The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com and polo.rocha@spglobal.com.
On Capitol Hill
The U.S. Senate is expected to vote the week of March 5 on a package bill suggesting a wide range of changes to the postcrisis Dodd-Frank financial regulatory framework. The "Economic Growth, Regulatory Relief, and Consumer Protection Act," or S. 2155, appears to have enough support from Democrats to defeat a 60-vote filibuster. Twelve Democrats and one Independent are listed as co-sponsors for the bill.
Lawmakers, lobbyists and advocacy groups sought to reignite the debate over the proposed legislation, which among other things would raise the asset threshold for enhanced prudential regulation from $50 billion to $250 billion and provide a regulatory off-ramp for low-leveraged banks with less than $10 billion in total assets.
Members of the Senate Banking, Housing and Urban Affairs Committee took the opportunity to press Federal Reserve Chairman Jerome Powell on the pros and cons of the bill during his testimony March 1.
But if Powell had any concerns with the bill, he did not share them. Instead, he said the bill gives the Fed "the tools we need to continue to protect financial stability." The Fed, he added, is also "very capable" of determining which banks with less than $250 billion in assets still pose systemic risks. The package legislation includes a provision that would give the Fed the discretion to continue applying enhanced prudential standards to companies between $100 billion and $250 billion in size by total assets.
The bill appears to have strong support on the Republican side, but has effected a noticeable rift among Democrats. Moderates like Sens. Mark Warner of Virginia and Heidi Heitkamp of North Dakota helped engineer the bill, but Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts have been outspoken opponents to the bill, which they see as weakening critical postcrisis protections imposed on the banking industry.
Brown's office released letters from several prominent financial regulators from the past, all expressing concern over some pieces of the bill. Former Fed Chair Paul Volcker wrote that raising the threshold to $250 billion would "go too far" while former Fed Governor Sarah Bloom Raskin worried that the bill would "remove necessary guardrails" put in place to prevent large banks from drawing on U.S. bailout funds.
House Deputy Whip and North Carolina Republican Patrick McHenry told bankers Feb. 26 that he expects the Senate to pass the bill, after which the House "have enough votes to process that really quickly." McHenry predicted full passage by August. Compass Point analyst Isaac Boltansky wrote March 2 that there is a 90% chance of enactment for the bill.
On the House side, the Financial Services Committee passed legislation Feb. 27 that would require a federal banking agency to conduct a forward-looking assessment of potential losses before applying any operational risk capital requirements. Missouri Republican Blaine Luetkemeyer, who introduced the bill, says the legislation would force regulators to calculate reserve capital tailored to each individual institution.
At the Fed
Stocks dropped Feb. 27 after Powell testified in the House, indicating that his comments may have spooked equity investors a bit as they anticipated further interest rate increases from the Fed. But he dialed back his hawkish tone on March 1, when he said in a Senate hearing he sees "no evidence that the economy is currently overheating."
Powell also said the Fed's Board of Governors is "eager" to have its four vacant seats filled. The Fed's vice chairman spot, for example, is still empty, though the White House reportedly has a front-runner in Richard Clarida, an economist at Pacific Investment Management Co. LLC.
Meanwhile, former Fed Chair Janet Yellen was interviewed by her predecessor, Ben Bernanke, at a Brookings Institution event. Yellen said a re-think of the Fed's inflation target might be helpful and that its quantitative easing program worked to bring down long-term interest rates, countering a new study that questions its effectiveness.
Other News
Federal Deposit Insurance Corp. Chairman Martin Gruenberg has not made up his mind about whether or not he will stay on the board once his designated-successor, Jelena McWilliams, replaces him.
"As you know my term on the board is the end of this year, and frankly I'm still trying to figure that one out, so stay tuned," Gruenberg said Feb. 27.
At the other bank regulatory agencies, Comptroller of the Currency Joseph Otting said he has no issues with well-capitalized firms doing leveraged lending while the Consumer Financial Protection Bureau happily agreed to a government auditor's recommendation to review the burden of its own regulations on community banks.

