WASHINGTON -- Just one day after Treasury Secretary Jack Lew wrote a letter urging lawmakers to reject a slate of Wall Street deregulation measures, nearly two dozen Democrats joined Republicans to approve the package in the House Financial Services Committee.
The legislation would repeal several sections of the 2010 Dodd-Frank Wall Street reform law targeting derivatives, the complex financial transactions at the heart of the 2008 banking collapse. Similar measures have already cleared the House Agriculture Committee with broad bipartisan backing.
The most controversial bill advanced on Tuesday would expand government backing for derivatives by allowing banks to sell them from their taxpayer-insured divisions. Dodd-Frank requires banks to "push out" many of these operations into units that do not receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC).
The FDIC guarantees certain deposits at banks, ensuring that ordinary citizens do not lose their savings if their bank fails. This insurance is paid for by premiums the government charges banks -- hence the Himes-Scott argument. But the fund typically holds less than 1.5 percent of the banking industry's total deposits on hand, an amount easily overwhelmed in times of crisis.
At the hearing Tuesday, Himes, a former Goldman Sachs banker, noted that the FDIC's fund was not exhausted during the 2008 collapse. It's true that the FDIC's fund was not depleted, but only because banks received trillions of dollars in bailouts from Congress and the Federal Reserve. When the fund was emptied in the savings-and-loan crisis of the early 1990s, ordinary taxpayers stepped in to pick up the tab.
Nevertheless, just six of the Financial Services Committee's 28 Democrats opposed the bill, which garnered unanimous GOP support. The "no" votes came from Reps. Stephen Lynch (D-Mass.), Keith Ellison (D-Minn.), Al Green (D-Texas), Michael Capuano (D-Mass.), Nydia Velazquez (D-N.Y.), and Maxine Waters (D-Calif.), the panel's top-ranking Democrat.
Another bill in the deregulatory package would exempt derivatives traded between different subsidiaries of the same company from new transparency rules. These "inter-affiliate" swaps are often used in complex offshore tax avoidance schemes.
That bill's author, Rep. Gwen Moore (D-Wis.), bemoaned media pressure surrounding the legislation, arguing that the current law hammers the economy. "The notion that now we should just do nothing and continue to cripple the economy is something that I reject," Moore said.
Dodd-Frank's derivatives rules have not yet been implemented by regulators.
Another bill approved by the committee on Tuesday would exempt foreign offices of U.S. banks from many U.S. rules. AIG's infamous credit default swap unit was located in London, as was the "London Whale" debacle at JPMorgan Chase.
On Monday, the Treasury secretary had warned lawmakers against repealing pieces of Dodd-Frank.
"The derivatives provisions in the Wall Street Reform Act constitute an important part of the reforms being put in place to strengthen our financial system by improving transparency and reducing risks for market participants," Lew wrote. "These reforms should not be weakened or repealed."
So the Obama administration currently opposes the legislative package, and the bills seem unlikely to overcome a filibuster in the Senate. But the broad bipartisan support for bank deregulation worries progressives on Capitol Hill that the package could eventually follow the path taken by 2012's JOBS Act -- another deregulatory bill that ultimately secured President Barack Obama's support after winning over House Democrats.
CORRECTION: A previous version of this story misidentified Rep. Gwen Moore as representing a district in Illinois. She represents a district in Wisconsin.