WASHINGTON ― While much of the political world was watching the fallout from former FBI Director James Comey’s Senate testimony Thursday, House Republicans were jamming through a bill that would largely gut the financial regulations in Dodd-Frank, the landmark banking legislation passed in 2010 after the worst financial crisis since the Great Depression.
But instead of quietly sneaking the legislation through, Republicans were loudly touting the bill ― which passed, 233-186, with all Democrats and one Republican (Walter Jones of North Carolina) voting no ― as a major victory.
Speaker Paul Ryan (R-Wis.) spent most of the week pointing to the measure as a win for community banks, calling the so-called Financial CHOICE Act the “crown jewel” of a GOP effort to peel back regulations and bolster the economy. And Republicans, largely looking for something to discuss instead of Comey or Trump or any number of the other associated scandals, used the legislation as their preferred talking point of the week.
“The big banks are bigger. The small banks are fewer. We’re losing a community bank or credit union a day,” Financial Services Committee Chairman Jeb Hensarling (R-Texas), the sponsor of the bill, said Thursday.
When HuffPost asked House Republicans about the bill Wednesday and Thursday ― whether easing Wall Street regulations was really the message of the 2016 election ― GOP lawmakers quickly reframed the measure as a win for community banking.
“We’re getting rid of ‘too big to fail,’ and we’re saving the little banks,” Rep. Ted Yoho (R-Fla.) said. “There was over 14,000 community banks. We’re losing one a day; we’re under 7,000.”
Ways and Means Chairman Kevin Brady (R-Texas) said the legislation would lift regulations off local banks so they could more freely lend to their communities and small business. He said that small banks had been “getting killed” by the regulations in the Dodd-Frank Act.
Freshman Rep. James Comer, who was a director of a community bank before coming to Congress, said he saw firsthand the impact of Dodd-Frank on small banks.
“With the community banks, they paid the price for the sins of the big banks,” Comer (R-Ky.) said. “And in small towns, it’s become much harder to borrow money.”
But Democrats were quick to point out that if Republicans simply wanted to help small banks, they could have crafted a bill that did so without gutting other consumer protections meant to protect the market from risky bets.
“This is about going backwards,” Rep. Jim McGovern (D-Mass.) told HuffPost. “Republicans were never very enthusiastic about holding Wall Street to account or protecting consumers, and this shows it.”
“It moves us back to an era before the 2008 meltdown when there was no one watching Wall Street,” Rep. Jared Polis (D-Colo.) said of the bill.
“If the Republicans were interested in some productive changes around community banking, there’s many Democrats who’ve been at the table on that as well,” Polis continued, “but this bill would remove the critical consumer protections that were put in place from Dodd-Frank.”
“Republicans were never very enthusiastic about holding Wall Street to account or protecting consumers, and this shows it.”
- Rep. Jim McGovern (D-Mass.)
Specifically, the bill would subject the Consumer Financial Protection Bureau to the appropriations process, meaning lawmakers could substantially cut, or even defund, the consumer watchdog. Democrats say subjecting the CFPB to congressional appropriations is the first step in eviscerating the agency.
The CHOICE Act would also cut the so-called Volcker Rule, which was meant to stop big banks from making speculative bets with taxpayer-backed funds. (Simple in premise, the Volcker Rule is in fact incredibly complex and contains multiple exemptions too large and purposeful to be called loopholes.) The bill would also remove regulators’ increased power over “systemically important financial institutions.” (Colloquially, these are the ‘too big to fail’ institutions.)
Republicans have cannily described that ‘too big to fail’ designation as meaning the institutions are earmarked for bailouts. In fact, it subjects the institutions to greater regulation and forces them to produce plans showing they can fail without government intervention, and big finance companies fight ― and sometimes sue ― to avoid the tougher regulation the designation brings.
The legislation also would prohibit the Federal Deposit Insurance Corp. from overseeing plans on how banks with more than $50 billion in holding assets would be unwound should they need to go into bankruptcy. And the bill would substantially lower capital requirements.
For years, as an alternative to Dodd-Frank, some Republicans have proposed increasing capital requirements as a simple way to make banks safer. Bankers and their lobbyists would often offer general agreement to such a trade. But given the chance to write such a bill, the banking industry and Republican lawmakers showed their hand: Higher capital requirements are out, and a banking system loaded up with more debt is in.
Dodd-Frank, like the complex and interrelated financial system it regulates, does not have a simple, identifiable core. There is no one main thing Dodd-Frank does or stops. Instead, Dodd-Frank reins in the hugely diverse, interconnected financial world ― banks, hedge funds, mortgage originators, insurance companies, debt collectors, payday lenders ― by creating dozens and dozens of new rules, processes and organizations. The CHOICE Act rips almost every bit of this away. If Dodd-Frank is the ecosystem of a wooded hillside and gentle stream, the CHOICE Act is mountaintop removal mining.
From the very inception of Dodd-Frank, the political right has seized on the law as onerous and harmful to economic growth. Gutting the law would be a substantial “win” for Republicans in their minds, particularly when they can paint their actions as helping small banks.
But the bill undeniably allows riskier bets from banks and restrains the ability of regulators to monitor Wall Street. The legislation certainly would make it easier on small-town banks to lend more of their money, but the measure is wrapped in so many other sops to the financial industry that it’s unlikely to go anywhere in the Senate, where it’s subject to 60 votes to pass. Even the Trump administration gave a less than full-throated endorsements of the legislation in a statement, saying the administration “looks forward to working with the Senate on arriving at a final piece of legislation.”
Still, the prospect of passing a bill ― any bill ― that Republicans like and Democrats hate was enough to thrill GOP lawmakers. Amid all the news about Russia and Comey on Thursday, Republicans set up a “media row” in one of the House office buildings so members could play up their action on Dodd-Frank and try to muddle headlines about the president potentially obstructing justice. And as absurd as that plan may sound, it, in part, seemed to work.