Opinion: Senate vote to weaken Dodd-Frank risks another financial crisis
With the 10th anniversary of Bear Stearns’ collapse coming up this week, leave it to Congress to find the perfect way to mark the occasion — by voting for another financial crisis.
This effectively is what the Senate risked late Wednesday in approving, by a vote of 67-to-31, a revision of the Dodd-Frank financial reform law that weakens federal oversight of banks with up to $250 billion in assets.
Sold as a softening of regulations hurting community banks (whose real problem is that bigger competitors provide mortgages, credit cards, and other products and services for less), the Senate bill actually favors huge players such as PNC Financial Services Group PNC, -1.50% and SunTrust Banks STI, -1.67% .
“It’s not any one particular provision in isolation — it’s cumulative,” said Dennis Kelleher, the ex-Wall Street lawyer who now runs the non-profit Better Markets, which advocates tighter financial regulations. “The industry always wants Dodd-Frank to die a death of a thousand cuts, not directly.”
No matter what you’ve heard, this is not remotely a small-business bill. Any bank worth its salt makes a profit of at least 1% of its assets (mostly loans outstanding) per year, and most good ones make significantly more. For even a $10 billion bank, small by today’s standards, that’s $100 million a year.
The “small bank” deregulation in this bill includes provisions to make it easier for sub-$10 billion banks to do deals with hedge funds that use the banks’ own capital. Such banks will get a break from rules requiring them to make reasonable efforts to determine whether mortgage borrowers can afford their homes.
The cosmic joke of Washington’s proceedings is that this save-Appalachia-and-Norman-Rockwell shtick is being deployed to partially deregulate PNC, which made $5.4 billion in profit last year, along with two dozen more of the 38 biggest U.S. banks, Kelleher said.
Worse, advocates of the bill are trotting out arguments long used to justify President Donald Trump’s antics — that elites from the Big City don’t get the troubles of bankin’ down on the farm, jes’ like we don’t unnerstand coal or salsa or whatever weak sauce is being served this week to avoid looking bad, and that heavily donor-influenced Republicans are proposing straight in the face.
This was brought home to me in a spectacularly-rude e-mail conversation this week with a spokeswoman for Sen. Mark Warner, a Virginia Democrat who co-sponsored the bill with support from a lot of other Democrats either from red states, like North Dakota’s Heidi Heitkamp, or from places like Virginia that have deep-red pockets.
Warner’s office passed along an editorial from the Roanoke, Va. newspaper, in the conservative southwestern part of the state, advocating for the bill on the grounds that “a lot of Democrats simply don’t understand rural America.”
I wrote back, noting that since the writer said he didn’t really know what was in the bill, it wasn’t a strong argument. Especially since big banks are dominant even in small towns these days.
That angered Warner’s office. “You can direct your criticisms to [the writer],” the spokeswoman said. “I am sure he will get a kick out of a NYC-based columnist telling him how he can write better editorials about what matters to Appalachia.”
This would be an effective bon mot if only my wife’s family weren’t from southwest Virginia, and if my wife hadn’t gone to Hollins University — in Roanoke.
The top three banks in that area, in fact, are Wells Fargo WFC, -1.62% , Suntrust and BB&T BBT, -1.37% . Seems that rural America likes the cost benefits of scale, too. Which might not be a surprise, since it was the first to cotton to Wal-Mart WMT, -0.71% .
U.S. politics has gotten way too tribal, and way too obnoxious for its tribalism.
One thing Americans can nearly all agree on is that U.S. politics has gotten way too tribal, and way too obnoxious for its tribalism. This misdirection and side-choosing in what should be a fairly technical, straightforward bill about lightening compliance burdens for small banks is the shoot-the-messenger stuff everyone hates.
Happily, in today’s political climate we can expect that a giveaway-to-industry bill like this isn’t craven enough for just one party. In the House, where the legislation goes next, Financial Services Committee chairman Jeb Hensnarling is eager to tack on dozens of amendments. If the failure of Obamacare is any guide, extremism in the House might scuttle this whole, cynical effort.