As the House moved Thursday to pass a sweeping regulatory reform bill, senators on both sides of the aisle paid lip service to offering relief to community banks and credit unions without offering many specifics over what might be included in their version.
Several moderate Democrats, including Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana, emphasized that reform is necessary.
"There is a great will on this committee to actually do what you need us to do," Heitkamp told two bankers and three credit union executives who testified at a Senate Banking Committee hearing about ways to boost economic growth in local communities. "We get it, we understand what you're saying, we understand the additional burdens and costs."
Donnelly noted that last year, 70 senators signed a letter urging Richard Cordray, the director of the Consumer Financial Protection Bureau, to exempt community banks and credit unions from agency rulemakings
"Most of us agree that community banks and credit unions are burdened by regulations and need relief," Donnelly said.
While the banking and credit union lobby have been outspoken critics of the Dodd-Frank Act, the credit union industry has begun a renewed push to exempt such firms from many new regulations, including expanded Home Mortgage Disclosure Act reporting requirements and remittance rules.
Some lawmakers appear willing to meet them part of the way. Heitkamp and Sen. Mike Rounds, R-S.D., introduced a bill this week that would exempt financial institutions from the HMDA requirements if they originated fewer than 500 open-end lines of credit and closed-end mortgages in the previous two years.
That issue was specifically cited by Senate Banking Committee Chairman Mike Crapo, who also said he wants to target qualified mortgages held on bank portfolios and streamline capital requirements for small institutions by revising Basel rules.
Yet despite the expected House passage of its reform bill, the Senate didn't appear ready to move quickly.
This is "the first of several hearings with the goal of passing a meaningful and bipartisan reform package," Crapo said.
And several financial institution executives cautioned the committee about going too far in rolling back regulations.
"What I worry about is the next Wells Fargo scandal taking shape, and we can't afford to let those kind of scandals and unethical practices take hold," said John Bissell, president and CEO of the $1.1 billion-asset Greylock Federal Credit Union in Pittsfield, Mass. "I ask that you please do not allow a repeat of the excesses and predatory practices that precipitated the crisis in the first place."
Sen. Elizabeth Warren, D-Mass., meanwhile, pushed back against attempts to raise the current $50 billion threshold at which banks are considered to be systemically important.
A proposal in 2015 by then-Senate Banking Committee Chairman Richard Shelby, R-Ala., would have raised the threshold to $500 billion. Doing so would exempt dozens of the largest banks that control 95% of all banking assets, Warren said.
"I think it's really dangerous to mess with the $50 billion threshold," said Warren, noting that Countrywide Financial had less than $200 billion in assets but held 17% of all mortgages in the U.S. "It's better to keep the regulation threshold where it is. The banks that would be cut loose can pose a real risk to the economy."
(The House bill would eliminate the threshold altogether for banks that hold enough capital to meet a simple 10% ratio.)
Adam Levitin, a professor at Georgetown University Law Center, said that there is "reasonable ground" for exemptions but that many of the committee's proposals were not tailored to small institutions and would instead help larger ones.
"It's rather reckless to consider a $500 billion threshold," Levitin said. "The savings would be passed on to investors in the form of higher dividends, not to consumers."
The consolidation of small financial institutions has been going on for decades and was not precipitated by Dodd-Frank, Levitin said.
Some lenders pressed their case for certain exemptions. Dorothy A. Savarese, the chairman and CEO of the $3.1 billion-asset Cape Cod Five Cents Savings Bank in Orleans, Mass., and chairman of the American Bankers Association, took issue with the Volcker Rule that bans proprietary trading by commercial banks.
"There are some institutions" for which the Volcker Rule "is just not applicable," she said.
Senators voiced broad fears about the survival of financial institutions in rural America but provided few suggestions on how to fix the problem.
"My concern is, if we continue without adjustment, we'll end up not having access to capital in rural America," said Sen. Jon Tester, D-Mont.
Small institutions also sounded the alarm about predatory lenders that try to escape regulation.
"The current regulatory scheme only serves the largest banks and predatory lenders that have the resources to game the system," said Dallas Bergl, the CEO of $336 million-asset Inova Federal Credit Union in Elkhart, Ind. "I fear that without regulatory reforms, credit unions and community banks in their current form will not survive."
Steve Grooms, president and CEO of the $176 million-asset 1st Liberty Federal Credit Union in Great Falls, Mont., specifically mentioned payday lenders, which have lobbied extensively for the CFPB to back off its proposed payday rule.
"Payday lenders are a big issue," he said, urging lawmakers "to not let the entities that aren't regulated get away with what we can't."
"The more we squeeze regulated entities, the more the nefarious folks pop up," she said.