May 12, 2015 / 4:07 PM / in 4 years

Republican bill targets post-crisis Fed, bank rules as Democrats resist

WASHINGTON (Reuters) - Draft Republican legislation released on Tuesday proposing changes to the Federal Reserve and easing some banking rules drew criticism from Democrats, who argue the bill would roll back reforms put in place after the 2008 financial crisis.

Senate Banking Committee chairman Richard Shelby of Alabama published long-awaited details of the Financial Regulatory Improvement Act of 2015, listing proposals that would lighten compliance burdens for small financial firms and enforce more transparency at the central bank and the financial stability council.

But the committee’s top Democrat, Senator Sherrod Brown of Ohio, made clear that he opposed most of the bill’s proposals and labeled it a way for Republicans to erode Wall Street reforms written into the Dodd-Frank Act of 2010.

Shelby broke off talks with Brown’s staff several weeks ago after Brown refused to consider any proposals that went beyond regulation relief for small banks and credit unions. A committee vote on the bill is scheduled for May 21.

Brown’s aides pointed out that President Barack Obama has already promised to veto two of the mortgage-related proposals in the bill.

“It is important to remember that this bill is the opening shot by Shelby. It is designed to elicit debate and counter-offers,” said Guggenheim Securities analyst Jaret Seiberg. “Negotiations are likely to continue all summer even if the committee votes on this bill sooner.”

Among the most significant proposals in the 216-page draft bill is a requirement that the Federal Reserve evaluate bank holding companies with more than $50 billion and less than $500 billion in assets for enhanced capital, liquidity, and leverage requirements. Presently, all banks above $50 billion are subject to that level of supervision, a designation known as a Systemically Important Financial Institution (SIFI).

The bill recommends all banks above $500 billion in assets automatically attain the “SIFI” label, the highest level of supervision.

The bill also proposes to loosen post-crisis, federal restrictions on mortgages so long as the bank holds the loans on its own books.

Brown said in a statement that the Shelby’s draft “holds Main Street financial institutions hostage to a partisan effort to dismantle Dodd-Frank’s consumer protections and sensible rules for the large banks and nonbanks that played central roles in the financial crisis.”

Shelby aides said that Brown, who has held a copy of the draft bill for at least a week, is refusing to come to the table to negotiate over terms of the bill - an accusation Brown’s camp did not deny on Tuesday.

Brown’s aides said the scope of the bill was too wide and that the Senator has been clear on what reforms he would agree to.

The draft lists several proposed changes to the Federal Reserve but does not include a government audit of monetary policy, which the Fed vehemently opposed. It also did not include requiring the Fed to follow a monetary policy rule, another point the central bank stood firmly against.

And while it requires the New York Fed President to be appointed by the White House and confirmed by the Senate, it does not strip away its permanent vote on the policy setting committee.

In addition, the bill requires a quarterly monetary policy report by the Fed to Congress but keeps the Chairman’s semi-annual appearance in place.

“Our take is that the Fed can live with this bill,” Greg Valliere, Chief Political Strategist at Potomac Research Group said in a note.

Other proposals in the bill take aim at mortgage finance firms Fannie Mae and Freddie Mac, “systemically important” designations to non-banks and insurance industry supervision.

The draft bill contains a few relatively minor measures aimed at helping small businesses raise capital or reducing regulatory red tape.

For instance, one is designed to help bolster private companies’ ability to attract talent by offering would-be employees private stock. The 2012 Jumpstart Our Business Startups (JOBS) Act had increased the number of people who were eligible, but the dollar threshold of $5 million has been in place since 1988. Shelby’s plan would raise this to $10 million.

Additional reporting by Sarah N. Lynch; Editing by Grant McCool

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