Bipartisan Bank-Relief Bill Wins Approval From Senate Panel

(Bloomberg) -- A key U.S. Senate panel has cleared a bill that could bring financial firms a significant chunk of the regulatory relief they've sought since the Dodd-Frank Act became law in 2010.

Bipartisan legislation advanced Tuesday by the Senate Banking Committee would revise many parts of the sweeping 2010 overhaul, particularly those pertaining to small and regional banks. It would free midsize lenders from some of the strictest post-crisis oversight and cut compliance costs for community banks. It also includes some tweaks that Wall Street has sought, including a change to how banks classify municipal bonds.

The bill sponsored by Senator Mike Crapo, the Idaho Republican who leads the banking panel, has backing from several Democrats. That support from across the aisle means the proposal represents the financial industry's best hope in years of dialing back rules that it blames for inhibiting lending and needlessly increasing the cost of doing business.

“The underlying goal of the legislation is one I have long advocated: easing the burden for the banks that pose less risk and cost to the financial safety net and ultimately to the taxpayer while enabling stronger economic growth,” Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig said in a statement in which he proposed refinements that lawmakers should consider.

House Bill

Tuesday's vote moves the bill to the full Senate, where it will need to gain approval before it can be merged with a measure from the U.S. House. Representative Jeb Hensarling, the Texas Republican who leads the Financial Services Committee, has won House passage of legislation that goes far beyond Crapo's in making changes to Dodd-Frank, like gutting the Consumer Financial Protection Bureau and repealing Volcker Rule trading restrictions. Democrats who signed onto Crapo's bill would be unlikely to agree with Hensarling's plan, which passed the House in a party-line vote.

The Senate bill would raise to $250 billion from $50 billion the asset threshold for banks to be subjected to stricter Federal Reserve supervision for systemically important financial institutions. 

American Express Co., BB&T Corp., KeyCorp and other companies freed from the higher compliance costs associated with being deemed too big to fail would still be subject to some Fed requirements, such as stress tests to assess whether they can endure severe economic slumps. Other regional banks, including Capital One Financial Corp., U.S. Bancorp and PNC Financial Services Group Inc. wouldn't escape SIFI designation with the higher threshold and would still face tighter scrutiny than their smaller rivals.

Municipal Bonds

Crapo's legislation also gives firms like JPMorgan Chase & Co. and Citigroup Inc. more incentive to invest in municipal bonds by letting them count the securities in required stockpiles of assets that could be sold to provide funding in a crisis.

Custodial banks such as State Street Corp. and Bank of New York Mellon Corp. would see relief from some capital requirements. JPMorgan and Citigroup, which also have large custody units, wouldn't benefit from that provision.

Under the Senate plan, banks with less than $10 billion in assets would be exempt from the Volcker Rule restrictions on making market bets with their own capital. The measure also would scrap a Volcker provision that restricts hedge funds from sharing names with affiliated banks. BlackRock Inc., the world's largest asset manager, is among firms that have lobbied for such a change.

“These reforms make progress toward Treasury's core financial principles released in June and demonstrate bipartisan support to re-balancing our regulatory framework,” Joseph Otting, who was sworn in last week as Comptroller of the Currency, said in a statement. “I look forward to working with the members of the committee and fellow regulators to continue this work in the weeks and months ahead.”

The Senate panel's action shows that lawmakers from both parties can come together to make “common-sense improvements” to financial regulation, according to Financial Services Roundtable Chief Executive Officer Tim Pawlenty.

Even with bipartisan support, Crapo's bill still faces hurdles to becoming law anytime soon. Republican leaders in the Senate are far more focused on their massive effort to overhaul tax policy, and lawmakers are also in negotiations over spending legislation to avert a government shutdown.

--With assistance from Jesse Hamilton

To contact the reporter on this story: Elizabeth Dexheimer in Washington at edexheimer@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

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