WASHINGTON (AP) – Ten years after a financial crisis rocked the nation’s economy, the Senate is poised to pass legislation that would roll back some of the safeguards Congress put into place to prevent a relapse.
The move to alter some key aspects of the Dodd-Frank law has overwhelming Republican support and enough Democratic backing that it’s expected to gain the 60 votes necessary to clear the Senate. Several Democratic lawmakers facing tough re-election races this year have broken ranks with Minority Leader Chuck Schumer, D-New York, and Sen. Elizabeth Warren, D- Massachusetts.
The legislation would increase the threshold at which banks are considered too big to fail. Such banks are subject to stricter capital and planning requirements, and lawmakers are intent on providing them relief in hopes that it will boost lending and the economy.
Banks have long complained about the cost of complying with the many requirements of Dodd-Frank. Under the Senate bill, some of the nation’s biggest banks would no longer have to undergo an annual stress test conducted by the Federal Reserve. The test assesses whether a bank has enough capital to survive an economic shock and continue lending. Dozens of banks would also be exempted from making plans called “living wills” that spell out how the bank will sell off assets or be liquidated in a way that won’t create chaos in the financial system.
The legislation increases from $50 billion to $250 billion the threshold at which banks are considered critical to the system. The change would ease regulations on more than two dozen financial companies, including BB&T Corp., Sun Trust Banks Inc. and American Express.
The Senate bill has 13 Republican and 13 Democratic or independent co-sponsors, a rare level of bipartisanship for substantive legislation in the current Congress.
By contrast, the House effort to roll back Dodd-Frank didn’t generate a single Democratic vote in support.
The Federal Reserve conducts annual stress tests of banks with $50 billion or more in assets. Under the Senate bill, banks with under $100 billion in assets won’t have to undergo the Fed’s yearly test. Banks with between $100 billion and $250 billion in assets will be exempted from the yearly stress test after 18 months. The Federal Reserve will have authority to accelerate the exemption or extend it.
Federal Reserve Chairman Jay Powell seemingly endorsed that approach when he appeared before the Senate’s banking committee last week.
“I think it gives us the tools that we need to continue to protect financial stability,” Powell said of the bill.
The largest dozen or so banks in the country will still have to undergo the yearly test.
The bill also exempts banks with less than $10 billion in assets from what is referred to as the Volcker Rule, which limits banks from using their own capitol to trade the markets.
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