By Andrew Ackerman, Ryan Tracy and Christina Rexrode
Dozens of banks received the biggest signal yet that they may
soon be freed from some of the most onerous rules put in place
after the financial crisis, as lawmakers from both parties agreed
to a plan that would enact sweeping changes to current law.
The bipartisan Senate agreement released Monday would relieve
small and regional lenders from a number of restrictions meant to
limit the damage firms could cause to the economy in the event of
another crisis.
In what would be the biggest step to ease the financial rule
book since Republicans took control of Washington, the proposal
could cut to 12 from 38 the number of banks subject to heightened
Federal Reserve oversight by raising a key regulatory threshold to
$250 billion in assets from $50 billion. The legislation also would
ease red tape affecting credit unions and community banks, allowing
them to lend more, supporters said.
The deal will "significantly improve our financial regulatory
framework and foster economic growth by right-sizing regulation,"
said Senate Banking Committee Chairman Michael Crapo (R., Idaho),
who brokered the agreement between Republicans and a group of
moderate Democrats.
Monday's deal shows Republicans' determination to ease
regulations that they say constrain U.S. economic growth by
limiting the capacity of banks and other businesses to serve
customers and hire new workers. While it isn't clear that any rule
reduction will bolster the economy, efforts to scale back the 2010
Dodd Frank financial overhaul law and other policies amount to a
bet that a freer environment will pave the way for increases in
investment, spending and hiring.
Analysts said it isn't clear that lending would actually
increase, given that demand for commercial loans this year has been
weak. But banks that had been avoiding mergers, such as those that
didn't want to go over the $50 billion line, could be more inclined
to deal-making, said Brian Klock, an analyst at Keefe, Bruyette
& Woods.
The deal could dramatically lighten the regulatory burden on a
wide swath of banks from Utah's Zions Bancorporation to M&T
Bank Corp. in Buffalo, N.Y. Those banks in recent years have had to
submit to detailed financial and risk exams in order to pay
dividends to shareholders.
Many banks bristled at this annual "stress test" review done by
the Federal Reserve, and some including Zions, Citizens Financial
Group Inc., BB&T Corp. and SunTrust Banks Inc., failed the
Fed's annual test previously. The bill would lighten their
stress-test load.
For stress tests alone, building a system to meet the Fed's
expectations could cost firms tens of millions of dollars or more.
Liquidity rules governing banks' cash holdings are another
expensive regulatory exercise that the legislation could allow the
Fed to ease.
Regional banks have said their smaller size and lack of
interconnected trading businesses makes it unlikely that their
demise could create systemic risk that would threaten the economy
as Lehman Brothers' failure did in 2008. Their critics say regional
banks can be risky, pointing to the 2008 failure of IndyMac
Bank.
The deal marks a setback for regional banks with assets above
$250 billion, including U.S. Bancorp and PNC Financial Services
Group Inc., which have urged policy makers to do away with
asset-size thresholds altogether. They favor allowing regulators to
apply rules based on their own judgment of firms' riskiness.
"$50 billion? $250 billion? Why is that number any better than
another?" U.S. Bancorp's chief financial officer Terry Dolan said
in an October interview. His firm has about $459 billion in
assets.
PNC said in a statement Monday it was disappointed in lawmakers'
proposal. "As a Main Street Bank, PNC's business model and risk
profile are very similar to that of other regional banks, and very
different from the systemically important Wall Street banks," it
said.
Monday's deal is co-sponsored by nine Republicans, including Tim
Scott of South Carolina and Bob Corker of Tennessee, along with
nine Democrats, including Joe Donnelly of Indiana and Heidi
Heitkamp of North Dakota. That is enough to clear both the banking
panel and the full Senate, assuming all Republicans in the chamber
support the bill.
In brokering the deal, Mr. Crapo left off key Republican goals
such as attacking the Volcker rule, a ban on proprietary
trading.
"This is the first proposal that has a legitimate shot at making
it to the president's desk," said Milan Dalal, an attorney at
lobbying firm Brownstein Hyatt Farber Schreck in Washington and a
former aide to Sen. Mark Warner (D., Va.), who backed Monday's
deal.
Republicans hold just 52 seats in the Senate and generally need
support from at least eight Democrats for legislation to pass a
needed 60-vote threshold. The House, also controlled by
Republicans, would need to act for the plan to clear Congress.
Liberal Senate Democrats, including Ohio Sen. Sherrod Brown, the
top Democrat on the banking panel, attacked the legislation, saying
it would do little to help "working families."
Negotiations between Messrs. Brown and Crapo on a similar
regulatory rollback broke down last month, prompting Mr. Crapo to
seek a deal with moderate Democrats.
Mr. Crapo released a summary of the legislation Monday, without
unveiling its text. It appears to send a message that Congress
wants regulators to lighten the burden, though regulators still
have broad authority to apply tough rules to banks they view as
risky.
Regulators could immediately exempt firms with assets between
$50 billion and $100 billion from stress tests and other rules that
were mandatory under Dodd Frank, according to the summary of the
legislation. Banks with between $100 billion and $250 billion in
assets could get that treatment after 18 months, though the Fed
could exempt them earlier. Banks in the latter group would still
have to take periodic stress tests.
Presumably, banks that are no longer subject to stress-testing
and other rules would be able to slash their costs, but Evercore
ISI analyst John Pancari said he wasn't sure if looser regulation
would actually materialize into cost savings. "A lot of the banks
view much of the cost that they've spent on that as sunk costs,"
Mr. Pancari said. "So, for example, if they spent money on the
robust monitoring of their risks, they are probably going to keep
up what they built."
The effect on each bank would depend on how close it is to the
$250 billion threshold, Mr. Pancari said.
The legislation also is expected to include dozens of other
provisions, some of which have been previously floated or discussed
by lawmakers.
One targets credit bureaus in the wake of the hack of Equifax
Inc., according to the summary. It would require credit bureaus to
freeze and unfreeze consumers' credit for free once a year.
Write to Andrew Ackerman at andrew.ackerman@wsj.com, Ryan Tracy
at ryan.tracy@wsj.com and Christina Rexrode at
christina.rexrode@wsj.com
(END) Dow Jones Newswires
November 13, 2017 20:03 ET (01:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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