You'd Think Democrats Would Have Learned-- People/Voters Don't Like A Rigged System, But... Meet The Bailout Caucus

Almost a month ago, Alan Rapaport did a piece for the NY Times, Democrats Add Momentum to G.O.P. Push to Loosen Banking Rules about how conservative Wall Street-friendly Democrats in the Senate are helping Republicans "loosen rules imposed in the wake of the 2008 financial crisis."

Buoyed by their success in rewriting the tax code, the Trump administration and Republican lawmakers have now set their sights on helping the financial industry, which has been engaged in a quiet but concerted push to relax many post-crisis rules and regulatory obligations, particularly for thousands of small- and medium-sized banks.

But unlike the $1.5 trillion tax overhaul, which passed along party lines, the effort to loosen the post-crisis rules is somewhat bipartisan. A group of Senate Democrats has joined Republicans to support legislation that would mark the first major revision of the 2010 Dodd-Frank Act, a signature accomplishment of President Barack Obama that has been deemed “a disaster” by President Trump.

The bill would allow hundreds of smaller banks to avoid certain elements of federal oversight, including stress tests, which measure a bank’s ability to withstand a severe economic downturn. Under current law, banks with assets of $50 billion or more are considered “systemically important financial institutions” and therefore governed by stricter rules. The bill would raise that threshold to institutions with assets of $250 billion or more, leaving fewer than 10 big banks in the United States subject to the stricter oversight.

Banks with assets of $50 billion to $100 billion would be immediately freed from those requirements. Financial institutions with $100 billion to $250 billion in assets, such as BB&T and American Express, would no longer be subject to tougher rules after 18 months, although the Federal Reserve would retain the authority to periodically conduct stress tests on those firms.

Senator Mitch McConnell, the majority leader and Kentucky Republican, is expected to bring the bill to the Senate floor within the next month.

Hurdles remain. The House has already passed its own far more sweeping deregulatory effort. And progressive Democrats who warn that the legislation would return Wall Street to its more reckless past are mobilizing in hopes of derailing the legislation-- even if that means attacking fellow Democrats who support it.

“This bill increases the risk of another taxpayer bailout, and I will continue to challenge supporters of this bill-- from both parties-- to explain why they stand on the side of big banks instead of working families,” said Senator Elizabeth Warren, the Massachusetts Democrat.

Still, lobbyists, lawmakers and administration officials say this is the make or break year for overhauling Dodd-Frank.

Rob Nichols, president of the American Bankers Association, said the legislation would correct what banks view as regulatory overreach borne of a hasty legislative effort to shore up a cratering financial system after the 2008 crisis. “What I do think is significant here is that you have a recognition that’s been building for several years that parts of the policy response were misguided, ill-conceived and missed the mark,” Mr. Nichols said.

The Senate Dems helping Mike Crapo (R-ID) pull this bankster legislation through are anti-populist conservaDems Heidi Heitkamp (ND), Jon Tester (MT), Chris Coons (DE), Tom Carper (DE), Joe Donnelly (IN), Claire McCaskill (MO), Gary Peters (MI), Mark Warner (VA), Tim Kaine (VA), Joe Manchin (WV) and Michael Bennet (CO) + independent Angus King (ME).

Despite the bipartisan support for legislative action, it will not happen without a fight, especially when Wall Street is generating record profits and after companies just received large tax cuts. Moderate Democrats who sign on to a bill to help community banks can expect to hear from the party’s progressive wing that they have defanged Dodd-Frank.

The dissension among Democrats was evident as the banking committee considered the bill last year. Senator Sherrod Brown, Democrat of Ohio, and Ms. Warren were especially vocal in their opposition to a bill that they viewed as a dangerous giveaway.

“This major move to deregulate the big banks is a major move to undermining Dodd-Frank,” said Adam Green, a founder of the Progressive Change Campaign Committee. “Especially in these Red States where economic populism is the key to Democrats winning re-election in 2018, the folks in the most competitive elections should realize that doing the bidding of the banks is not especially helpful to them.”

Ms. Warren is expected to mobilize her network of progressive activists to oppose the changes to Dodd-Frank. She is even prepared to make her Democratic colleagues cast difficult votes during the amendment process to drive home the point that banks that received bailout money should not be deregulated.

Jeremy Kress of the University of Michigan was formerly an attorney in the Banking Regulation & Policy Group of the Federal Reserve Board’s Legal Division. On Wednesday he penned an OpEd for The Hill about how Crapo's bill has turned into a Trojan Horse. He wrote that "on its face, Senate Bill 2155-- dubbed the Economic Growth, Regulatory Relief, and Consumer Protection Act-- contains some sensible reforms. The bill exempts smaller banks from complicated risk-based capital requirements, subjecting them instead to a simple leverage ratio... Like the Greeks’ gift to Troy, however, what is hidden inside S.2155 is what’s dangerous. Three troubling provisions in the bill could presage the next financial crisis."

First, S.2155 rolls back the most significant post-crisis reforms for the United States’ biggest banks. The Dodd-Frank Act mandated enhanced oversight of banks with $50 billion or more in assets to prevent them from becoming too big to fail...The bill would raise the enhanced oversight threshold to $250 billion, effectively deregulating 25 of the 38 biggest banks in the United States, accounting for nearly one-sixth of the assets in the banking sector. Freed from enhanced oversight, these institutions would go back to operating under many of the same rules that failed to prevent the financial crisis.

...S.2155’s second hidden threat is that it deregulates the U.S. operations of Deutsche Bank, Barclays and other systemically important foreign banks-- firms whose failure could inflict harm on the U.S. economy.

After foreign megabanks experienced destabilizing funding runs during the financial crisis, the Federal Reserve implemented rules requiring large foreign banks to keep capital in the United States and rules preventing those banks from moving assets to their home country when the next crisis hits.

S.2155 removes these important protections and leaves the U.S. economy vulnerable to foreign banks’ misconduct and excessive risk-taking.

Finally, and most troublingly, S.2155 makes it more difficult for the Federal Reserve to regulate the biggest U.S. banks, including Wells Fargo and Goldman Sachs. The bill requires the Fed to tailor its enhanced oversight of the largest banks, taking into account “appropriate risk-related factors.”

While tailoring is a laudable goal, “appropriate risk-related factors" is a legal landmine. Indeed, that is the exact statutory language that MetLife cited last year when it won a court order overturning its designation as a systemically important firm.

He urges the Democratic co-sponsors "to to drop their support or demand significant revisions before S.2155 comes to the Senate floor. Lowering the enhanced oversight threshold, ensuring that the bill covers foreign banks and modifying the tailoring provision would be an appropriate place to start... [and] stop this Trojan Horse before it enters the city gates."

Schumer, who's taken more in bribes form the Financial Sector than anyone in history other than presidential candidates ($26,735,303)-- more than McConnell ($12,276,007) and Ryan ($11,909,105) combined-- isn't on the list. Instead he handed the banksters a fabulous gift-- the ultimate House sleazebag as his handpicked candidate for the Senate, Kyrsten Sinema (Blue Dog-AZ). Sinema serves on the corrupt House Financial Services Committee, where she works assiduously to help the banksters rig the system against working families. There's no Democrat on the committee more in Wall Street's pocket and they've rewarded her handsomely. In the 2016 cycle she was the recipient of more legalistic bribes than any Democrat on the committee ($1,013,540) and among Democrats in the House, only notorious scumbags Patrick Murphy ($2,536,038) and Joe Crowley ($1,086,673) took more than she did. So far this cycle, the banksters have given Sinema $717,887, more than any House Democrat other than fully-owned Wall Street subsidiary Josh Gottheimer ($803,824). The banksters have given her more than any other 2018 non-incumbent Senate candidate-- including Republicans! The runner up is Indiana crook Luke Messer ($591,776).