Senate Banking Markup of Shelby Regulatory Relief Bill
Senate Banking Committee
Mark-up of The Financial Regulatory Improvement Act of 2015
Thursday, May 21, 2015
Key Topics & Takeaways
- Approval: The Financial Regulatory Improvement Act of 2015 was approved along party lines in a 12-10 vote.
- Approved Amendments: The committee approved amendments relating to Operation Coke Point and CFPB examinations.
- Bipartisan Efforts: Chairman Shelby (R-Ala.) stated that the process of putting together the legislation included over 40 bipartisan staff meetings and calls and said the majority attempted to draft a bill that “could and should garner bipartisan support.”
- Mutual Respect: Ranking Member Brown (D-Ohio) said there is mutual respect between himself and Shelby and between the Democratic and Republican staffs, which could “set the table for fruitful negotiations down the road.”
Amendments
- Brown Amendment – Substitute Bill – Not Approved 10-12
- Crapo Amendment – Operation Choke Point – Approved 13-9
- Vitter Amendment – SIPC – Withdrawn
- Vitter Amendment – TBTF – Withdrawn
- Toomey Amendment – OLA – Withdrawn
- Toomey Amendment – GSEs – Withdrawn
- Toomey Amendment – International Designation – Withdrawn
- Toomey Amendment – CFPB Exams – Approved 13-9
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) stated that the process of putting together his bill, the Financial Regulatory Improvement Act of 2015, has included over 40 bipartisan staff meetings and calls and that the majority staff disclosed every issue under consideration to the minority. He said the majority attempted to draft a bill that “could and should garner bipartisan support.” He explained that the eight titles of the bill address areas where regulations are in need of “revision or refinement.”
In his opening statement, Ranking Member Sherrod Brown (D-Ohio) said there is mutual respect between himself and Shelby and between the Democratic and Republican staffs, which could “set the table for fruitful negotiations down the road.” He stated that the Dodd-Frank Act was passed as the country emerged from a financial crisis that resulted from “financial institutions running wild and regulators not doing enough.” Brown warned that Shelby’s bill would “trample” on many Dodd-Frank protections and called it a “one-sided wish list pleasing to special interest groups.”
He argued that the bill would not be signed by President Obama, and instead offered the Democratic alternative that he said the Committee should pass to show it is serious about community bank relief.
Amendments
Brown Amendment – Substitute Bill – Not Approved 10-12
Brown offered an amendment that would substitute the Chairman’s legislation with a more “targeted proposal to help Main Street financial institutions.” He said the amendment “recognizes the importance of relationship lending,” permits lenders of any size to originate loans, and lengthens the examination cycle for small and community banks from 12 to 18 months. Brown said the language would also level the playing field for privately insured credit unions and thrifts, ensure that service members are protected under the Service Member Civil Relief Act, and provide tenant protections to ensure that renters are not evicted without notice if their landlord fails to make mortgage payments.
Shelby said that while he supported the “vast majority” of what was in Brown’s amendment, he disagrees with its scope and because it was “too narrow.”
Sen. Elizabeth Warren (D-Mass.) stressed her opposition to Shelby’s bill but supported Brown’s amendment. She said there is evidence that the Dodd-Frank Act is “beginning to work” and that the financial system “as a whole is safer than it used to be.” Warren said Dodd-Frank is “not perfect” because in many areas it “did not go far enough” and urged that current efforts should focus on strengthening the law and not weakening rules and oversight.
Sen. Robert Menendez (D-N.J.) supported Brown’s amendment and said he wanted to look for opportunities to perfect the legislation because “regulation is not a one size fits all exercise.” He stressed that there is “no need to hold consensus measures hostage” and that he looks forward to working to move in areas of consensus.
Sen. Bob Corker (R-Tenn.) said he knows “we can end up with a bipartisan bill.” He then noted the following aspects of Shelby’s bill as being important: 1) not using guarantee fees (G-fees) to deal with budget problems; 2) having a common securitization platform; and 3) not putting Congress in charge of monetary policy. He also stressed that if a financial institution holds 100 percent of a portfolio loan’s risk on its books, it “ought to be exempt.” Corker said he had issues with the bank holding company title in the bill, saying it will be difficult to move from the $50 billion threshold to a $500 billion threshold, but said there would be opportunity to tweak the bill before it goes to the Senate floor.
Sen. Mark Warner (D-Va.) said he was “more upset by this process than any other in my time here” and said the majority turned the “markup into a sideshow.” He expressed disappointment that the Democrats on the committee received different copies of the bill depending on “what kind of member” they were and did not get the final text until it was released to the public. Warner said he would use “every tool” he knew to make sure the bill as written would not get to the Senate floor. He then expressed his desire to have “good faith” conversations on making changes to the bill.
Sen. Joe Donnelly (D-Ind.) supported Brown’s amendment and said there were provisions in Shelby’s bill that could work but also others that would not, saying there is an opportunity to put together a better bill.
Sen. Heidi Heitkamp (D-N.D.) said there is an “incredible amount of frustration” in America that Congress is not doing its job. She said that frequently when there is consensus, members put “anchors” on legislation that prevent it from moving forward. She stressed that the Committee “can do something small as we work to do something big,” by passing the Brown amendment where there is consensus and continuing debate on other provisions.
The amendment was not approved in a 10-12 vote along party lines.
Crapo Amendment – Operation Choke Point – Approved 13-9
Sen. Mike Crapo (R-Idaho) offered an amendment that would prohibit federal banking and credit union regulators from participating in the Department of Justice’s (DOJ) Operation Chokepoint. He criticized the initiative as an operation aimed at perfectly innocent businesses the DOJ considers to be “objectionable.”
Brown came out against the amendment, stressing that the DOJ should be able to take action against financial institutions that “turn a blind eye” to illicit activities and that banking regulators need flexibility to exercise strong oversight.
Sen. David Vitter (R-La.) countered that fraud is still illegal and would remain so even with the passage of the bill, which would not keep regulators from using their available tools to fight it. He called Operation Chokepoint “tyrannical and genuinely scary.”
The amendment was approved in a 13-9 vote, with Sen. Joe Donnelly (D-Ind.) voting with the Republican majority.
Vitter Amendment – SIPC – Withdrawn
Sen. David Vitter (R-La.) put forth an amendment to “end cronyism and corruption” at the Securities Investor Protection Corporation (SIPC). He said a significant number of SIPC board members are active members in the industry, which leads to a situation where the “fox is guarding the henhouse.” He said his amendment would require SIPC board members to have industry experience but not be currently active and have day jobs in the industry.
Vitter Amendment – TBTF – Withdrawn
Vitter proposed an amendment that would require large financial institutions to hold equity capital levels of 10 percent “using the Brown-Vitter definition of capital” which requires inclusion of derivatives and other off-balance sheet assets. He said that “mega banks will tell you their Tier 1 capital ranges between 12-16 percent” but said these figures would be “more like four to five percent” using his definition. He noted that his amendment received statements of support from Federal Deposit Insurance Corporation (FDIC) Vice President Thomas Hoenig, Independent Community Bankers of America (ICBA) President and CEO Cam Fine, and former FDIC Chair Sheila Bair.
Brown supported both of Vitter’s amendments but said they are “not consensus ideas yet.”
Toomey Amendment – OLA – Withdrawn
Sen. Pat Toomey (R-Pa.) stated that a failing bank holding company should go through bankruptcy instead of receiving a bailout. Toomey said he adamantly continues to oppose bailouts and stated that any bank that takes on too much risk should be allowed to fail. He noted that his amendment would not allow a firm to be bailed out under the Orderly Liquidation Authority contained in Title II of Dodd-Frank. Toomey said that fair and objective rules should be used in bankruptcy but the existing bankruptcy process is not satisfactory and too-big-to-fail is still an ongoing problem.
Toomey Amendment – GSEs – Withdrawn
Regarding government-sponsored enterprise (GSE) capital, Toomey offered an amendment and stated that private capital should be incentivized to take first loss positions in mortgage backed security (MBS) products.
Toomey Amendment – International Designation – Withdrawn
Toomey offered an amendment to bring “transparency and order” to the international regulatory regime with regard to systemically important designations. He said his amendment would require U.S. regulators to come to a conclusion about systemic importance in a domestic framework before engaging in any international framework.
Toomey Amendment – CFPB Exams – Approved 13-9
Toomey said there is a huge and costly regulatory burden on financial institutions of all sizes and bank examinations are one of the most expensive aspects. He explained that indirect costs are associated with requiring executives of small banks to meet with bank examiners, rather than spend time meeting with consumers. According to Toomey, the Consumer Financial Protection Bureau (CFPB) is “woefully behind on completing examination reports.” He explained that for these reasons he offered an amendment to increase the threshold that requires the CFPB to conduct direct examinations from $10 billion to $50 billion in assets. He emphasized that banks will still be subject to examinations from primary regulators.
Sen. Brown replied that he thinks it would be better to “coordinate examination cycles” to preserve the role of the CFPB. He suggested that violations are likely to occur if this amendment is adopted.
The amendment was approved in a 13-9 vote with Sen. Donnelly voting aye.
Manager’sAmendment – Approved 12-10
Chairman Shelby called for a vote on the Manager’s Amendment and described the text as providing technical changes that were suggested by regulators. The Manager’s Amendment was approved along party lines in a 12-10 vote.
Final Vote
The Financial Regulatory Improvement Act of 2015 was approved along party lines in a 12-10 vote.
For more information on this mark-up and to view an archived webcast, please click here.
For a section-by-section summary of the bill, please click here.
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Senate Banking Committee
Mark-up of The Financial Regulatory Improvement Act of 2015
Thursday, May 21, 2015
Key Topics & Takeaways
- Approval: The Financial Regulatory Improvement Act of 2015 was approved along party lines in a 12-10 vote.
- Approved Amendments: The committee approved amendments relating to Operation Coke Point and CFPB examinations.
- Bipartisan Efforts: Chairman Shelby (R-Ala.) stated that the process of putting together the legislation included over 40 bipartisan staff meetings and calls and said the majority attempted to draft a bill that “could and should garner bipartisan support.”
- Mutual Respect: Ranking Member Brown (D-Ohio) said there is mutual respect between himself and Shelby and between the Democratic and Republican staffs, which could “set the table for fruitful negotiations down the road.”
Amendments
- Brown Amendment – Substitute Bill – Not Approved 10-12
- Crapo Amendment – Operation Choke Point – Approved 13-9
- Vitter Amendment – SIPC – Withdrawn
- Vitter Amendment – TBTF – Withdrawn
- Toomey Amendment – OLA – Withdrawn
- Toomey Amendment – GSEs – Withdrawn
- Toomey Amendment – International Designation – Withdrawn
- Toomey Amendment – CFPB Exams – Approved 13-9
Opening Statements
In his opening statement, Chairman Richard Shelby (R-Ala.) stated that the process of putting together his bill, the Financial Regulatory Improvement Act of 2015, has included over 40 bipartisan staff meetings and calls and that the majority staff disclosed every issue under consideration to the minority. He said the majority attempted to draft a bill that “could and should garner bipartisan support.” He explained that the eight titles of the bill address areas where regulations are in need of “revision or refinement.”
In his opening statement, Ranking Member Sherrod Brown (D-Ohio) said there is mutual respect between himself and Shelby and between the Democratic and Republican staffs, which could “set the table for fruitful negotiations down the road.” He stated that the Dodd-Frank Act was passed as the country emerged from a financial crisis that resulted from “financial institutions running wild and regulators not doing enough.” Brown warned that Shelby’s bill would “trample” on many Dodd-Frank protections and called it a “one-sided wish list pleasing to special interest groups.”
He argued that the bill would not be signed by President Obama, and instead offered the Democratic alternative that he said the Committee should pass to show it is serious about community bank relief.
Amendments
Brown Amendment – Substitute Bill – Not Approved 10-12
Brown offered an amendment that would substitute the Chairman’s legislation with a more “targeted proposal to help Main Street financial institutions.” He said the amendment “recognizes the importance of relationship lending,” permits lenders of any size to originate loans, and lengthens the examination cycle for small and community banks from 12 to 18 months. Brown said the language would also level the playing field for privately insured credit unions and thrifts, ensure that service members are protected under the Service Member Civil Relief Act, and provide tenant protections to ensure that renters are not evicted without notice if their landlord fails to make mortgage payments.
Shelby said that while he supported the “vast majority” of what was in Brown’s amendment, he disagrees with its scope and because it was “too narrow.”
Sen. Elizabeth Warren (D-Mass.) stressed her opposition to Shelby’s bill but supported Brown’s amendment. She said there is evidence that the Dodd-Frank Act is “beginning to work” and that the financial system “as a whole is safer than it used to be.” Warren said Dodd-Frank is “not perfect” because in many areas it “did not go far enough” and urged that current efforts should focus on strengthening the law and not weakening rules and oversight.
Sen. Robert Menendez (D-N.J.) supported Brown’s amendment and said he wanted to look for opportunities to perfect the legislation because “regulation is not a one size fits all exercise.” He stressed that there is “no need to hold consensus measures hostage” and that he looks forward to working to move in areas of consensus.
Sen. Bob Corker (R-Tenn.) said he knows “we can end up with a bipartisan bill.” He then noted the following aspects of Shelby’s bill as being important: 1) not using guarantee fees (G-fees) to deal with budget problems; 2) having a common securitization platform; and 3) not putting Congress in charge of monetary policy. He also stressed that if a financial institution holds 100 percent of a portfolio loan’s risk on its books, it “ought to be exempt.” Corker said he had issues with the bank holding company title in the bill, saying it will be difficult to move from the $50 billion threshold to a $500 billion threshold, but said there would be opportunity to tweak the bill before it goes to the Senate floor.
Sen. Mark Warner (D-Va.) said he was “more upset by this process than any other in my time here” and said the majority turned the “markup into a sideshow.” He expressed disappointment that the Democrats on the committee received different copies of the bill depending on “what kind of member” they were and did not get the final text until it was released to the public. Warner said he would use “every tool” he knew to make sure the bill as written would not get to the Senate floor. He then expressed his desire to have “good faith” conversations on making changes to the bill.
Sen. Joe Donnelly (D-Ind.) supported Brown’s amendment and said there were provisions in Shelby’s bill that could work but also others that would not, saying there is an opportunity to put together a better bill.
Sen. Heidi Heitkamp (D-N.D.) said there is an “incredible amount of frustration” in America that Congress is not doing its job. She said that frequently when there is consensus, members put “anchors” on legislation that prevent it from moving forward. She stressed that the Committee “can do something small as we work to do something big,” by passing the Brown amendment where there is consensus and continuing debate on other provisions.
The amendment was not approved in a 10-12 vote along party lines.
Crapo Amendment – Operation Choke Point – Approved 13-9
Sen. Mike Crapo (R-Idaho) offered an amendment that would prohibit federal banking and credit union regulators from participating in the Department of Justice’s (DOJ) Operation Chokepoint. He criticized the initiative as an operation aimed at perfectly innocent businesses the DOJ considers to be “objectionable.”
Brown came out against the amendment, stressing that the DOJ should be able to take action against financial institutions that “turn a blind eye” to illicit activities and that banking regulators need flexibility to exercise strong oversight.
Sen. David Vitter (R-La.) countered that fraud is still illegal and would remain so even with the passage of the bill, which would not keep regulators from using their available tools to fight it. He called Operation Chokepoint “tyrannical and genuinely scary.”
The amendment was approved in a 13-9 vote, with Sen. Joe Donnelly (D-Ind.) voting with the Republican majority.
Vitter Amendment – SIPC – Withdrawn
Sen. David Vitter (R-La.) put forth an amendment to “end cronyism and corruption” at the Securities Investor Protection Corporation (SIPC). He said a significant number of SIPC board members are active members in the industry, which leads to a situation where the “fox is guarding the henhouse.” He said his amendment would require SIPC board members to have industry experience but not be currently active and have day jobs in the industry.
Vitter Amendment – TBTF – Withdrawn
Vitter proposed an amendment that would require large financial institutions to hold equity capital levels of 10 percent “using the Brown-Vitter definition of capital” which requires inclusion of derivatives and other off-balance sheet assets. He said that “mega banks will tell you their Tier 1 capital ranges between 12-16 percent” but said these figures would be “more like four to five percent” using his definition. He noted that his amendment received statements of support from Federal Deposit Insurance Corporation (FDIC) Vice President Thomas Hoenig, Independent Community Bankers of America (ICBA) President and CEO Cam Fine, and former FDIC Chair Sheila Bair.
Brown supported both of Vitter’s amendments but said they are “not consensus ideas yet.”
Toomey Amendment – OLA – Withdrawn
Sen. Pat Toomey (R-Pa.) stated that a failing bank holding company should go through bankruptcy instead of receiving a bailout. Toomey said he adamantly continues to oppose bailouts and stated that any bank that takes on too much risk should be allowed to fail. He noted that his amendment would not allow a firm to be bailed out under the Orderly Liquidation Authority contained in Title II of Dodd-Frank. Toomey said that fair and objective rules should be used in bankruptcy but the existing bankruptcy process is not satisfactory and too-big-to-fail is still an ongoing problem.
Toomey Amendment – GSEs – Withdrawn
Regarding government-sponsored enterprise (GSE) capital, Toomey offered an amendment and stated that private capital should be incentivized to take first loss positions in mortgage backed security (MBS) products.
Toomey Amendment – International Designation – Withdrawn
Toomey offered an amendment to bring “transparency and order” to the international regulatory regime with regard to systemically important designations. He said his amendment would require U.S. regulators to come to a conclusion about systemic importance in a domestic framework before engaging in any international framework.
Toomey Amendment – CFPB Exams – Approved 13-9
Toomey said there is a huge and costly regulatory burden on financial institutions of all sizes and bank examinations are one of the most expensive aspects. He explained that indirect costs are associated with requiring executives of small banks to meet with bank examiners, rather than spend time meeting with consumers. According to Toomey, the Consumer Financial Protection Bureau (CFPB) is “woefully behind on completing examination reports.” He explained that for these reasons he offered an amendment to increase the threshold that requires the CFPB to conduct direct examinations from $10 billion to $50 billion in assets. He emphasized that banks will still be subject to examinations from primary regulators.
Sen. Brown replied that he thinks it would be better to “coordinate examination cycles” to preserve the role of the CFPB. He suggested that violations are likely to occur if this amendment is adopted.
The amendment was approved in a 13-9 vote with Sen. Donnelly voting aye.
Manager’sAmendment – Approved 12-10
Chairman Shelby called for a vote on the Manager’s Amendment and described the text as providing technical changes that were suggested by regulators. The Manager’s Amendment was approved along party lines in a 12-10 vote.
Final Vote
The Financial Regulatory Improvement Act of 2015 was approved along party lines in a 12-10 vote.
For more information on this mark-up and to view an archived webcast, please click here.
For a section-by-section summary of the bill, please click here.