Senate was unable to agree to consider any amendments beyond Crapo's substitute; bipartisan Senate coalition appears unlikely to accept any House effort to expand bill

The Senate on March 14, 2018, passed, 67-31, the "Economic Growth, Regulatory Relief and Consumer Protection Act" (S. 2155), a bipartisan package of financial regulatory relief measures sponsored by Senate Banking Committee Chairman Mike Crapo (R-ID). Among other provisions primarily aimed at providing relief for smaller banks and credit unions, the bill would raise the 2010 Dodd-Frank Act's asset threshold — above which banks are considered "SIFIs" and are subject to an "enhanced supervision" regime of capital, leverage and liquidity rules supervised by the Federal Reserve — from $50 billion to $100 billion The threshold increases further to $250 billion, 18 months after the bill's enactment.

Attached with this Alert please find PDFs of the text of Sen. Crapo's substitute "manager's amendment" to S. 2155, as well as a Congressional Research Service (CRS) report discussing the bill. Earlier Wednesday, the Senate voted 67-31 to adopt the substitute. (Please see a previous Tax Alert for a summary of provisions included in the substitute amendment.) The Senate later voted, also by 67-31, to invoke cloture on the underlying bill, ending debate.

Although the Senate debated the bill on the floor for a week and a half and more than 100 amendments were submitted by senators, Republican and Democratic leaders were unable to reach agreement on a group of amendments to consider, and in the end the only amendment to be voted on was Sen. Crapo's substitute.

'We can work together.' On the floor, Sen. Crapo said the bill's success "shows that we can work together and can do big things that make a big difference in the lives of people across this country." His March 8 floor statement is here. Among the bill's critics, Banking Committee Ranking Member Sherrod Brown (D-OH), who had tried to negotiate a version of the bill with Crapo before giving up last year, gave a floor statement saying the bill "threatens to undo important rules protecting us from risk" and "again puts taxpayers on the hook for bailouts." But Heidi Heitkamp (D-ND), one of the moderate Banking Committee Democrats who helped assemble S. 2155 with Sen. Crapo, retorted on the floor, "I don't recognize the bill that's being debated here … because it's not the bill that's been written … They don't understand where we live. They don't understand who we are. They don't understand we live in communities and that we support and protect each other. Instead, they write one regulation that's supposed to be one-size-fits-all."

In addition to Angus King (I-ME), the 16 Democratic senators who supported the bill through a series of votes this week were Sens. Michael Bennet (CO), Tom Carper (DE), Chris Coons (DE), Joe Donnelly (IN), Maggie Hassan (NH), Sen. Heitkamp (ND), Doug Jones (AL), Tim Kaine (VA), Joe Manchin (WV), Claire McCaskill (MO), Bill Nelson (FL), Gary Peters (MI), Jeanne Shaheen (NH), Debbie Stabenow (MI), Jon Tester (MT) and Mark Warner (VA).

House prospects. After the bill's passage in the Senate, House Financial Services Committee Chairman Jeb Hensarling (R-TX) released a statement congratulating Sen. Crapo and the Senate "for putting together and passing a package of helpful bipartisan banking bills. I look forward to combining them with our helpful House bipartisan banking bills and getting that combined bill to the president's desk. We must provide much-needed regulatory relief to our community financial institutions so they can help finance homes, cars, small businesses, and our constituents' American dreams." Hensarling last week had expressed disappointment that Crapo's substitute amendment had incorporated only eight House bills; he released a list of 29 additional bills that he said the House could add to the Senate bill.

Hensarling told Politico on Wednesday, "My job is to represent the House, and we've got a lot of good bills that we want to talk to the Senate about. I'm surprised that anybody thought we'd merely rubber-stamp their product." Hensarling also told The Hill newspaper last week, "Those bills that get bipartisan support, we expect to be in the final package. I don't know any other way to put it." But the Democrats who worked with Sen. Crapo on the package have expressed skepticism that they would support a bill that becomes substantially larger in the House. Sen. Heitkamp told reporters last week, "There will be tremendous pressure on the House to not sink any kind of compromise between this and the CHOICE Act," referring to a more comprehensive repeal of Dodd-Frank that the House passed in June 2017. "I think that would be folly."

Selected provisions of S. 2155

SIFI asset threshold for banks raised to $250 billion. The bill's key feature would raise the SIFI asset threshold for enhanced supervision of a bank by the Federal Reserve from $50 billion to $100 billion, and later (18 months after enactment) to $250 billion, which would benefit a group of about 25 regional and "midsize" banks. But the Fed would retain the authority to apply enhanced prudential standards to any bank with more than $100 billion in assets after the effective date, if the Fed judges that's necessary, and would be required to conduct a "periodic" supervisory stress test of those banks.

QM rule, HMDA reporting, Volcker rule. The bill would extend safe harbor status under the CFPB's Qualified Mortgage rule (QM) to loans held in portfolio by small lenders; provide substantial relief to smaller banks from the Home Mortgage Disclosure Act (HMDA) loan-data reporting requirements; simplify the capital regime for highly capitalized community banks; and exempt banks with less than $10 billion in total assets from the Volcker rule, which prohibits banks from engaging in proprietary trading for their accounts or owning private funds. A bank would also be exempt from the Volcker rule if its total trading assets and liabilities are less than 5% of its total assets.

Muni bonds, custody banks. The bill would ease the current liquidity and leverage rules, directing regulators to treat qualifying investment-grade, liquid and readily marketable municipal securities as level 2B liquid assets under the liquidity coverage ratio (LCR). The bill also specifies that funds of a custodial bank that are deposited with the Fed should not be taken into account when calculating the supplementary leverage ratio (SLR).

Among many other provisions, the bill would also:

?— Establish a "Community Bank Leverage Ratio" (tangible equity to consolidated assets) of between 8% and 10% for depository institutions with less than $10 billion of assets.

— Provide a range of relief from mortgage regulations for institutions with less than $10 billion in assets, including easing Dodd-Frank "risk retention" rules that require banks to retain a portion of mortgages on their own balance sheet. The bill would classify those loans as Qualified Mortgages (QM) under Dodd-Frank. S. 2155 also removes a three-day waiting period for new integrated mortgage disclosures if a creditor extends to a consumer a second offer with a better interest rate.

— Allow banks with less than $5 billion in assets to file short-form call reports; raise the asset threshold for the small-bank holding company policy statement from $1 billion to $3 billion; and extend the exam cycle for well-managed banks with less than $3 billion in assets to 18 months. The bill would also change how the FDIC treats reciprocal deposits, no longer requiring banks to request a waiver for them if they fall from "well capitalized" to "adequately capitalized."

— Require the three credit reporting agencies to offer consumers an unlimited number of free credit freezes and unfreezes each year; this provision was billed as a response to the massive data breach at Equifax last year. Veterans' credit reports would have to exclude their medical debt. (Sen. Crapo's substitute amendment also included additional consumer protections for veterans and student borrowers.)

— Allow an institution or mortgage originator to sell, assign, loan or transfer a residential mortgage loan to a wholly owned subsidiary, if the loan is considered an asset of the covered institution; and require federal banking agencies to consult with state bank supervisors before implementing the bill's changes to community bank capital rules.

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ATTACHMENTS

Manager's Amendment

CRS Report