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10 Years after Financial Crash…Financial Deregulation!

Ten years ago, the subprime mortgage crisis and resulting financial crash had a devastating effect on millions of Americans (and even more worldwide). In 2010, Congress passed new financial regulations (Dodd-Frank) in order to make future financial crises less likely and less severe.

In early March, both the Senate and House celebrated the decennial year of the crash by taking steps to weaken financial regulations to appease big donors.

Under consideration in the Senate is S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. It is neither about economic growth or consumer protection, but rather “regulatory relief”  for the banks that brought you the financial crash.

According to Americans for Financial Reform, S.2155 would be “the largest banking deregulation measure to become law since the 2008 financial crisis by repealing parts of the Dodd-Frank act.”

Although the bill includes a few minor consumer protections, those are greatly outweighed by the provisions of the bill that make a future financial crash and future bank bailouts more likely.

It weakens risk controls at dozens of large banks that collectively received tens of billions in TARP funds, lowers risk capital requirements at “Too Big to Fail” banks like Citibank and Goldman Sachs, significantly weakens mortgage protections, especially for individuals buying manufactured homes and those who are customers of banks with less than $10 billion in assets and lowers protections against racial discrimination in credit markets by creating massive exemptions from the Home Mortgage Disclosure Act.

It should be a no-brainer to oppose this bill, but as Senator Elizabeth Warren (D-MA) noted in a fiery speech against the bill, that’s, unfortunately, not how DC works:

“This bill is a punch in the gut to America’s consumers. If it passes, it will be harder to police banks that sell abusive mortgages, lenders who discriminate against their customers, and giant monopolies that build, sell and offer financing to mobile home buyers.

Only a bunch of bank lobbyists — and their friends in Washington — would call this a consumer protection bill. American families weren’t in the back room when this bill was written. They don’t have millions of dollars in campaign cash to get senators’ attention. They don’t keep an army of lobbyists on their payroll. No, American families are busy going to work, helping the kids with homework and trying to catch up on a thousand things. They are trying to pay off student loans or maybe to save a little for their kids to go to college.

Some are trying to put aside a few bucks for a mortgage.”

The cloture vote yesterday was an overwhelming 67–32. Just over a third of the Senate Democratic Caucus — 17 members — joined Republicans in voting yes.

Many of these Democrats are up for re-election this year in red states. I’m sure their voters were clamoring, just clamoring, for them to pass legislation to enrich Wall Street at the public’s expense.

Democratic Minority Leader Chuck Schumer (D-NY), who voted no, clearly wants the bill to pass, as numerous press reports have made clear. If he wanted to see it fail, he could have exerted pressure on the caucus and whipped against it. Instead, he is happy to see a giveaway to his favorite hometown industry, falsely thinking that the route to victory for red state Dems runs through Wall Street.

The House wanted to get in on the bank deregulation business as well, with the Comprehensive Regulatory Review Act.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires the three federal banking regulators on the Federal Financial Institutions Examination Council — the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency — to conduct a review of all regulations from the Council at least every ten years in order to “identify outdated or otherwise unnecessary regulatory requirements imposed on depository institutions.”

The new bill seeks to change that process in a few significant, and deleterious, ways.

Making reviews more frequent by reducing the time period between them to at least every seven years; expanding the review process to include the National Credit Union Administration and the Consumer Financial Protection Bureau; increasing the analysis to include the impact on payday lenders and debt collectors; requiring regulators to “tailor regulations in regulations related to covered persons in a manner that limits the regulatory compliance impact, cost, liability risk, and other burdens, unless otherwise determined by the Council or the appropriate Federal financial regulator” without also determining the benefits such regulations have for consumers, shareholders, and the economy writ large.

In short, the bill is about greasing the skids for regulatory rollbacks and making it more difficult to issue regulations in the first place by prioritizing the interests of the industry over the public. EGRPRA reviews are already a three-year process, so increasing their frequency would direct federal resources away from enforcement. (As one could easily expect, Republicans aren’t about to increase these regulators’ funding to properly account for the newly assigned tasks.)

The bill is especially harmful to the CPFB, which already has to review its rules five years after they take effect and whose statutory mission focuses on protecting CONSUMERS from financial predation, not predatory financial companies from regulation. It passed 264 to 143. 38 Democrats joined Republicans in voting for it.

Note that Rosen and Sinema are both running for Senate and Lujan Grisham is running for Governor. Bustos and Maloney have positions within the party leadership.

The House passed another financial deregulation bill last week, but that only received 19 Democratic votes (still 19 too many). That bill — H.R.4296 — sought to hamstring financial regulators by creating a statutory mandate that operational risk capital requirements be based “primarily” on a bank’s current activities, not “solely” on historic losses. This despite the fact that a bank’s historic losses are the best foundation for making such decisions.

Americans for Financial Reform captured this point well:

“When a bank engages in misconduct or mismanagement that creates losses, such as the recent illegal activities at Wells Fargo, regulators must be permitted to include those losses in their assessment of bank risks. Creating a statutory requirement that restricts the use of evidence from past behavior and historical losses is a blow against evidence-based policymaking. It would open regulators up to lawsuits if they used clear evidence from the recent past activities and losses of a bank in setting capital requirements.”

The bill passed 245 to 169.

19 Democrats joined Republicans in voting for it, and 3 Republicans joined Democrats in voting against it: Jimmy Duncan (TN-02), Walter Jones (NC-03), and Mark Sanford (SC-01).

People often complain about the lack of bipartisanship in DC. But bipartisanship often looks like this: Republicans and a faction of Democrats joining together to do the bidding of industry against the public. In other words, be careful what you wish for.