With new Republican majorities in Congress, the Obama administration and Democrats are being tested on just how much change they will allow to the 2010 Dodd-Frank financial reform law.
Before December, Republicans had few opportunities to change anything about the overhaul of financial regulations, one of President Obama’s most significant first-term legislative achievements.
But in the waning days of 2014 and the earliest stages of the 114th Congress, Republicans have succeeding in attaching Dodd-Frank tweaks to other legislation. In response, liberal Democrats are digging in against further changes to the law.
In December, Congress attached a rollback of a Dodd-Frank prohibition on banks with depository insurance trading some derivatives to a must-pass government spending bill that was signed by the president. In the first week that Congress was in session this year, Republicans made clarifications relating to the law’s treatment of the use of derivatives by farmers and manufacturers.
Now, liberal Democrats and the White House have drawn the line at a package of Dodd-Frank changes that has strong bipartisan support.
The legislation in question contains 11 measures changing securities laws as well as Dodd-Frank provisions.
Liberal Democrats opposed the legislation in the first week of the session on the grounds that it was being rushed to the floor. Enough Democrats opposed it to stop it from passing the House on an expedited basis, a vote that required a two-thirds majority. The bill failed 276-146.
Last year, the bill cleared the House in a 320-102 vote, including votes from some of the Democrats who opposed it last week.
Republicans regrouped by putting it back on the calendar for Wednesday for a vote that would not need the two-thirds threshold.
The White House issued a veto threat Monday evening.
“The president has been clear about his opposition to legislation that would weaken and undermine the Dodd-Frank Wall Street Reform and Consumer Protection Act,” the Office of Management and Budget said in a statement on the legislation.
Although most of the 11 measures are merely technical changes or clarifications to the law, Democrats have objected to two in particular.
One is a measure, written by Rep. Andy Barr, R-Ky., that would delay until 2019 the deadline by which banks would have to sell off certain financial instruments known as collateralized loan obligations, or CLOs, to be in compliance with the Volcker Rule. Regulators have independently already given banks a reprieve through 2017.
Democrats consider the Volcker Rule, which prevents banks from placing speculative bets with deposits insured by the Federal Deposit Insurance Corporation, one of the most critical provisions of Dodd-Frank.
In recent weeks, liberals have warned that delaying the Volcker Rule prohibition on banks owning CLOs would be a favor to Wall Street at the expense of added risk for taxpayers. Four big banks, led by JPMorgan Chase, own 69 percent of CLOs, according to the group Better Markets.
Speaking at a House Rules Committee hearing on the legislation Monday afternoon, Rep. Maxine Waters, the ranking Democrat on the House Financial Services Committee, said the delay would “directly benefit some of the wealthiest banks and corporations in America.”
Waters, of California, also cited another provision she thought was problematic: A measure reducing the amount of information that a company has to provide to employees who receive payments in stock.
Republicans have disagreed, calling the measures simple and needed clarifications of the sprawling legislation. Rep. Scott Garrett, R-N.J., said Monday afternoon that CLOs are “a benefit where Main Street meets Wall Street,” boosting credit access and growth at small and medium-sized businesses.
Furthermore, Republicans have cited the broad bipartisan support for the legislative package as evidence that it does not “gut” Dodd-Frank, as some Democrats have accused Republicans of trying to do.
But the larger issue may be that Democrats are trying to establish a low threshold for what they will tolerate in terms of Dodd-Frank changes, in anticipation of larger GOP attacks on the law later on.
Massachusetts Institute of Technology professor and prominent Wall Street critic Simon Johnson expressed the left-of-center fear regarding financial regulation on his personal blog. “The House Republican rhetoric will be ‘technical fixes’ and ‘job creation,’” Johnson wrote. “But the reality is that they are determined to strip away all meaningful restrictions imposed on Citigroup, JP Morgan Chase, and other megabanks – and to roll-back Dodd-Frank as far as possible, until it becomes meaningless or they are finally able to repeal it completely.”
