appropriations bill last year that would have allowed regulators to eliminate regulations for any bank under $10 billion of assets, but the measure has not passed.
Both banking and credit union groups praised the TAILOR Act after its passage.
"While regulation is a fact of life for banks, indiscriminately applying rules to institutions whose business models and risk levels don't warrant it serves only to increase costs and lessen the number of financial products and services available to consumers," said James Ballentine, an executive vice president at the American Bankers Association.
Brad Thaler, the vice president of legislative affairs at the National Association of Federal Credit Unions, said "we look forward to continuing to work with Congress to help advance this critical legislation."