This post is excerpted from the
INDY’s morning newsletter, Primer. To read this morning’s edition in full, click here. To get all the day’s local and national headlines and insights delivered straight to your inbox, sign up here.
Senate Republicans—joined by more than a dozen Senate Democrats—have passed a bill to loosen banking rules enacted after the financial collapse of 2008.
WHAT IT MEANS
- From the NYT: “The Senate took a key step on Tuesday toward loosening rules imposed after the 2008 financial crisis as some Democrats joined with Republicans to vote to begin debate on legislation that would roll back restrictions on large parts of the banking industry. In a rare demonstration of bipartisanship, the Senate voted 67 to 32 to allow the bill to proceed, setting the stage for a vote this week that rewrites parts of the 2010 Dodd-Frank Act.”
- “While the bill is intended to provide relief to thousands of small and midsize banks, the prospect of deregulating the financial industry has laid bare a fissure in the Democratic Party, pitting moderate Democrats who support easing bank rules against progressives who view the bill as a gift to Wall Street. ‘This deregulatory bill puts the entire economy at risk,’ Senator Elizabeth Warren, Democrat of Massachusetts, said on Tuesday. ‘We’re not here to do the bidding of Wall Street banks. We’re here to do the bidding of the American people.’”
- From Vox’s Ezra Klein: “The legislation exempts banks with less than $10 billion in assets from the Volcker Rule (which bars commercial banks from some speculative trades) and various mortgage requirements; allows banks with between $50 billion and $250 billion in assets to operate with less regulatory scrutiny; and directs the Federal Reserve to tailor regulations to the specific balance sheets of the bigger banks, rather than enforcing rules equally across the board. Most Democrats don’t like the bill. But in my conversations, they don’t see it as an enormously consequential rollback of their Wall Street reforms either. ‘I would vote against this bill,’ says former Rep. Barney Frank, a Democrat who helped spearhead the namesake Dodd-Frank Act. ‘But I understand the pressure to vote for it, and I don’t think the bill makes a serious dent in what we did.’”
- Klein warns: “In loosening stabilizing regulations on banks with up to $250 billion in assets, the legislation dismisses the lessons of past crises. We know that banks often make the same mistakes at the same time—that’s the story of not just the recent mortgage crisis but the savings and loan crisis of the 1980s. And three or four troubled banks in the $200 billion range add up, together, to a Lehman Brothers-level failure. To ease regulations on these banks because they are not, individually, as big as the banks that caused the 2007 crisis is to misunderstand the nature of the crisis itself.”
- From Slate: “The bill’s Democratic supporters, such Virginia’s Mark Warner and Montana’s Jon Tester, claim they are simply trying to make ‘commonsense fixes’ to the Dodd-Frank Act in order to free up credit unions and smaller banks from burdensome rules designed to prevent a Lehman Brothers-style collapse. But while that may be their goal, the legislation—which has been exhaustively and excellently covered by journalist David Dayen—would make it easier for community banks to hide wrongdoing like discriminatory lending, while leaving the financial system at least slightly more vulnerable to a disaster by freeing large regional banks from regulatory scrutiny. As written, there is also a chance it could end up easing restrictions on a pair of too-big-to-fail giants, JPMorgan and Citibank—restrictions that were designed to keep them from leveraging up with too much debt.”
- Elizabeth Warren, a likely presidential aspirant, is on the warpath: “At a Tuesday morning press conference on Capitol Hill, however, Warren did not shy away from describing the bill as a precursor to another financial collapse. ‘People in this building may forget the devastating impact of the financial crisis 10 years ago—but the American people have not forgotten,’ she said. ‘The millions of people who lost their homes; the millions of people who lost their jobs; the millions of people who lost their savings—they remember, and they do not want to turn loose the big banks again.’”
- The New Republic’s Alex Shephard argues that this bill exemplifies “everything wrong with the Democrats”: “What started off as an effort to relieve pressure on community banks and credit unions has morphed into a gift to the biggest banks in the country. Quite simply, if the bill passes, banks will get richer. … In exchange, a financial crisis will become more likely. The Congressional Budget Office reported that the probability of ‘systemically important’ banks failing ‘is small under current law and would be slightly greater under the legislation.’ The 17 Democrats who are supporting the bill have basically shrugged at this possibility, arguing that the bill is a boost for small banks, small businesses, and consumers. … But as it stands, the bill is a giveaway to the banking industry in which consumers get very little. Even though it may be easier for some consumers to get loans, that comes with the tradeoff of a weakened financial regulatory system and fewer consumer protections.”
: So, it seems, depending on whom you ask, this bill is either a precursor to the next depression or not really that big of a deal. The Dems who are behind it are either centrists by nature or trying to survive in Trump states, and because the bill is ostensibly intended to help midsize community banks—of which nearly every congressional district has some—it’s bound to have a constituency. But if it also loosens the rules on Citibank and JP Morgan and that ilk—or if you believe that Warren isn’t exaggerating the dangers—we could be in for a world of hurt somewhere down the road. Or the centrists could be right, and this will be no big deal. The financial industry, after all, has proven that its avarice takes precedence over the public good, which is why the regulations were needed in the first place.