Small banks trump Wall Street on Dodd-Frank rewrite

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WASHINGTON: Congress rolled back some of the restraints imposed on banks after the 2007-2009 global financial crisis, but big players like Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co , will not be breaking out the champagne.

While Wall Street banks lobbied hard for a range of provisions that would have weakened the 2010 Dodd-Frank reform law and boosted their profits, they got trumped by their smaller rivals, according to lobbyists, Congressional staff, bankers and disclosure records.

For example, the bill reduces federal oversight of banks between US$50 billion and US$250 billion in assets, and eases lending, capital and trading rules for smaller lenders, but big bank lobbyists and analysts agree it does little to help the nation’s largest lenders.

Large banks sought to raise that oversight threshold to US$500 billion, or adopt a more flexible approach to big bank scrutiny, but small banks fought to fix the cap at US$250 billion, concerned about alienating Democrats whose votes were needed to pass the bill in the Senate.

“We fought anything that would be added to the bill for the mega banks that would jeopardize the effort,” said Paul Merski, executive vice president at the Independent Community Bankers of America (ICBA), the main small bank lobby group, whose members have around US$430 million in assets on average.

“We managed to get this legislation done in spite of the mega banks.” Tuesday’s vote marks a major bipartisan legislative victory for President Donald Trump’s administration, which has promised to spur more economic growth by rolling back regulations.

But while Trump-appointed regulators have been cutting Wall Street some slack in how they apply the rules, the rewrite showed how small banks outmanoeuvred their big rivals on Capitol Hill, where Wall Street is still struggling to shake off its negative image.

One such accomplishment was the change in the bill that eased capital, lending and trading rules based on asset-size limits, rather than by firm type or activities, making it tougher for big banks to sneak in under the radar.

In many cases this was set at US$10 billion.

Dodd-Frank aimed to protect consumers from predatory lenders and mitigate systemic risk, but banks of all sizes have argued its burdens were excessive and have lobbied to reform the law.

Yet since the crisis, small banks have fought aggressively to distance themselves from the ‘too-big-to-fail’ Wall Street titans bailed out to the tune of US$700 billion in 2008.

This tension has sometimes spilled into public view, with JP Morgan Chief Executive Jamie Dimon calling Camden Fine, who retired from his longtime role as ICBA chief this month, a ‘jerk’ during a 2016 TV interview.

Banks’ lobbying gained momentum after Republicans took control of Congress and the White House in 2016, but it was community banks which were able to wage a grassroots campaign to win over sceptical Democrats and secure their votes. — Reuters