U.S. Sen. Jon Tester joined a small group of Democrats in partnering with Senate Banking Committee Republicans to soften regulations supporters said hurt small banks. Opponents called the changes a giveaway for large banks.
The bill, dubbed the Economic Growth and Regulatory Relief and Consumer Protection Act, put red state Democrats like Tester and Heidi Heitkamp of North Dakota at odds with liberal senators like Elizabeth Warren, of Massachusetts, and Sherrod Brown, of Ohio, who expected little economic benefit for consumers.
Tester told the committee that community banks have struggled under banking reforms passed after the 2008 financial disaster, which triggered the Great Recession. Softening the rules, Tester said, would encourage community lending.
Brown, the senior-most Democrat on the committee, said the real spoils of the bill would flow to big banks. He likened the bill to last week’s Senate Republican tax bill, which delivered its biggest perks to the wealthiest Americans.
“Deregulating banks, there’s no evidence this grows the economy any more than giving tax cuts to corporations and cutting their taxes 40 percent, from 35 to 20, is going to mean higher growth,” Brown said. “It doesn’t mean higher wages. We know, what will happen with bank deregulation is executives and shareholders get bonuses and families get stuck with the tab when increased risk taking catches up with Wall Street. This is again, just like the tax bill.”
However, Tester said small charter banks were the winners. He said in Montana those banks need help. The millionaire bank CEOs Brown alluded to don’t exist in Montana’s community banking environment.
“I don’t know what goes on in your zip code, but I do know what goes on in my state,” Tester said. “And when you have 72 banks that were chartered there and now we have 49, and you’ve got different credit unions. I should get the head of Bear Paw Credit Union to come in and talk to us, or the head of Glacier Bank to come in and talk to us about him making millions of dollars — because neither of them do.”
Bank consolidation, technology and population migration are reasons behind Montana’s charter bank trends, but regulation is also part of the equation, Tester said.
The number of bank charters in Montana has declined, the state Division of Banking and Financial Institutions, confirmed for The Gazette on Tuesday. That doesn’t mean Montana community banks aren’t doing well. In 2008, there were 68 bank charters. This month charters numbered 46. The biggest reason for the change was a reorganizing of Glacier Bank, which went from several charters to just one. The change made complying with reporting requirements easier.
Total assets for Montana’s community banks have increased from $18 billion in 2008 to $30 billion.
Tester said softening the regulations would allow community banks to lend more easily.
“I can tell you this is going to allow working families to be able to get loans to be able to buy homes,” Tester said. “Where now they can buy a pickup with no documentation, but they can’t buy a home. This is going to allow small businesses to be able to expand, and this is going to allow entrepreneurs the money to start up businesses. That is the reason we’re doing this, and I can tell you for no other reason.”
The Economic Growth and Regulatory Relief and Consumer Protection Act would allow banks with less than $10 billion in assets to sell minimum-standard mortgages, in some cases without an appraisal. The bill would also allow banks with assets of $10 billion or less to make riskier investments.
The benefit to large banks, decried by Warren and others, was a change in the definition of which banks were systematically important, or "too big to fail," to use a term coined in 2008 as Congress turned to taxpayers to bail out large failing banks the government feared would destroy the economy if they were allowed to crash.
Tester reminded the committee that he voted against the 2008 bank bailout.
Banks considered systematically important currently have $50 billion or more in assets. The distinction places them in the most tightly regulated category. The Economic Growth and Regulatory Relief and Consumer Protection Act would change that asset threshold to $250 billion. For banks in the $100 billion to $250 billion range, the now-mandatory stress tests used to determine the financial health of large banks would be done at the discretion of regulators.
Sen. Warren took to Twitter, accusing Tester and other Democrats siding with Republicans of exposing Democrats to rollback regulations on big banks.
“That’s right: Both GOP AND Democratic Senators are trying to roll back rules for banks that took nearly $50B in taxpayer-funded bailouts. It’s insane. #BankLobbyistsAct,” Warren tweeted.
In committee, Warren and other Democrats proposed the kind of amendments typically used to give opposing lawmakers an unflattering voting record on social issues, such as protecting below-poverty-level college graduates with student loan debt from wage garnishment, or keeping predatory lenders from repossessing soldiers' cars during military deployment.
Tester stuck to his guns, voting no to a few dozen amendments proposed by fellow Democrats. His staff prepared a list of the fact checks to the claims by Warren and others that the bill was ruinous.
All told, there are nine Democrats and Independent Angus King supporting a change to banking regulations. Republicans will need all nine, plus their entire caucus to pass the proposal by year’s end. Five of the Democrats, including Tester, face re-election next year.