WASHINGTON (AP) — House Republicans headed toward a vote Thursday on dismantling sweeping financial rules established under President Barack Obama that were designed to head off economic meltdowns like the one that caused millions of Americans to lose their jobs and homes during the Great Recession.
Republicans are arguing that the many requirements imposed under what is known as the Dodd-Frank Act have actually harmed economic growth by making it harder for consumers and businesses to get credit.
"At the end of the day, Dodd-Frank didn't help Main Street. It actually made it harder for many on Main Street," said Rep. Cathy McMorris Rodgers, R-Wash.
Democratic lawmakers are overwhelmingly opposed to the bill, which also faces major obstacles in the Senate. They argue that Dodd-Frank, which became law after the 2008-09 economic meltdown, has brought financial security to millions of Americans and that undoing it will encourage the kind of risky lending practices that invites future economic shocks.
They also oppose provisions that would strip away a consumer protection agency's authority to go after companies that it determines have participated in unfair or deceptive practices in their financial products and services. The agency has returned $29 billion to 12 million consumers who were victims of deceptive marketing, discriminatory lending or other financial wrongdoing.
"You're ignoring the past and you're endangering the future of millions of Americans," Rep. Louise Slaughter, D-N.Y. said of Republicans. "Dismantling the law will force consumers to go it alone against Wall Street."
The Republican-led overhaul of Dodd-Frank was crafted by Rep. Jeb Hensarling of Texas, the chairman of the House Financial Services Committee. His bill targets the heart of the law's restrictions on banks by offering a trade-off: Banks could qualify for most of the regulatory relief in the bill so long as they meet a strict basic requirement for building capital to cover unexpected big losses.
The bill also repeals a prohibition knows as the Volcker Rule that bans banks from engaging in propriety trading or forming certain relationships with private equity funds. It rolls back a proposed rule that investment advisers put their clients' interests ahead of their own. Also, financial regulators would lose the power to dismantle a failing financial firm and sell off the pieces if they decide its collapse could endanger the system. Instead, the bill would create a new chapter in the bankruptcy code that failing banks would enter.
In a report on regulatory reform, the Federal Reserve described the U.S. banking system as much more robust and resilient than it was before the financial crisis. Stronger capital requirements have improved their capacity to absorb economic shocks. But in the push to overhaul Dodd-Frank, Republicans are arguing that the biggest banks have only gotten bigger while local banks and credit unions are dwindling away.
"We're losing a small bank or credit union a day and they're not dying of natural causes," Hensarling said. "They're dying of Dodd-Frank's regulatory burden. They are being crushed by it."
The Federal Reserve counted 5,031 commercial banks as of May 1. That's down from 6,750 in the third quarter of 2010, shortly after Dodd-Frank was enacted. The consolidation trend, however, far precedes Dodd-Frank. In the first quarter of 1984, there were 14,400 commercial banks in the U.S.
While Republicans are expected to give the Financial Choice Act enough of a margin to pass the House, the Senate is a much tougher hurdle. A 60-vote threshold for legislation to move forward to a final vote means that Republicans would need to pick up at least eight Democratic supporters.
Sen. Mike Crapo, the Republican chairman of Senate panel with jurisdiction over banks, said lawmakers have requested ideas on how to improve the economy from all stakeholders and that "Dodd-Frank is clearly a part of that." The ranking Democratic member of the committee, Sen. Sherrod Brown of Ohio, said "there are a lot of things we want to do to make Dodd-Frank better, but not wholesale sellout to Wall Street, which is what they want to do."