WASHINGTON — A progressive group is up in arms against Sen. Tim Kaine, D-Va., after the possible Democratic vice presidential nominee signed letters calling on regulators to tailor rules based on bank size and complexity.
On Monday, a group of 70 Democratic and Republican Senators, including Kaine, sent a letter urging Consumer Financial Protection Bureau Director Richard Cordray to spare credit unions and community banks from the raft of regulations the bureau has promulgated since its inception. The Virginia Democrat also signed a separate letter that calls on the Federal Reserve Board and other banking agencies to ease up on liquidity rules for regional and midsize banks.
The liberal group slammed Kaine for both letters, arguing he should not be considered by presumptive Democratic presidential nominee Hillary Clinton when she chooses her running mate.
"It should be disqualifying for any potential Democratic vice presidential candidate to be part of a lobbyist-driven effort to help banks dodge consumer protection standards and regulations designed to prevent banks from destroying our economy," Charles Chamberlain, the executive director of Democracy for America, wrote in a statement Thursday.
He said "our presidential ticket cannot beat the billionaire bigot by simply being not-Donald Trump."
To win, he added, the Democratic nominees need to have demonstrated "unquestionably strong record in the fight against income inequality."
Chamberlain also criticized Kaine for backing the Trans-Pacific Partnership. "Making Senator Tim Kaine our vice presidential candidate could be potentially disastrous for our efforts to defeat Donald Trump this fall," Chamberlain said.
Kaine's position is hardly a radical one. The CFPB letter was signed by more than two-thirds of the Senate, including many Democrats. And many regulators, including Federal Reserve Chair Janet Yellen and Gov. Daniel Tarullo, have repeatedly stated their preference that regulations disproportionately affect the largest and riskiest banks.
The second letter, sent July 18, was addressed to the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. and was co-signed by Sens. Mark Warner, D-Va., Bob Casey, D-Pa., and Gary Peters, D-Mich. In it the lawmakers call on the agencies to reconsider the asset-based mechanism for certain rules, particularly the liquidity coverage ratio and the so-called "advanced approaches" framework.
It notes the distinction that regulators had already made between regional banks and large, complex institutions, but said that those distinctions have been "applied unevenly." It asks the agencies to "consider altering the reporting requirement" for the LCR, which is due to be fully implemented later this year.
The advanced approaches framework was initially developed as a mechanism that the agencies have used post-crisis to allow bank with more than $250 billion in assets and more than $10 billion in overseas assets to use internal models rather than generic models developed by regulators for risk management and capital adequacy. As of last September, there were 10 bank with approved advanced approaches models: Bank of America, Wells Fargo, Citigroup, Goldman Sachs, JPMorgan Chase, Bank of New York Mellon, Morgan Stanley, Northern Trust, U.S. Bancorp and State Street.
In recent months, however, agencies have used the advanced-approaches criteria as a basis for determining which banks might be subject to certain regulatory requirements, notably in the net stable funding ratio proposed in April and the countercyclical capital buffer rule proposed last December.
The lawmakers' letter says that when the advanced-approaches framework was initially proposed in 2003, the asset threshold applied primarily to the largest and most internationally active banks, which was whom it was meant to capture.
"In the last 13 years, the U.S. financial system has transformed and grown significantly," the letter said. "However, advanced approaches has not been revisited as the financial system and our regulatory structure have evolved, and as a result now captures many regional banks that do not share the same risk profile or complexity as their larger, systemically important brethren. Additionally, reliance on internal models often obscures a bank's financial status and we believe the regulatory regime should move away from such methodologies."
A spokesperson for Warner's office said that the letter is aimed in part to discourage the agencies' reliance on asset size as the criteria for regulatory requirements, favoring instead risk-based criteria that consider individual banks' business models. Moreover, the letter is meant to highlight the shortcomings of the advanced approaches framework because of its reliance on internal modeling rather direct oversight by the regulators – reliance that bank might be able to use to their advantage.