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House-Senate standoff imperils effort to roll back post-financial crisis banking rules

Congress appeared on the cusp of rolling back post-financial crisis banking rules last month after Senate Republicans and moderate Democrats passed a bill through the Senate despite opposition from high-profile progressives. (April 10th, 2018)

Congress appeared on the cusp of rolling back post-financial crisis banking rules last month after Senate Republicans and moderate Democrats passed a bill through the Senate despite opposition from high-profile progressives. But now a stubborn standoff between a powerful House Republican, Senate Democrats and the White House threatens to derail the effort entirely.

Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Service Committee, wants to change the Senate bill to bring it closer to a more expansive version of the rollback the House passed last year. For Hensarling, it's a last chance before retirement to take aim at the banking rules he has struggled against for years, only to see his previous efforts stall in the Senate.

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"I respect the work of the Senate," Hensarling said. "I expect for them to respect the work of the House."

The Democrats who backed the Senate bill are telling Hensarling their version is a take-it-or-leave-it proposition, saying changes would imperil their coalition. The Democrats already bucked party leadership — and drew criticism from Sen. Elizabeth Warren, D-Mass., and others — for supporting the measure the first time, and they're uninterested in reopening the messy intraparty dispute.

White House officials are making clear that they want to see the legislation finalized sooner rather than later. President Trump said during a tax event in West Virginia last week that the banking bill "should be done fairly quickly."

The struggle pits GOP pragmatists looking for a win against Hensarling's broader ambitions. Democrats who backed the measure billed it as a way to improve the rules put in place after the financial crisis. But for Hensarling, the measure marks a last chance to cut into a bill he has spent the second half of his 16-year congressional career fighting — and he has so far been unwilling to sign off on the Senate bill unless it includes a list of around 30 bipartisan House bills he wants to add. Hensarling's close ally House Speaker Paul D. Ryan (R-Wis.) shares the chairman's conservative economic ideology and has thus far deferred to him, hoping he can find a deal.

But Ryan could ultimately hold a vote on the Senate measure without Hensarling's sign-off, and there are growing signs the White House may lose patience waiting for the House to move forward, especially given how difficult it would be for the Senate to pass another version of the bill.

With the midterms approaching and control of Congress for the rest of Trump's first term in the balance, the White House and GOP leaders are looking for another achievement to point to as proof that — despite the perpetual chaos and controversy surrounding the president — they have delivered on promises to cut taxes and undo Obama-era regulations.

"You won't believe this — we're actually getting bipartisan support. Does anybody believe that?" Trump said in West Virginia.

"Maybe Joe won't, but most people will," Trump went on in a jab at Sen. Joe Manchin, D-W.Va., who is up for reelection in November, even though Manchin was one of the 17 members of the Senate Democratic caucus who voted for the bill.

Trump's comment, however erroneous, provided a window into the tricky politics for Senate Democrats around the legislation. The first vote laid bare divisions between liberals such as Warren and Sherrod Brown, D-Ohio, and moderates such as Manchin and Sens. Joe Donnelly of Indiana, Jon Tester of Montana and Heidi Heitkamp of North Dakota, all of whom will face voters in Trump states in November and supported the banking bill.

Along with Sen. Mark Warner, D-Va., one of the lead authors of the 2010 law known as the Dodd-Frank Act, the Democrats are insisting the House should just pass the version of the bill that cleared the Senate and send it to Trump for his signature. If the House sends a version back with Hensarling's changes, Warner has said he'll encourage all 17 Senate Democrats who voted for the bill to pull their support.

Asked about the Hensarling's changes Monday, Warner was blunt: "It would destroy the bill."

Hensarling and his staff bristle at such arguments, noting most of the objections raised to the list of bills he hopes to add to the Senate legislation relate to process, not policy. All of the bills on his list drew Democratic votes, and some were authored by Democrats or passed the House or the Financial Services Committee without a single dissenter. A number don't directly impact Dodd-Frank or make small changes to existing regulations. And Hensarling's list omits the most controversial policies, including measures aimed at defanging Dodd-Frank entirely or nullifying the watchdog agency, the Consumer Financial Protection Bureau, that it created.

"This is not conservative ideology here, this is representing the House," Hensarling said. "When I'm sitting on a vote of 416 to zero, when I'm sitting on a vote of 398 to 5, that is the will of the House — the strongly bipartisan will of the House."

However, some of the changes he's pushing are significant and strenuously opposed by consumer groups. One bill would raise the asset level at which CFPB oversight kicks in for financial institutions from $10 billion to $50 billion; another would mostly eliminate automatic regulatory oversight for banks at a certain asset threshold, largely leaving it to the discretion of the Federal Reserve to decide which financial institutions merit the strictest regulation.

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The Senate bill, which Warner and his Democratic allies negotiated with Senate Banking Committee Chairman Mike Crapo, R-Idaho, falls short of Trump's promise to do "a big number" on Dodd-Frank, a goal Hensarling himself achieved in legislation pushed through the House last year that would have gutted Dodd-Frank but had no hope of getting the 60 votes needed to pass the Senate.

But the Senate bill nonetheless amounts to the most significant weakening of banking rules since President Barack Obama and a Democratic-led Congress passed Dodd-Frank in the wake of the financial crisis, and some industry officials have argued it's probably the best policy they can get from a Senate where Democratic votes are needed.

"The White House is very sympathetic to the policy points that Jeb makes, and we're just having to balance that with the reality of floor time available in the Senate," said White House legislative affairs director Marc Short. "We're encouraging that both chairmen continue to work on a resolution and path forward so the president can sign legislation and provide relief to small banks and community banks across America as soon as possible."

The Senate bill leaves major provisions of Dodd-Frank in place, but it would exempt about two dozen financial companies with assets between $50 billion and $250 billion, — including American Express, Ally Financial and Barclays — from the toughest banking regulations. These banks would no longer be labeled "too big to fail" and automatically undergo a yearly stress test to prove they could survive economic turmoil. The legislation also delivers relief to small banks from mortgage and other rules put in place after the financial crisis.

Supporters say the legislation is aimed at helping community banks and credit unions that have struggled under a regulatory yoke that has forced them to pull back from lending and as a result harmed consumers, particularly in rural areas. Opponents contend the bill would inject greater risk into the financial system, possibly increasing the likelihood of a repeat of the economic crisis that convulsed the nation a decade ago and forced a taxpayer bailout of Wall Street.

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The legislation's passage was a significant victory for the banking industry and spoke to the lobbying power of the local banks that are a presence in every community.

The Independent Community Bankers of America, representing nearly 6,000 community banks around the country, is hosting a D.C. fly-in this week that is likely to up pressure on lawmakers, and the group is circulating a petition praising the Senate bill and calling on the House to act, arguing that "Further delay or inaction could derail its current momentum."

And on Monday, the American Bankers Association and other state associations sent a letter to House leaders. The groups praised Hensarling's work, but their message was clear: pass the Senate version.

So far, neither the Senate Democrats nor Hensarling has budged. But Crapo said Monday that lawmakers were considering a plan in which the House would pass the Senate version without Hensarling's changes, but some of the additional measures the Texas Republican wants passed would get attached to other pieces of legislation.

"That's one avenue that's being discussed like I say on all sides, and I certainly would like that to happen," Crapo said. "I'm also very fine if we can find some kind of a pathway forward, whatever the vehicle is, and so I'm not going to try to push a specific path right now other than moving ahead expeditiously."

As to concerns that the bill would die if forced to come back to the Senate, Crapo said: "That concern has been raised by a number of senators and so I'm aware of it. I'm not going to comment further."

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