On Tuesday, the House is scheduled to vote on the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), introduced by Chairman Mike Crapo (R-Idaho). This bill provides targeted exemptions for smaller banks from various Dodd-Frank regulations put in place after the housing market collapse and financial crisis in 2008.
In the wake of the crisis, Congress rushed to pass the Dodd-Frank Act under the guise of “consumer protection.” Instead of addressing the root causes of the financial crisis—such as the government's reckless federal mortgage guarantee and insurance subsidy programs, or ending taxpayer bailouts to large financial institutions—Dodd-Frank entrenches the very regulatory environment that led to the financial crisis in the first place.
Along with imposing thousands of pages of new rules and regulations on the financial industry, Dodd-Frank codifies “too big to fail” policy, runs local community banks out of business, restricts access to credit for investors and homebuyers, raises lending costs, and reduces access to capital for small businesses. Evidence shows Dodd-Frank is one of the major factors responsible for the historically slow economic recovery during the Obama administration.
Unlike the House-passed Financial CHOICE Act (H.R. 10), S. 2155 does not repeal portions of Dodd-Frank. However, it does include several major concepts from the CHOICE Act and is a major first step in undoing the disastrous regulations imposed by the Obama-era law. According to Dr. Norbert Michel, Director of the Center for Data Analysis at the Heritage Foundation, the main regulatory changes in the bill include:
- Limited regulatory off-ramp for some banks with less than $10 billion in total assets;
- Safe harbor for ability to repay rules (for some banks);
- Volcker Rule relief (for some banks);
- Limited stress testing relief; and
- Nominally higher Systemically Important Financial Institution (SIFI) threshold.
A good first step, S. 2155 provides much-needed relief to local community banks who have been suffocating under Dodd-Frank. By passing this bill, Congress sends a clear message to the American people that Dodd-Frank was not the right answer to the financial crisis, and more work remains to provide regulatory relief. Dr. Michel made this point abundantly clear in his statement when the bill passed the Senate:
The banking bill approved by the Senate last night is a good first step toward loosening and undoing the overbearing regulations imposed on small banks, but make no mistake, this bill must not be the ending point, but the beginning . . . Only a complete revamping of Dodd-Frank and the regulatory framework that predates it will prevent another crisis like the one that occurred in 2008 and will ensure that American taxpayers aren’t on the hook to bailout Wall Street in the future.
Many of the provisions in S. 2155 were initially passed by the House, and their inclusion was a welcome addition to the committee-approved package. Heritage Action looks forward to additional legislative action on other House-passed bills that address the fundamental failures of Dodd-Frank.
Please note: Heritage Action will also include Senate Vote 54, passage of S. 2155, on the legislative scorecard.
Heritage Foundation: The Case Against Dodd-Frank (2016)
Heritage Foundation: The Macroeconomic Impact of Dodd-Frank-and of Its Repeal (2017)
Heritage Action: Key Vote: “YES” on the Financial CHOICE Act (H.R. 10) (2017)
Heritage Foundation: Financial Regulatory Reform in the House and Senate: A Brief Comparison (2018)
Heritage Foundation: Senate “Reform” Bill Would Barely Change Dodd-Frank (2018)
Heritage Foundation: Crapo Bill Helps Smaller Banks, Highlights Problems With Bank Holding Companies (2018)
Heritage Foundation: Heritage's Norbert Michel on Passage of Senate Banking Bill (2018)