With Democratic support, Senate eyes rollback of banking law
Ten years after a financial crisis rocked the nation’s economy, the Senate is poised to pass legislation that would roll back some of the safeguards Congress put into place to prevent a relapse. The move to alter some key aspects of the Dodd-Frank law has overwhelming Republican support and enough Democratic backing that it’s expected to gain the 60 votes necessary to clear the Senate. Several Democratic lawmakers facing tough re-election races this year have broken ranks with Minority Leader Chuck Schumer, D-N.Y. and Sen. Elizabeth Warren, D-Mass. The legislation would increase the threshold at which banks are considered too big to fail. Such banks are subject to stricter capital and planning requirements, and lawmakers are intent on providing them relief in hopes that it will boost lending and the economy. Banks have long complained about the cost of complying with the many requirements of Dodd-Frank. Under the Senate bill, some of the nation’s biggest banks would no longer have to undergo an annual stress test conducted by the Federal Reserve. The test assesses whether a bank has enough capital to survive an economic shock and continue lending. Dozens of banks would also be exempted from making plans called “living wills” that spell out how the bank will sell off assets or be liquidated in a way that won’t create chaos in the financial system. The House version of the bill is a “recalibration” of Dodd-Frank to help community banks and credit unions increase their capitalization, the Financial Services Committee chairman said Tuesday. “A community bank that’s 0.002 percent the size of J.P. Morgan shouldn’t be laboring under a similar set of regulatory burdens,” Texas Republican Rep. Jeb Hensarling said. The Senate legislation increases from $50 billion to $250 billion the threshold at which banks are considered critical to the system. The change would ease regulations on more than two dozen financial companies, including BB&T Corp., Sun Trust Banks Inc. and American Express. Opponents of the bill argue that the same banks getting regulatory relief through the Senate bill also got about $50 billion in taxpayer-funded bailouts during the financial crisis. They note Countrywide Financial, which was at the center of the mortgage crisis, was smaller than some of the banks targeted for relief now. “There is no reason at all to roll back the rules on these big banks so they can pad their pockets even more – and cut them loose to take on wild risks again,” wrote Warren, who before joining the Senate led a congressional oversight panel for the bailout programs. The Senate bill emerged from lengthy negotiations between Sen. Mike Crapo, the Republican chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Democratic members on the committee. The ranking Democrat, Sen. Sherrod Brown of Ohio, said the changes go too far and he walked away. But many Democrats stayed on board, and the bill has 13 Republican and 13 Democratic or independent co-sponsors, a rare level of bipartisanship for substantive legislation in the current Congress. By contrast, the House effort to roll back Dodd-Frank didn’t generate a single Democratic vote in support. Commercial banks are major players on Capitol Hill, spending $66 million on lobbying Congress last year and $44 million on federal election campaigns in the previous election cycle, according to the Center for Responsive Politics, which tracks campaign spending. About two-thirds of the money went to Republican campaigns and about a third to Democratic campaigns. This cycle, commercial banks have targeted their campaign donations to major players on committees with jurisdiction over banking issues, including the incumbent senators in competitive races: Among the top 10 recipients of commercial bank donations are Democratic Sens. Heidi Heitkamp of North Dakota, Joe Donnelly of Indiana, Jon Tester of Montana and Republican Sen. Dean Heller of Nevada. All four are co-sponsors of Crapo’s bill. Crapo said the Federal Reserve will have the authority to tailor tougher capital and liquidity requirements for individual banks when it believes it’s necessary. For the others, compliance costs should drop. “It’s going to free up a phenomenal amount of capital in this country that right now for no good reason, no safety or soundness reason, is being held back,” Crapo said. The Federal Reserve conducts annual stress tests of banks with $50 billion or more in assets. Under the Senate bill, banks with under $100 billion in assets won’t have to undergo the Fed’s yearly test. Banks with between $100 billion and $250 billion in assets will be exempted from the yearly stress test after 18 months. The Federal Reserve will have authority to accelerate the exemption or extend it. Federal Reserve Chairman Jay Powell seemingly endorsed that approach when he appeared before the Senate’s banking committee last week. “I think it gives us the tools that we need to continue to protect financial stability,” Powell said of the bill. The largest dozen or so banks in the country will still have to undergo the yearly test. The bill also exempts banks with less than $10 billion in assets from what is referred to as the Volcker Rule, which limits banks from using their own capital to trade the markets. Republished with permission from the Associated Press.
Terri Sewell votes against bill aimed at reversing Dodd-Frank financial regulations
The U.S. House of Representatives voted Thursday to deliver on their promise to repeal Dodd-Frank — the sweeping set of financial regulations imposed on Wall Street that former President Barack Obama signed into law following the 2008 financial crisis. H.R. 10: the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act is intended to end taxpayer-funded bailouts of Wall Street banks and create more opportunities for Americans on Main Street, but the Alabama delegation’s sole Democrat, 7th District U.S. Rep. Terri Sewell, says the bill would actually “eliminate consumer protections designed to deter abuse by predatory lenders and large financial institutions.” “I voted against the Wrong CHOICE Act because it erases financial protections for American families and eliminates the safeguards enacted to protect against another financial crisis,” said Sewell. “In Alabama, we all remember the devastating impact the recession had on families in our communities.” Sewell continued, “Between the home foreclosures, rising unemployment, and the families whose dreams were stripped away to pay for Wall Street’s mistakes, it is hard to forget. It is unacceptable that only a decade later, Congress is rolling back key financial reforms enacted under the Obama Administration. We cannot go back to a time when predatory lenders and other bad actors abused consumers and brought our economy to the brink of collapse.” The remainder of the Alabama delegation voted in favor of the bill, which passed the House 233-186 along party lines.
Fed is likely to leave rates alone at a time of uncertainty
At some point in the coming months, the Federal Reserve is widely expected to resume raising interest rates. Just not quite yet. On Wednesday, the Fed will likely end its latest policy meeting with an announcement that it’s keeping its benchmark rate unchanged at a time of steady economic gains but also heightened uncertainty surrounding the new Trump administration. In its statement, the Fed will likely acknowledge that the economy has continued to move toward the central bank’s dual goals of full employment and annual inflation of roughly a moderate 2 percent. But the Fed is nevertheless expected to signal that it wants more time to monitor the economy’s performance and that it still expects those rate increases to occur gradually. “We are moving in the direction of more rate hikes this year, but the January meeting is not where that will start,” said David Jones, chief economist at DMJ Advisors. At the moment, most economists foresee no rate increase even at the Fed’s next meeting in March, especially given the unknowns about how President Donald Trump‘s ambitious agenda will fare or whether his drive to cancel or rewrite trade deals will slow the economy or unsettle investors. It’s always possible that the central bank could surprise Fed watchers Wednesday by sending a signal that a rate hike is coming soon. In Fed parlance, that signal could be as slight as changing language in its statement to say “near-term risks to the economic outlook appear in balance,” instead of “roughly in balance,” the phrase it has been using. The statement will not be accompanied by updates to the Fed’s economic forecasts or by a news conference with Chair Janet Yellen, both of which occur four times a year . Last month, the Fed modestly raised its benchmark short-term rate for the first time since December 2015, when it had raised it after keeping the rate at a record low near zero for seven years. The Fed had driven down its key rate to help rescue the banking system and energize the economy after the 2008 financial crisis and the Great Recession. When it raised rates last month, the Fed indicated that it expected to do so three more times in 2017. Yet confusion and a lack of details over what exactly Trump’s stimulus program will look like, whether he will succeed in getting it through Congress and what impact it might have on the economy have muddied the outlook. And while Trump’s tax and spending plans are raising hopes for faster growth, his proposals to impose tariffs on such countries as China and Mexico to correct trade imbalances could slow the economy if U.S. trading partners retaliate and collectively impede the flow of imports and exports. “The Fed is unlikely to signal intentions to raise rates as early as March given the heightened uncertainty about the timing and scope of fiscal and protectionist policies,” said Sal Guatieri, senior economist at BMO Capital Markets. Nariman Behravesh, chief economist at IHS Markit, predicts that the economy will grow a modest 2 percent to 2.5 percent this year, before accelerating next year to 2.6 percent to 2.7 percent on the assumption that Trump’s policy proposals will have begun to take full effect by then. The outlook for both years would mark an improvement over the economy’s lackluster growth of 1.6 percent in 2016, its weakest performance since 2011. Even though economic growth, as measured by the gross domestic product, was underwhelming last year, the job market appears close to full health. Hiring was consistently solid in 2016, and the unemployment rate ended the year at 4.7 percent, just below the 4.8 percent level the Fed has identified as representing full employment. And inflation, by the Fed’s preferred measure, rose 1.6 percent in the 12 months that ended in December, moving closer to the Fed’s 2 percent goal. Republished with permission of The Associated Press.
Regions Bank fined $7.5 millon for illegal overdraft fees
The Consumer Financial Protection Bureau has issued an order saying Birmingham-based Regions Bank bank illegally imposed overdraft fees on hundreds of thousands of its customers. Since 2010, CFPB regulations have required that banks give checking customers the option to “opt in” to overdraft protection or instead have their card declined once their account had reached zero. Instead, Regions Bank extracted overdraft fees from customers who had wanted their cards declined at the point of sale. The result, according to CFPB, was a whopping $49 million in illegal fees taken from customer accounts in 16 states. According to the release by CFPB Tuesday, “Regions Bank voluntarily reimbursed approximately 200,000 consumers a total of nearly $35 million in December 2012 for the illegal overdraft fees. After the Bureau alerted the bank to more affected consumers, Regions returned an additional $12.8 million in December 2013. In January 2015, the bank identified even more affected consumers and is now required to provide them with a full refund. Under the terms of the consent order filed today, Regions must hire an independent consultant to identify all remaining consumers who were charged the illegal fees. Regions will return these fees to consumers, if not already refunded. If the consumers have a current account with the bank, they will receive a credit to their account. For closed or inactive accounts, Regions will send a check to the affected consumers.” Regions will required to issue refunds to customers affected by the policy, to pay another $7.5 million in fines to CFPB, and to make sure the negative activity is expunged from their credit histories. As part of this enforcement action, CFPB has issued a warning to consumers about the risks of overdraft protection programs. The agency reports that customers who opt into these protections pay higher banking fees and incur more involuntary account closures.
