Critics of Dodd-Frank have been working to roll back the regulations since it passed in 2010. The law was put in place following the economic collapse of 2008 when big banks went belly up, markets collapsed, and millions of homeowners fell into foreclosure and lost savings. The federal government stepped in fronting trillions of dollars to stabilize the economy. Tuesday’s vote is the first, in what many expect to be more, dismantling the banking rule.
“If you listened to the debate on the floor yesterday, Hensarling, who’s head of the committee, actually said we should get rid of Dodd-Frank. He literally said that Dodd-Frank was going to lead to a financial meltdown, which is exactly the opposite,” said Rep. Frank Pallone.
The bill, called the Economic Growth Regulatory Relief, and Consumer Protection Act, includes a number of provisions. The biggest change significantly eases regulations for many big banks by raising the threshold at which banks are deemed, “too big to fail.” Banks with assets between $50 and $250 billion will be allowed to run with less regulatory oversight, like the annual “stress tests.” The argument is, though, that smaller banks, those with less than $10 billion in assets, will be freed of some rules entirely, like the Volcker Rule, which discourages risky trades and critics say stymied growth. Overall, most of the 2,300 page Dodd-Frank Act remains intact, most notably keeping the watchdog Consumer Financial Protection Bureau in place.
“March of 2008, New Jersey had 135 community banks headquartered here in the state. Today, at the end of March 2018, we’re down to 81, and a lot of that is attributable to the regulatory burden that they facing,” said John McWeeney, president and CEO of NJ Bankers.
Bankers and conservatives welcomed the changes. Republicans overwhelmingly supported the bill, but it got a rare bipartisan backing on the Hill. Thirty-three Democrats voted in favor. In New Jersey, Democratic Rep. Josh Gottheimer crossed party lines for a yes vote.
In a statement Gottheimer said, “The measure provides targeted relief to community banks and credit unions around the country, helping residents of the Fifth District by spurring business growth and expanding access to credit and loans, while protecting the key safeguards in place.”
Republican Leonard Lance, who echoed that thought, said, “Community banks had nothing to do with the 2008 financial crisis but have been forced out of business across New Jersey because of one-size-fits-all regulations.”
“The bill eliminates transparency when it comes to data reporting. The Home Mortgage Data Acts requires banks to report to their regulators and make public information about who they’re lending to, where they’re lending and how much they’re lending. With that information the regulators, the press and organizations like ours, are able to track trends in lending and we can see where there are discriminatory practices. We can see where redlining continues to persist,” said Beverly Brown Ruggia, financial justice organizer for New Jersey Citizen Action.
Critics, like watchdog New Jersey Citizen Action call it a giveaway.
“So we’re talking about expanding the pool of “too big to fail,” which we know led to taxpayers picking up a very large tab,” Brown Ruggia said.
“There are hundred and hundreds of rules that came out of Dodd-Frank. No one specific rule in and of itself is a tremendous burden, but when you put them all together, particularly on a small community bank that may only have a small staff of people, it just buries them,” said McWeeney.
For better or worse, many see the vote as the beginning, not the end, of a Dodd-Frank legislative rollback. President Donald Trump is all but certain to sign it when it hits his desk.