The biggest Wall Street bill in years is tearing US Democrats apart

Elizabeth Warren. Joe Raedle/Getty Images

  • The Senate is close to passing a bill that would roll back a slew of Wall Street regulations.
  • Democrats are divided on the bill, with Sen. Elizabeth Warren leading the fight against the measure.
  • A solid group of Democratic moderates are in favour of the bill and pushing back against Warren.

The push to pass the largest rollback of banking regulations since the financial crisis is splitting the Democrats in the Senate in two.

One the one hand, the banking deregulation bill championed by Republican Senate Banking Committee chair Mike Crapo has garnered the support of a solid group of centrist Democrats who see it as a way to ease restrictions on smaller community banks.

On the other, more liberal Democrats are blasting the bill as a giveaway to Wall Street and a repeat of the same mistakes that led to Wall Street’s collapse.

A return to dangerous territory

For Democrats opposing the Crapo bill, the legislation is a dangerous rollback of the post-crisis Dodd-Frank regulations and could precipitate another financial crisis.

The most vocal opponent of the bill, unsurprisingly, is Sen. Elizabeth Warren.

Warren, a long-time critic of Wall Street and the financial sector, has given a series of speeches in the Senate decrying what she calls the “Bank Lobbyist Act.”

The Massachusetts senator took particular issue with a provision of the bill that would increase the threshold for a bank to be designated a Systemically Important Financial Institution (SIFI) by regulators to $US250 billion in assets held from $US50 billion currently.

This would exempt 26 of the current 38 SIFIs from these tough regulations, including major regional banks like BB&T, PNC, Fifth Third, and SunTrust.

“It takes 25 of the largest 40 banks in America – those 25 got more than $US50 billion in taxpayer bailouts, nobody went to jail – and it says, ‘Let’s regulate them as if they were tiny little community banks that couldn’t do any damage to the economy’,” Warren said on NBC’s “Meet the Press” on Sunday. “Now, let’s be clear, a quarter of a trillion dollar bank is not a community bank.”

(Check out more on how the bill will roll back Wall Street regulation»)

Warren has even gone so far as to attack fellow Democrats for their support of the bill. The senator sent out a fundraising email blasting colleagues for voting in favour or the bill and wrote a Medium post acknowledging that other Democrats are irked at her insistence.

Other Democrats, like Sen. Chris Van Hollen, said that some of the adjustments for smaller banks make sense but agreed with Warren that the current bill takes the deregulation too far.

“I have some concerns about the banking bill,” Van Hollen told Business Insider. “I should start by saying the provisions relating to community banks and credit unions are provisions I support for the most part. In my view, some of the changes with respect to the bigger banks introduce too much risk into the system.”

A needed change

While Warren and others see the bill as a reversal of key protections, a solid bloc of moderate Democrats – especially those in states President Donald Trump won in 2016 – believe that the bill is a sensible approach to tailor regulation to banks based on their size.

Sen. Doug Jones, the recently-elected member from Alabama, argued that the more dire warnings about the financial effects from the bill may too far.

“I don’t think it will [have negative effects],” Jones told Business Insider. “Those banking bills are always a work in progress and I think this is a step for us. It’s not a perfect bill, but I think it’s a good step forward.”

Other Democratic supporters, such as Jon Tester of Montana, say it will free smaller banks in rural states from stifling regulation that has led to a decrease in the number of community banks in the US.

“We’re seeing way, way, way too many banks being eaten up by bigger banks,” Tester told the Wall Street Journal. “If this continues, I don’t think we can expect the Wall Street banks to be serving places like Montana.”

Opponents of the bill note that the decline in the number of community banks is a long-term trend that existed for decades before Dodd-Frank.

Some red-state Democrats are even taking on Warren directly. Sen. Heidi Heitkamp gave a speech on the Senate floor on Tuesday to push back at some of her colleagues’ concerns about the bill.

“Some of the things that she has said are incorrect, and I cannot let the legislative history of this legislation be what Elizabeth Warren says it is,” Heitkamp told The Atlantic.

Sen. Tim Kaine, the former vice presidential candidate, said that even with the rollback the amount of oversight on the financial sector will still be significantly higher than before Wall Street’s collapse.

“I just think every bank in this country – if it passes, after this bill passes – every bank will be significantly more regulated than before the fiscal collapse,” Kaine said. “By more regulators, but the level of extra regulation is adjusted based on size and risk and that’s what I think ought to be done.”

An electoral angle

The fight over the bill within the Democratic Party may not just be rooted in policy, but upcoming elections.

Both Kaine and Tester are up for re-election in 2018 and many strategists have surmised that the support from moderate Democrats is a pivot to the center to shore up electoral chances. Ten of the Democratic supporters of the bill are from states that Trump carried in 2016 and are up for re-election this year.

Senate Minority Leader Chuck Schumer recently came out against the bill after keeping quiet since it moved out of committee in December. Schumer echoed other Democrats, saying the bill’s deregulation efforts go too far in easing restrictions on large regional banks.

At the same time, the minority leader did not stand in the way of Democrats supporting the bill.

Sen. Joe Manchin, a moderate from West Virginia, told Politico that Schumer’s message on the bill to members was, “Everybody do what they got to do.”

With the pass from the leadership, the Democratic support will likely push the Crapo bill across the line before the end of the week.