The Senate Banking Committee will mark up a financial regulatory reform bill on May 14 that is expected to include changes to the Dodd-Frank Act. Senate Banking Committee Chairman Richard Shelby (R-AL) is working with Committee Ranking Member Sherrod Brown (D-OH) to put together a legislative package that can win bipartisan support. This is necessary because 60 votes will likely be needed to pass the package on the Senate floor and Republicans have a 54-seat Senate majority. As a result, the Banking Committee’s changes to Dodd-Frank will likely be more consensus-driven and less sweeping than those proposed by a number of House and Senate Republicans and the financial services industry.
The regulatory reform package is likely to include some relief from Dodd-Frank requirements for small and medium sized banks. Chairman Shelby has said these banks did not cause the financial crisis and many enjoy bipartisan support in Congress. A key issue is whether to raise Dodd-Frank’s $50 billion asset threshold that subjects banks to enhanced prudential standards overseen by the Federal Reserve including stress tests, dissolution plans (living wills), and higher capital requirements. During recent hearings, the Banking Committee heard a wide array of proposals to modify the asset threshold, including: raising it to $100 billion, or more; exempting regional banks with over $50 billion in assets from some requirements, such as stress tests and living wills; and restructuring the threshold to tie stricter regulatory oversight to the complexity and riskiness of a bank’s activities, not simply its size.
Another key issue is changes to the Consumer Financial Protection Bureau (CFPB). Currently, the CFPB is a single-director agency that does not receive its funding from Congress. Instead, it requests as much money as it needs from the Federal Reserve, where it is housed, subject to specific caps set by the Dodd-Frank Act. Chairman Shelby and other Republicans would like to bring the CFPB under tighter congressional oversight by changing the agency’s funding so it is subject to direct appropriations and replacing its single-director with a bipartisan commission appointed by the president and confirmed by the Senate. However, President Obama and congressional Democrats are strongly opposed to changing the structure and funding of the CFPB. Consequently, Chairman Shelby may defer attempts to make major changes to the CFPB until there is a must-pass legislative vehicle such as FY 2016 appropriations.
Finally, the regulatory reform package that will be marked up by the Banking Committee could include changes to the Financial Stability Oversight Council (FSOC) to make it more transparent and accountable. Under Dodd-Frank, FSOC can designate a nonbank financial firm as a “systemically important financial institution” (SIFI), which subjects it to bank-style supervision from the Federal Reserve. So far, FSOC has designated four nonbank firms as being systemically important over concerns their failure could threaten the financial system. They include General Electric Co. and insurers Prudential Financial Inc., American International Group Inc., and MetLife Inc. (GE’s exit from most of its lending operations will likely end its SIFI designation). However, FSOC has been criticized by Republicans and Democrats for a lack of transparency in determining whether to designate nonbanks as SIFIs, and for failing to provide them sufficient opportunities to participate in the designation process and to correct deficiencies to avoid being classified as SIFIs.