WASHINGTON — While the House is expected to vote this week on a sweeping regulatory reform bill called the Financial Choice Act, it’s already clear that the legislation is highly unlikely to be enacted due to Democratic resistance in the Senate.

Still, that doesn’t mean regulatory reform is out of reach entirely this year. A few individual provisions of the Choice Act, as well as other reg reform ideas, could clear the Senate, according to industry observers and lobbyists.

Below is a list of potential legislative victories that banks and credit unions could score by getting bipartisan support.

Systemic threshold

Nearly every policymaker, including lawmakers from both parties and several regulators, agreed that the current $50 billion asset threshold at which banks are considered systemically important is too low.

But agreeing on an alternative has proved to be challenging. The Choice Act would eliminate it altogether for banks that elect to hold enough capital to meet a 10% simple leverage ratio.

Sen. Jon Tester, D-Mont.
A bill co-authored by Sen. Jon Tester, D-Mont., that would raise the threshold for bank-run stress tests could gain traction in Congress. Bloomberg News

Republicans in the Senate, meanwhile, have sought to merely increase it. In 2015, then-Senate Banking Committee Chairman Richard Shelby, R-Ala., introduced a bill that included a provision to raise the threshold to $500 billion.

While Democrats generally agree the threshold should be increased, that proved to be a bridge too far. Some said that if Chairman Mike Crapo, R-Idaho, were willing to lower that figure, he could win the eight Democratic votes necessary to approve a bill.

The $500 billion level is “politically too high,” said Aaron Klein, a fellow in economic studies at the Brooking Institution and former chief economist for the banking committee. “There has been a stage for a bipartisan deal for some time if Republicans were willing to compromise on a number.”

Crapo could also instead seek to employ a strategy used by Rep. Blaine Leutkemeyer, R-Mo., who introduced a bill last Congress that would scrap the $50 billion threshold and replace it with an indicator test to determine which banks deserve more regulatory scrutiny. That bill passed the House with support from 20 Democrats.

But that, too, may be too far for Democrats, who fear it could allow some big banks to escape higher standards.

Isaac Boltansky, a policy analyst at Compass Point Research & Trading, said that idea was a possible “endgame,” but added that it would be a “big step” for Democrats.

“There needs to be an intermediary step and that intermediary step is a straight increase in the threshold, possibly with inflation ratchets,” Boltansky said.

Even institutions with less than $50 billion of assets would like to see the threshold raised.

“The banks in the $10 billion to $50 billion range are really anxious to have a hard cap that is significantly higher because they are seeing the regulatory creep now even though many are significantly below the 50 billion threshold,” said Timothy Jenkins, a partner at Nossaman LLP.

Some believe that enough Democrats could support a figure between $100 billion and $250 billion, but Marcus Stanley, policy director at Americans for Financial Reform, said a threshold level as high as $150 billion would be hard to support.

“That is a pretty big number from our perspective,” said Stanley, while noting that it would mean all but the 22 largest banks would be excluded from the tighter requirements.

But it is not just up to Democrats to get on board with a higher threshold. It would also be up to Crapo to get Republicans to support a figure that they view as less than ideal.

“Democrats on the Hill and even [Former Federal Reserve Board Vice Chairman] Dan Tarullo have expressed a willingness to raise the $50 billion threshold. I think the stumbling block has been Republicans' unwillingness to go under $500 billion,” Klein said.

Other thresholds

Even if increasing the $50 billion threshold proves too tough, lawmakers might still enact a targeted bill that raises the $10 billion asset threshold that establishes when banks must conduct their own stress test.

Such an idea has already won bipartisan support.

Sens. Jon Tester, D-Mont., and Heidi Heitkamp, D-N.D., introduced a bill with Sen. Jerry Moran, R-Kan., that would exempt banks in the $10 billion to $50 billion zone from annual bank-run stress tests. The three also put forward another bill along with Sen. Thom Tillis, R-N.C., that would exempt banks with less than $10 billion in assets from the Volcker Rule and allow mortgages held on portfolio to count as Qualified Mortgages.

It’s no surprise those Democrats are involved. Both are up for re-election next year in rural states with a big community bank population and which President Trump carried handily in the last election. Ahead of the vote, they are looking to show they can deliver on promises of regulatory relief.

“The greatest motivating factor in D.C. is self-preservation and the 2018 midterms are quickly approaching, and I think the electoral realities are going to be a form of legislative lubricant,” Boltansky said.

At least some Democrats are also supporting a different bill that would increase the threshold to $5 billion from $1 billion at which institutions must meet the Federal Reserve Board Small Bank Holding Company Policy Statement. Banks that fall below that level are allowed to use more debt than would otherwise be tolerated when making an acquisition.

The Financial Choice Act would raise the threshold to $10 billion, but in their bill by Sens. Angus King, I-Maine (who caucuses with the Democrats), Bill Nelson, D-Fla., and Orrin Hatch, R-Utah, have settled on a $5 billion threshold.


Finally, the structure of the Consumer Financial Protection Bureau remains a possible area of bipartisan agreement — though it’s far from a slam dunk.

Financial institutions have long sought to replace the CFPB’s single director with a bipartisan commission, moving it closer to the original vision by Sen. Elizabeth Warren, D-Mass.
Industry advocates argue that a commission would moderate policy changes from one administration to the next.

“We as an industry will be pushing for” a commission, said Sam Whitfield, head of congressional affairs at the Consumer Bankers Association. “It does have bipartisan buy-in … I do see a path to getting eight” Senate Democrats to support a bill that would restructure the bureau into a bipartisan commission.

It was almost conventional wisdom coming into the new Congress that Democrats would prefer a commission over a director appointed by Trump.

But Warren and Sens. Charles Schumer, D-N.Y., and Sherrod Brown, D-Ohio, told reporters earlier this year that they wouldn’t support legislation to restructure the bureau. “I think the Democrats are pretty dug in on” keeping the single-director makeup, Boltansky said.

Stanley said changing the structure would be a mistake.

“We think that is a pretty fundamental change in the nature of the CFPB and a harmful one,” he said.

But Klein said there could be a point of agreement if Republicans “agree that the CFPB is a good thing and should exist in perpetuity.”

“It is not that, would Democrats agree to change the structure; it is would Republicans agree that with a different structure, the bureau should remain otherwise intact, not subject to annual appropriations and fully empowered,” Klein said.

Whitfield also said subjecting the bureau to appropriations would probably be a “poison pill” if it were included in an appropriations bill.

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