After voting to radically overhaul the U.S. healthcare system, House Republicans will vote in coming weeks on rolling back financial reforms put in place to prevent big banks from once again driving the world to the brink of global catastrophe.
The banking industry couldn't be more pleased.
The American Bankers Assn. hailed it as "a very important step" after the House Financial Services Committee voted the other day to send the whimsically titled Financial CHOICE Act to the House floor. (That's CHOICE as in Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.)
The legislation would provide "much-needed regulatory relief" for beleaguered banks, said Rob Nichols, the industry group's president and chief executive. He said banks only want "to better serve their customers and communities."
The industry can put away its hankies and violins. U.S. banks, especially the big ones, are doing just fine, thank you very much.
Here are the facts:
- U.S. banks reported record annual profit of $171.3 billion last year, up 5% from a year before, according to the Federal Deposit Insurance Corp. Only 4.2% of the nation’s almost 6,000 banks lost money in 2016 — the lowest percentage since 1995.
- FDIC-insured institutions reported total profit of $43.7 billion in the fourth quarter alone, up nearly 8% from a year earlier. Almost 60% reported year-over-year growth in quarterly earnings.
- In the first three months of this year, Bank of America reported a 40% increase in earnings from a year earlier. Both JPMorgan Chase and Citigroup posted 17% gains in profit.
- Wells Fargo, which went out of its way to alienate customers with its bogus-accounts scandal, nevertheless saw its first-quarter profit hold steady at $5.5 billion.
"Banks need regulatory relief like a bald man needs a comb," said Linda Sherry, a spokeswoman for the advocacy group Consumer Action.
On Friday, I wrote about my interview with the director of the Consumer Financial Protection Bureau, Richard Cordray, whose job would be as expendable as his watchdog agency if the Financial CHOICE Act became law. Weakening the CFPB to the point of uselessness is a major goal of the legislation.
But the bill aspires to do a lot more damage than that.
It's intended to undo the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by former President Obama in 2010. Dodd-Frank included a variety of measures aimed at lowering the risk of a too-big-to-fail financial institution endangering the economy or requiring a taxpayer-funded bailout.
Banks have steadfastly insisted since the law was enacted that its rules are too costly and troublesome for them to comply with. They've said Dodd-Frank is a classic example of government overreach.
The banking industry has clothed much of its anti-regulatory propaganda in declarations that Dodd-Frank, no matter how well intended, is an albatross around the necks of smaller, nicer institutions. Think George Bailey's building and loan firm in "It's a Wonderful Life."
"The regulatory relief that ABA is pursuing on behalf of our members will allow banks to better serve their customers and communities, and ultimately help the U.S. economy," Jeff Sigmund, a spokesman for the bankers association, told me.
He said Dodd-Frank "included changes that went too far and are holding back economic growth," and that the banking industry favors "revisiting the law and putting in place sensible rules."
To be sure, Dodd-Frank would benefit from some tweaks. For example, the regulatory burden on smaller banks easily could be remedied by raising the law's compliance threshold to $100 billion in assets. At the moment, the rules apply to any bank with more than $50 billion in assets.
Republican lawmakers, however, prodded by their backers in the business community, are determined to give all banks the benefit of the doubt, as if the mortgage meltdown that began in 2007 and the financial chaos and recession that followed were ancient history.
"Our plan replaces Dodd-Frank's growth-strangling regulations on small banks and credit unions with reforms that expand access to capital so small businesses on Main Street can grow and create jobs," said Rep. Jeb Hensarling (R-Texas), author of the Financial CHOICE Act and chairman of the House Financial Services Committee.
Actually, small businesses and Main Street appear to have plenty of access to capital. Lending by commercial banks has grown by more than 6% annually since 2014, according to the Federal Reserve — much faster than the growth rate of the overall economy.
As I've previously reported, Hensarling is the Oliver Twist of donations from financial firms ("Please, sir, I want some more"). Since he was first elected to Congress in 2003, he has received $1.3 million in contributions from commercial banks, $1.4 million from securities and investment firms, and $1.4 million from insurers, according to the Center for Responsive Politics.
Republican members of the House Financial Services Committee who voted to approve Hensarling's bill received almost 80% more money during the 2016 election cycle from commercial banks and holding companies than Democrats who voted against it, according to the nonpartisan research organization MapLight.
Lawmakers supporting the measure received an average of $72,191 last year from commercial banks and holding companies. Those opposing it received an average of $40,437.
For consumers, perhaps the single greatest insult of the Financial CHOICE Act is the harm it would do to the CFPB. As I noted Friday, the act would allow the president to sack the bureau's director at any time for any reason.
It also would greatly limit the bureau's ability to oversee and enforce rules pertaining to financial firms, even though the bill cynically would rename the bureau the Consumer Law Enforcement Agency.
You'll be hearing more from the banking industry about the unbearable regulatory burden of misunderstood, underappreciated financial institutions as a vote by the full House approaches.
What the industry won't tell you is that bank stocks are up nearly 30% since the November election and that earnings growth of almost 11% is forecast for this year, according to S&P Global Market Intelligence.
Much-needed regulatory relief?
All businesses should have it so bad.
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