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ICYMI: Hensarling's Dodd-Frank overhaul draws skepticism from some banks


Washington, Jun 7 -


By Zachary Warmbrodt

House Financial Services Committee Chairman Jeb Hensarling’s proposal to replace the Dodd-Frank law is drawing cheers from small lenders who stand to gain from the plan, but the broader banking industry is signaling skepticism.

Hensarling (R-Texas) traveled to New York on Tuesday to unveil the plan in a speech, answer questions from the public and then meet with presumptive Republican presidential nominee Donald Trump to discuss the proposal.

Trump’s campaign offered no comment. But several banking industry representatives suggested privately that they are keeping their enthusiasm in check for a plan that would allow them to avoid some regulations enacted after the 2008 financial crisis if they agreed to maintain much higher capital levels.

Major banks that have spent years trying to shape Dodd-Frank are not eager for a complete rewrite.

“They may be comfortable with a utility profit model,” Hensarling said.

Key parts of Dodd-Frank, including heightened oversight of “systemically important” financial giants and the bank proprietary trading ban known as the Volcker rule, would be stripped away under Hensarling’s plan. The option for regulators to manage the collapse of a mega-bank would be eliminated and replaced with new language giving the courts more tools to do so. A section of the bill is dedicated to undoing regulations for “Main Street and community financial institutions,” including easing the CFPB's mortgage-lending rules.

While Democrats and financial reform advocates cast Hensarling’s plan as a giveaway to Wall Street, there were signs that the nation's biggest banks would not be willing to accept the major tradeoff he proposed: that the lenders would be allowed to escape international capital and liquidity standards if they're willing to meet a stringent, 10-percent capital-to-assets ratio.

Compass Point policy analyst Isaac Boltansky said the largest banks are unlikely to throw their weight behind the plan because it would require raising hundreds of billions of dollars to secure regulatory exemptions. Plus, he said, doing so “would undermine the tens of billions they have already spent to comply with the Dodd-Frank Act."

"No banking organization that includes a securities business will ever qualify for relief under the Hensarling proposal because that would mean holding 10 percent capital against Treasuries and other liquid securities, which is uneconomic,” one banking industry source said.

Officials from other trade groups lauded Hensarling's goals but stopped short of taking a firm position on what he outlined, which has yet to be fleshed out in the form of bill text.

Trump spokeswoman Hope Hicks did not respond to requests for comment. After a meeting in Trump Tower, Hensarling would not share details of their meeting, other than to say in a televised interview on Fox Business that Trump "well-received the message."

"I think he is interested in the policy,” Hensarling said. Prior to the meeting, the Texas Republican said he had “no expectation at the moment” that the real estate developer and entertainer would adopt the proposal. Trump has called for the dismantling of the Dodd-Frank law.

Hensarling's plan has no chance of becoming law this year.

“It’s really hard for Republicans to make a case that it is at all in our economic interest to tear down the reforms that have already done a lot to make our economy stronger and more stable,” White House spokesman Josh Earnest said Tuesday when asked about Hensarling’s proposal.

Small banks, however, did not hesitate to get behind the plan. Cam Fine, president of the Independent Community Bankers of America, said in a statement that Hensarling’s “common-sense” proposal was “bold and forward-thinking” and would free up resources for loans.

Officials from other trade groups lauded Hensarling's goals but stopped short of taking a firm position on what he outlined, which has yet to be fleshed out in the form of bill text.

Trump spokeswoman Hope Hicks did not respond to requests for comment. After a meeting in Trump Tower, Hensarling would not share details of their meeting, other than to say in a televised interview on Fox Business that Trump "well-received the message."

"I think he is interested in the policy,” Hensarling said. Prior to the meeting, the Texas Republican said he had “no expectation at the moment” that the real estate developer and entertainer would adopt the proposal. Trump has called for the dismantling of the Dodd-Frank law.

Hensarling's plan has no chance of becoming law this year.

“It’s really hard for Republicans to make a case that it is at all in our economic interest to tear down the reforms that have already done a lot to make our economy stronger and more stable,” White House spokesman Josh Earnest said Tuesday when asked about Hensarling’s proposal.