The bipartisan Senate banking regulatory relief bill set for consideration Tuesday would slightly increase the risk of a bank bailout, Congress’ official budget office judged Monday.
The finding provides ammunition to the bill’s liberal detractors, who have claimed the legislation is a giveaway to Wall Street that would risk another crisis.
The Congressional Budget Office estimated the legislative package being shepherded by Banking Committee Chairman Mike Crapo, R-Idaho, toward a first vote Tuesday would add a total of $671 million to federal deficits over the next 10 years.
The CBO explained most of the legislation’s costs would occur because it would slightly raise the probability that a bank would fail, requiring a rescue from the federal government via the Federal Deposit Insurance Corporation. Those rescue funds would eventually be paid back through fees imposed on the banking industry, but not until after the 10-year timeframe considered by the CBO in putting together budget estimates.
“The probability is small under current law and would be slightly greater under the legislation,” the analysis said of a potential financial crisis.
“The independent budget scorekeeper confirmed what we know — this bank giveaway bill will cost taxpayers,” said Sen. Sherrod Brown, D-Ohio, the ranking Democrat on the Banking Committee and an opponent of the bill.
The centerpiece of the bill would be raising the threshold at which banks are subject to additional supervision from the Federal Reserve, from $50 billion to $250 billion. The bill’s bipartisan sponsors argue that doing so is necessary to provide regulatory relief to regional banks like Suntrust and Fifth Third Bank — banks that are bigger than community banks, but not in the same league as Wall Street megabanks.
Massachusetts Democratic Sen. Elizabeth Warren has previously argued some banks of that size failed and got bailouts during the 2008 financial crisis.
The CBO analysis suggests there would be a slightly higher, but still small, risk of one of those banks requiring a federal rescue.
The report also ventures that regulators could implement another one of the rules — a break on capital requirements for custody banks like State Street and BNY Mellon — in such a way that applied to two of the absolute biggest banks: JPMorgan Chase and Citigroup.
However, Federal Reserve regulators have said they would not interpret the bill in that way.
“The statutory framework is not being changed by the Crapo bill,” Federal Reserve Vice Chairman for Supervision Randal Quarles said earlier Monday at a bankers’ conference.
