Congressional Democrats are rallying against a Republican bill that they say would go too far in easing rules on big banks, instead backing a much narrower bill limited to community banks and credit unions.
“Our big banks are kind of holding the community banks hostage,” said House Financial Services Committee ranking Democrat Maxine Waters Wednesday. Earlier in the day, the California Democrat introduced the narrower alternative bill in the House, which she said had the backing of all the Democrats on the committee.
The Democratic reform bill would ease several burdensome rules on small banks and credit unions that were created in the 2010 Dodd-Frank financial reform law, most notably by exempting the institutions from consumer safety provisions for home loans if they keep those loans on their books.
The GOP bill, authored by Senate Banking Committee Chairman Richard Shelby of Alabama, also contains regulatory relief for community banks. But it also would touch many other aspects of the financial system, including Federal Reserve reforms, significant changes to the housing finance system and a measure to reduce the number of banks that automatically qualify as potential threats to the financial system and are subject to extra scrutiny from regulators.
Shelby’s legislation cleared the Senate Banking Committee in May on a party-line vote.
On Wednesday, Shelby’s Democratic counterpart, Sen. Sherrod Brown of Ohio, argued that the Republican bill was going nowhere in the broader Senate and that the Democratic alternative legislation could be passed into law, giving a win to community banks.
“Our bill will not be vetoed,” Brown told reporters in the Capitol. Brown, a populist liberal and frequent critic of megabanks, argued that by focusing on just the needs of small banks, Democrats are representing the interests of small banks better than Republicans, who he accused of being afflicted by an ideological “fervor” in opposing certain banking rules.
“We don’t want to hold the small community banks hostage,” said North Dakota Democratic Sen. Heidi Heitkamp, one of the self-described more moderate Democrats on the banking panel who voted against Shelby’s bill.
Heitkamp said she favored some other regulatory relief efforts proposed by Republicans, but that they could be better pursued as standalone legislation rather than as part of a deregulatory package opposed by Democrats.
Shelby’s bill received support from the financial services industry, but faces obstacles in the full chamber. The Obama administration has threatened to veto any efforts to undo Dodd-Frank.
