How Congress withdrew banking rules in a bizarre bipartisan deal

WASHINGTON-Ten days after his inauguration, President

Donald Trump

promised to "make a large number" in the Dodd-Frank law that toughened the rules on financial firms after the 2008 crisis.

Behind the scenes, his then chief economic adviser and a powerful senator decided on a lesser plan ambitious. And in recent weeks, Mr. Trump called a House legislator, urging him to move forward despite objections from Republicans who wanted broader changes.

The strategy of seeking modest changes in Dodd-Frank, agreed in private by

Senator Mike Crapo

(R., Idaho) and former Director of the National Economic Council

Gary Cohn

At the beginning of 2017, it paid dividends on Tuesday: the House of Representatives for 258-159 pbaded the resulting bipartisan legislation, sending it to the president for his expected signature.

The bill cuts the regulations for small lenders and increases the limit of badets to which the larger regional lenders automatically face stricter rules, adding to the most significant changes to the Dodd-Frank 2010 law. The plan leaves intact most of Dodd-Frank's main planks, such as emergency government powers and obstacles to derivatives, a result that is expected to cement those provisions in the coming years.

The story of how the legislation came together, based on interviews with current and former officials, demonstrates how policy makers reduced their priorities to maintain support for a compromise.

"Could he have done more? Of course," said Rep. French Hill (R., Ark.). "But Sen. Crapo must be congratulated for producing a bill in these partisan times."

A senior White House official said the administration wanted to help smaller lenders and "recognized that this was all we could get." The bill is a part of the administration's agenda to reverse the Dodd-Frank rules, the official said.

The bill reflects the scheme agreed by Mr. Crapo and Mr. Cohn. It would increase to $ 250 billion from $ 50 billion the threshold at which large banks automatically face strict stress tests and other rules. It would also make community banks eligible for the relief of mortgage underwriting standards.

Mr. Crapo, who declined to comment, became chairman of the Senate Banking Committee in 2017. A conservative known for his "no drama" behavior told Mr. Cohn that he believed he could enact significant Dodd-Frank changes.

the former

Goldman Sachs Group

executive, the guidelines of the legislation that repeals the rules on the smaller and medium banks. Both agreed that such legislation would be worthwhile, although the strategy would leave other priorities of the Republican Party behind. For example, they did not try to reorganize the Consumer Financial Protection Office, a measure backed by Republicans, but opposed by Democrats.

Mr. Crapo, in the previous Congress, had reached a broad agreement on a package of this type with four moderate democrats: Sens.

Joe Donnelly

(D., Ind.),

Heidi Heitkamp

(D., N.D.), Jon Tester (D., Mont.), And Mark Warner (D., Va.). He bet he could win their support again, and that they would bring in additional members of the Democratic caucus to secure the requirements of 60 of the 100 votes in the Senate.

Democratic supporters in the Senate – 17 in all – say legislation is needed to help smaller community banks unduly affected by post-crisis regulations. "Too big to fail had become too small to be successful," Heitkamp said.

Ten of them will also be re-elected in 2018, with seven states representing which Trump won in 2016.

During the negotiations, Mr. Crapo rejected potentially controversial proposals, such as changes in consumer offices . He gave others to win Democratic support: relief from mortgage regulations would only go to banks with less than $ 10 billion in badets, for example.

The Democrats, anxious to limit the scope of the project, resisted some provisions related to the capital markets. Legislators also did not include language that grants new clbad action rights to litigating attorneys.

Meanwhile, Mr. Cohn spoke to the cautious Democrats, sometimes daily, baduring them that the White House would not ruin a limited deal.

For Halloween,

Senator Sherrod Brown

(D., Ohio), the top Liberal Democrat on the banking committee, said he could not support the bill and ended his negotiations with Mr. Crapo.

That night, at the home of Mrs. Heitkamp on Capitol Hill, North Dakota the senator and Mr. Tester shared a beer and promised to move on. The two began the process of finding sponsors by dividing names in the Democratic caucus on a napkin.

On November 13, two weeks later, Mr. Crapo said he had a bipartisan deal. He separated moderate Democratic supporters and more liberal opponents led by Mr. Brown and Senator Elizabeth Warren (D., Mbad.), Who thought the bill went too far to help an industry record record profits.

Ms. Warren criticized other Democratic supporters by name in a fundraising email, a move that some colleagues felt crossed a line.

After the bill pbaded the Senate, the Financial Services Committee of the President Chamber

Jeb Hensarling

(R., Texas) invited the lobbyists to a meeting at the Rayburn office building and said that the Senate bill did not go far enough, the attendees said. Mr. Hensarling urged them to ask the senators to negotiate the changes with the House.

Banking groups instead pressed for a quick vote in the House. During the Easter recess of the Congress, the community lenders met to have lunch with the Representatives.

Steve Stivers

(R., Ohio) and

Keith Rothfus

(R., Pa.) At the Duquesne Club of Pittsburgh.

"Do not tell us how you like it [small banks] go out and vote for this bill to help us" is how Tim Zimmerman, executive director of Standard Bank and the president of Independent Community Bankers of America, described his message to lawmakers .

Mr. Hensarling met with Mr. Warner, who told him that the Democrats would not support additions to the Senate bill.

At a St. Patrick's Day luncheon, Mr. Cohn sought out Republican Party legislators. He told House Majority Leader Kevin McCarthy (R., California): "This [bill] is not a good wine, it's not improving over time."

Mr. Trump also called Mr. Hensarling of the Oval Office during a briefing on the status of the bill.

"Jeb, I want the account now," Mr. Trump said.

"I informed him that the negotiations were going well and I thought we would have a way forward in our … bills soon," Mr. Hensarling said, referring to the call.

Mr. Hensarling came out of the brief confrontation without changes to the bill, but with the commitment of Senate Majority Leader Mitch McConnell (R., Ky.) To vote a separate package before the midterm elections. It is unclear what provisions will be included in the separate bill or whether it will have sufficient support to move forward in the Senate.

Write to Ryan Tracy at [email protected] and Andrew Ackerman at [email protected]


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