Influential congressional Democrats including Sen. Elizabeth Warren criticized the inclusion of roll-back of a Dodd-Frank provision added to the omnibus spending bill introduced Tuesday night, saying the change was an attempt to sneak a favor for Wall Street into last-minute legislation.
Warren, the prominent liberal bank critic, said on the Senate floor that House Republicans were threatening to shut down the government if they didn't get a chance to repeal part of the 2010 Dodd-Frank law. She called on House Democrats, some of whose votes Republicans will need, to vote against the spending bill.
"We all need to stand and fight this giveaway to the most powerful banks in the country," Warren said.
Democrats said the language inserted into the spending bill would undo the Dodd-Frank provision that prohibited bank units within the federal financial safety net from betting on derivatives.
Barney Frank, the former House Financial Services Committee chairman and namesake of the Dodd-Frank law, called the inclusion of the change in the omnibus a "frightening precedent that provides a road map for further attacks on our protection against financial instability." Frank has previously criticized the rule, but said in a statement released Wednesday that derivatives regulation should not be changed through a provision in an unrelated bill without debate.
Maxine Waters, the ranking Democrat on the House Financial Services Committee, said Wednesday that she was "disgusted that in a back-room deal, some members and lobbyists for the largest banks are trying to undo a seminal component" of Dodd-Frank.
She stopped short, however, of calling on Democrats to vote against the larger spending bill, saying, "I’m disheartened that, by trying to pass this repeal, this Congress is risking our homes, jobs and retirement savings once again.”
Dodd-Frank targeted derivatives for added regulation following the destabilizing implosion of insurer American International Group in 2008. AIG's swaps deals with major Wall Street banks threatened to bring down the financial system, prompting a taxpayer bailout.
Repealing the swaps push-out provision, said Americans for Financial Reform Executive Director Lisa Donner, could risk future problems.
"The section of Dodd-Frank that Congress is proposing to repeal was put in place to help prevent future bailouts of too-big-to-fail banks," Donner said in response to Tuesday's news. "It cordons off the kinds of extraordinarily risky transactions that were at the heart of the financial crisis. Including this repeal in the budget is outrageous."
Limiting the measure, however, has enjoyed bipartisan support in past legislation. Banks also have had some success in getting regulatory agencies to delay and narrow the rules as they have been written.