WASHINGTON—President Barack Obama fought long and hard to pass the 2010 Dodd-Frank Act, a signature policy achievement that has now turned into a source of tension among Democrats.
In a 67–31 vote, the Senate passed a banking bill on March 15, paving the way for the largest overhaul of banking regulations since the 2008 financial meltdown. The measure rolls back a part of the Dodd-Frank Act to provide regulatory relief for U.S. banks.
The legislation, the Economic Growth, Regulatory Relief, and Consumer Protection Act was sponsored by Sen. Mike Crapo (R-Idaho) and cleared the Senate easily, with backing from 17 members of the Democratic caucus.
Sen. Elizabeth Warren (D-Mass.), one of the original champions of the Dodd-Frank Act, slammed the nearly one-third of her fellow Democrats who lined up behind the new legislation.
“This bill is a punch in the gut to American consumers,” Warren said on the Senate floor on March 6.
She criticized the bill for not providing strong protection for consumers.
“The bill is written by big banks to help big banks,” she said. Once the bill passes, it would be harder to “police the banks” that have abusive practices, she warned. She defended Dodd-Frank, which places tighter restrictions on banks.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a complex set of banking regulations enacted in 2010. Obama said it was the most sweeping financial reform since the 1930s.
The new bill exempts small banks from some onerous rules designed for big banks, including the Volcker Rule.
The act was designed as a response to the 2008 financial crisis caused by the subprime mortgage scandal and the collapse of Lehman Brothers. Certain provisions aimed to protect consumers from abusive lending and mortgage practices by banks.
But it failed to serve its stated purpose, according to critics. The legislation, which aimed to prevent banks from being “too big to fail,” has instead hurt small banks, community banks, and consumers.
Democratic Sen. Heidi Heitkamp (D-N.D.) was the most prominent voice opposing Warren.
“I think people in North Dakota don’t care what Elizabeth Warren thinks,” Heitkamp told The Atlantic.
She criticized Warren for misleading the public about the new bill and exaggerating the danger posed by the changes.
Heitkamp and most Democrats who voted for the new bill will run for re-election this year, facing tough races in red states like Indiana, Missouri, Montana, North Dakota, Michigan, and West Virginia.
They have long argued that community banks in rural areas should get regulatory relief.
According to Senate Minority Whip Dick Durbin (D-Ill.), the split on the new bill has been a challenge for Senate Minority Leader Chuck Schumer (D-N.Y.).
“This is really the first time since he’s been Democratic leader that there’s been a significant split in the caucus. And it’s inevitable. It’s awkward,” he told Politico.
What the New Bill Does
The new bill allows banks with between $50 billion and $250 billion in assets to run with less regulatory oversight. It exempts banks with less than $10 billion in assets from some regulations, including the controversial Volcker Rule, which bans banks from making risky trading bets. It also requires regulators to take the size of banks into account when crafting rules, rather than imposing “one size fits all” regulations.Small banks play a critical role in the U.S. economy by offering a large amount of consumer, residential mortgage, and small business loans.
Over-regulation, following the 2008 financial crisis, has made it harder for community banks to operate, and the number of small banks has dropped as a result of consolidation or bankruptcies.
Small banks lost their ability to compete with the larger banks due to increased regulatory demands and capital requirements, making it harder for them to serve their communities profitably.
House lawmakers are reviewing the Senate bill and deciding whether to make further revisions. Any change to the bill would require the Senate’s sign-off before it reaches the president’s desk.
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