Trump, Congress finalize deal to roll back some of Dodd-Frank . . . but not as much as they should have

By Dan Calabrese —— Bio and Archives May 24, 2018

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The worst thing to come out of the mortgage market meltdown of 2008 was not the economic impact itself. That was always going to mitigate itself over time. The worst thing was the government power grabs it facilitated, and none have been worse than Dodd-Frank. Named for its two ignominious sponsors, Christopher Dodd and Barney Frank, the law imposed crushing new regulations on banks and their lending activity, actually having the effect of making credit harder to get under reasonable terms. And it treated midsize regional banks like gigantic ones for the purpose of putting them under the control of federal regulators.

Dodd-Frank has been a disaster for financial services and for people looking to access capital under reasonable terms. Donald Trump promised to roll it back if elected, and since taking office he has kept his promise insofar as – while he found the road politically difficult – he has worked hard to get something done by a reluctant Congress. Today, his efforts have paid off, if not as fully as we might have hoped:

The bill cuts regulations for small lenders and raises the asset threshold at which larger regional lenders automatically face stricter rules, adding up to the most significant changes to the 2010 Dodd-Frank law. The plan leaves untouched most of Dodd-Frank’s major planks, such as emergency government powers and curbs on derivatives, an outcome that is expected to cement those provisions for years to come. The story of how the legislation came together, based on interviews with current and former officials, demonstrates how policy makers scaled back their priorities to maintain support for a compromise. “Could it have done more? Sure,” said Rep. French Hill (R., Ark.). “But Sen. Crapo should be congratulated for producing a bill in these partisan times.” A senior White House official said the administration wanted to help smaller lenders and “recognized that this was about as much as we could get.” The bill is one part of the administration’s agenda to roll back Dodd-Frank rules, the official said.

The bill reflects the outline agreed to by Messrs. Crapo and Cohn. It would raise to $250 billion from $50 billion the threshold at which big banks automatically face strict stress tests and other rules. It would also make community banks eligible for relief from mortgage-underwriting standards.

So basically the change makes it easier for smaller community banks to escape the worst of Dodd-Frank’s rules, while allowing more midsize regional banks to operate independent of them. That’s good as far as it goes, although in this era of bank mergers and consolidations, it’s getting harder to find banks who fall under the $250 billion threshold. By the way, this is another example of how much the Senate filibuster hurts the country. There’s no guarantee a better bill – preferably a complete repeal of Dodd-Frank – would have passed the Senate even without the filibuster, since we only have 51 Republicans and some of them are barely that. But it was absolutely impossible with the filibuster, and that forced Sen. Crapo to make a deal with Democrats on a watered-down bill. The bill as it stands is worth supporting. It will make things better for a lot of smaller community banks, and there’s value in banks like that being able to operate successfully. But it’s a shame Dodd-Frank survived at all. The 2008 meltdown provided Democrats with an excuse for a massive federal power grab, and they took full advantage. The fact that it remains the law today is an absolute travesty, but that’s how our glorious United States Senate works.