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Democrats split as Senate advances major bipartisan Dodd-Frank bill

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Democrats split as Senate advances major bipartisan Dodd-Frank bill

Republican U.S. senators teamed up with a number of moderate Democrats on Dec. 5 to advance a package bill that would reform portions of the postcrisis Dodd-Frank framework, such as doing away with the $50 billion threshold for enhanced prudential standards, despite protests from other Democrats that the bill would loosen the leash on misbehaving banks.

The bill passed the Senate Banking Committee in a 16-7 vote and will now go to the Senate floor for chamber-wide consideration. The bill proposes raising the $50 billion threshold to $250 billion, exempting banks with less than $10 billion in total assets from the Volcker rule, providing a regulatory off-ramp for low-leveraged banks with less than $10 billion in total assets, and removing company-run stress tests for banks under $250 billion in total assets.

During committee markup of the bill, Democratic Sens. Mark Warner of Virginia, Heidi Heitkamp of North Dakota, Joe Donnelly of Indiana and Jon Tester of Montana split from their party to support the bill, arguing that almost 10 years after the financial crisis, smaller community banks need regulatory tailoring.

But Sen. Elizabeth Warren, D-Mass., branded the bill on social media as the "#BankLobbyistsAct" and attacked her fellow Democrats for a deal they "cut behind closed doors."

"These banks need more regulation not less," Warren said.

The moderate Democrats counter that the bill does not change the rules for the largest, most systemic firms such as JPMorgan Chase & Co. and Wells Fargo & Co. They added that key portions of Dodd-Frank, such as the Consumer Financial Protection Bureau, the regulation of derivative trading, and the orderly liquidation authority would remain in place if the bill passes.

The committee's top-ranking Democrat, Sherrod Brown of Ohio, expressed the most concern over the bill's proposed $250 billion threshold and its implications for stress testing, which he described as a "harmful weakening" of financial stability. He proposed an amendment to the bill that would reinstate company-run Dodd-Frank Act stress tests with a provision for targeted relief for banks between $10 billion and $100 billion in total assets.

The amendment failed, but Senate Banking Committee Chair Mike Crapo, R-Idaho, agreed that the $250 billion threshold presented the most difficulty in finding bipartisan agreement.

"I personally would do something different," Crapo told reporters. He later clarified that he preferred removing the enhanced prudential standards threshold entirely in favor of a Federal Reserve-run risk assessment, but was unable to incorporate it into the bill.

For hours, Democrats attempted to alter portions of the bill through amendments, all of which were defeated by Republicans and the bloc of moderate Democrats. Sen. Jack Reed, D-R.I., who was one of the Democrats proposing amendments, worried that the package bill may be the only shot at improving the current financial regulatory regime.

"This might be the only financial legislation moving in this Congress, so we want to make sure we can improve it," Reed said in an interview. Crapo said amendments could be considered when the bill is taken up by the full Senate.

Those in favor of the bill argued that amendments could ruin the balance of bipartisan support that the legislation currently has; five other Democrats and one Independent outside the committee publicly endorsed the bill. Two additional Democrats, Chris Coons and Tom Carper, both of Delaware, announced their support for the bill late Dec. 4. Assuming all 52 Senate Republicans support the bill, the Senate would have the numbers to defeat a 60-vote filibuster.