Partisan rancour hits regulatory bill

The launch of the most serious attempt at financial reform since the Dodd-Frank act quickly descended into partisan backbiting in Congress on Tuesday, diminishing the chances of substantive change.

Republicans unveiled a draft bill that they said would lighten the burden of regulation for small and medium-sized banks, but Democrats criticised it as a grab bag of unacceptable measures that would help much bigger banks.

The bill emerged from months of deliberation by Senator Richard Shelby, who became chairman of the Senate banking committee when Republicans took control of Congress at the start of this year.

But with both sides accusing the other of being unwilling to work together, the day turned into another reminder that cross-party consensus remains as scarce as it has been for several years.

Sherrod Brown, the top Democrat on the banking committee, said the bill would undermine important financial safeguards put in place to prevent a repeat of the last financial crisis.

"This sweeping proposal holds Main Street financial institutions hostage to a partisan effort to dismantle Dodd-Frank's consumer protections and sensible rules for the large banks and non-banks that played central roles in the financial crisis," he said.

Democratic staff said one of the proposed changes would reduce the liability risks that the US's biggest banks were exposed to by their mortgage lending.

Republicans offered a contrary take on the bill. Asked if it contained anything for the biggest Wall Street banks, a Republican committee staffer said: "There are no big bank asks or meetings. Not a factor in this process."

Mr Shelby said: "This discussion draft is a working document intended to initiate a conversation with all members of the committee who are interested in reaching a bipartisan agreement to improve access to credit and to reduce the level of risk in our financial system."

Republican staffers said that Democrats had repeatedly spurned opportunities to engage in substantive discussions over the drafting of the bill.

Democratic staffers said they agreed with Republicans on the need to lighten regulations on small community banks, but asked why Mr Shelby had put so many other measures in his bill that were obviously unacceptable to them.

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For community banks - commonly defined as those with assets of less than $10bn - the bill would make it easier for them to offer mortgages, exempt them from the Volcker rule on derivatives trading, and reduce the frequency of on-site inspections by regulators.

For medium-sized institutions, the bill proposes to raise a threshold above which banks are designated as systemically important and become subject to tougher regulation, including stress tests and higher capital requirements.

The threshold would go up from $50bn in assets to $500bn, but regulators would retain the discretion to designate banks in the $50bn-500bn bracket depending on their interconnectedness, complexity and cross-border activity.

A Democratic staffer complained that the proposal had the potential to let State Street and BNY Mellon escape tougher US regulation, even though both have been designated as systemically important by global regulators at the Financial Stability Board.

The bill also includes provisions to increase the transparency of monetary policy making at the Federal Reserve by requiring the central bank to send Congress a quarterly report explaining the data and models used to reach policy decisions.

A Republican staff member said the Fed had not asked for any of the proposed changes.

Wall St banks have been cautious in Washington since a huge backlash sparked at the end of last year by their success in using a budget bill to water down a Dodd-Frank provision on derivatives.

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