Democratic infighting over a bipartisan bill that passed in 2018 to roll back part of the landmark Dodd-Frank Wall Street Reform Act is the latest political problem facing Sen. Majority Leader Chuck Schumer (D-N.Y.).
Liberals led by Sen. Elizabeth Warren (D-Mass.) are pushing for a vote on legislation to unwind a key piece of the 2018 law — co-sponsored by Sens. Jon Tester (D-Mont.), Joe Manchin (D-W.Va.) and other Democrats — that gave the Federal Reserve more discretion over how to regulate mid-sized banks.
Both Tester and Manchin both face tough reelection races next year.
Warren and other progressive Democrats say the 2018 bill was part of a broader effort under then-President Trump to lighten regulations on banks, which they say set the stage for the failures of Silicon Valley Bank and Signature Bank.
“Joe Biden says we need tougher bank regulations,” Warren said, arguing that unwinding the 2018 rollback of Dodd-Frank “is exactly that, tougher bank regulations.”
“I haven’t seen anyone else propose anything else that actually gets to the heart of the problem,” she said.
Warren says she wants her proposal — which has 18 Senate Democratic co-sponsors — to reverse the 2018 rollback to get a vote, but Schumer has hinted that he only wants to bring bipartisan legislation to the floor that has a chance of passing.
“We need strong legislation and hopefully we can put something together that’s bipartisan,” Schumer told reporters last week.
On Wednesday, he said “there are currently many proposals that are on the table that are worth considering, but of course every one of them will need bipartisan support to pass.”
Schumer voted against the 2018 rollback, but he doesn’t appear inclined to put his vulnerable Democratic colleagues in a tough political position now.
Several of the Democrats who voted to weaken Wall Street Reform Act before the 2018 midterm election now face reelection races and they don’t necessarily agree that the bill they supported and Trump signed into law put banks and depositors across the country at risk.
In addition to Manchin and Tester, Sens. Tim Kaine (D-Va.) and Kyrsten Sinema (I-Ariz.), who was in the House in 2018, voted for the bill. They are also up for re-election in 2024.
“We’re still looking at the facts, I want to see the facts come in,” said Manchin, one of 13 Democrats who voted to amend the 2010 Dodd-Frank Wall Street Reform Act to give the Federal Reserve more discretion to regulate midsize banks.
Manchin says the bank fees to cover insuring deposits above $250,000 should be put on depositors above the limit — not those with less than $250,000 in deposits at a bank.
“Ninety percent of West Virginians have less than $250,000 [in deposits.] They shouldn’t be paying higher bank fees,” he said.
Manchin said depositors who want Federal Deposit Insurance Corporation (FDIC) coverage for deposits over $250,000 should pay extra.
Manchin said he’s looking at a proposal to raise the $250,000 cap on bank deposits insured by the FDIC but emphasized he doesn’t want constituents in West Virginia who have smaller deposits to pay higher fees.
Sen. Debbie Stabenow (D-Mich.) said she doesn’t regret her vote for the 2018 bill to give the Federal Reserve more regulatory discretion over banks with less than $250 billion in assets.
“There were many provisions in that bill really important for small banks,” she said.
“We were losing small community banks in Michigan that were being closed or consolidated,” she added.
Stabenow challenged Democratic colleagues’ claims that the 2018 Economic Growth, Regulatory Relief and Consumer Protection Act led to the collapse of Silicon Valley Bank and Signature Bank.
“From what I’m hearing from people that really study this, there are other things that caused” the bank failures, she said. “There are other things that caused it. If we’re going to fix it, we should fix the right thing.”
Stabenow said she’s been told that Silicon Valley Bank would have passed the Fed stress test that it would have had to undergo had the 2018 law not eased the requirements of the earlier Wall Street Reform Act.
Sen. Mark Warner (D-Va.), who voted for the 2018 banking reform bill, said he wants to find out more about why Silicon Valley Bank failed before bringing back the stronger requirements for midsize banks that went away under Trump.
“Let’s find out what caused this first,” he said.
Warren said the causes of the bank failures are clear enough.
“We know what happened,” she said. “Surely, there’s no one in America who thinks that easing the regulations made it less likely that this bank would load up on risk, boost short-term profits and then explode.”
Other Democrats agree the softening of banking rules by Congress needs to be revisited.
“I think present events would seem to confirm that fairly forcefully,” said Sen. Sheldon Whitehouse (D-R.I.).
Democrats who aren’t thrilled about wading into an intraparty fight over the 2018 weakening of Dodd-Frank rules say there are other proposals that have a better chance of becoming law, such as raising the $250,000 FDIC insurance limit or require a Senate-confirmed inspector general to oversee the Federal Reserve system.
Schumer on Wednesday said raising the FDIC insurance cap “is a serious proposal and should be carefully studied” but he said the cost should be paid for by banks and not taxpayers.
“It will strengthen smaller banks and prevent depositors from putting their money into larger banks, but on the other hand there is a moral hazard argument, which could have significant impacts on our economy in the long run,” he said.
Warren and Sen. Rick Scott (R-Fla.) introduced legislation to require an inspector general appointed by the president and confirmed by the Senate on the Federal Reserve’s board of governors.
But that proposal is already running into Republican opposition.
“It’s regulators on top of regulators. We’ve already got enough regulators, let’s make sure they’re doing the job,” said Sen. Mitt Romney (R-Utah). “I don’t know that we need someone overseeing the regulators overseeing the banks.”
Republicans are also pushing back on Warren’s call to restore the piece of Dodd-Frank that Congress changed five years ago.
Sen. Mike Crapo (R-Idaho), a senior member of the Banking Committee, says the Federal Reserve had enough authority to regulate Silicon Valley Bank.
“They have broad authority to apply whatever supervisory standards they want to apply,” he said.
“There’s this thing about whether the 2018 reforms to Dodd-Frank took away that authority. That’s just a false argument. The 2018 legislation we did very clearly said that the Fed could put together whatever risk models it needed to put together for every bank of every size,” he said.