The U.S. Senate passed legislation that would ease constraints on regional and community banks while mostly snubbing Wall Street, giving the finance industry its best chance in years of rolling back rules adopted in the wake of the 2008 crisis.
The bipartisan bill crafted by Senate Banking Committee Chairman Mike Crapo frees smaller lenders from some of the toughest requirements of the Dodd-Frank Act, striking them from the ranks of banks deemed too big to fail.
"This bill is a bipartisan compromise," Mr. Crapo, an Idaho Republican, said on the Senate floor before the bill's passage. "At a time of intense political polarization, we have proven we can work together to get things done."
The 67-31 Senate vote shifts attention to the House of Representatives, where members will have to pass their own version of the bill. If the House makes significant changes, differences will have to be resolved before both chambers can adopt revised legislation. The White House issued a statement within minutes of the bill clearing the Senate that said President Donald J. Trump supports it and would sign it into law.
"The bill provides much needed relief from the Dodd-Frank Act for thousands of community banks and credit unions, and will spur lending and economic growth without creating risks to the financial system," the statement said.
Getting it to President Trump's desk could be tricky. House Financial Services Committee Committee Chairman Jeb Hensarling, one of Dodd-Frank's most vocal critics in Congress, has said he wants to include bigger revisions to post-crisis financial rules than those that were passed by the Senate. At the same time, moderate Democrats who helped Crapo push his bill through the Senate have warned that any changes could jeopardize their support.
The Senate legislation would raise to $250 billion from $50 billion the asset threshold for banks to be designated as systemically important financial institutions, a status that subjects them to stricter Federal Reserve supervision. That would free American Express Co., BB&T Corp., KeyCorp and other companies from many of the compliance costs associated with being deemed too big to fail.
Banks with less than $10 billion in assets would be exempt from Volcker Rule restrictions on trading with their own capital. Mr. Crapo's bill also scraps a provision in the rule named for former Federal Reserve Chairman Paul Volcker that bars hedge funds from sharing names with affiliated banks. BlackRock Inc., the world's largest asset manager, is among firms that lobbied for that change.
Mr. Hensarling has identified more than two dozen measures that he would like added to the final bill. One would make it easier for heirs whose money is run by a family office to invest in hedge funds, private-equity firms and other potentially lucrative investments. Another would exempt banks with less than $50 billion in assets from Consumer Financial Protection Bureau supervision. Others would toughen rules for proxy advisory firms and change the living-will process for banks.
Wins for Wall Street were few and far between in the Senate bill. For example, it doesn't include a change -- sought for years by Goldman Sachs Group Inc. and other firms -- that would put a single regulator in charge of the Volcker Rule instead of the five that handle it now. And a provision giving custody banks such as State Street Corp. and Bank of New York Mellon Corp. relief from some capital requirements probably won't help firms such as JPMorgan Chase & Co. and Citigroup Inc., which have big units doing that type of business. The Federal Reserve, however, may still seek to relax those rules.
Big banks did gain a change to how municipal debt could be classified. The bill would give firms like JPMorgan and Citigroup -- who have lobbied on it for years -- more incentive to invest in munis by letting them count in required stockpiles of assets that could be sold to provide funding in a crisis.
Moderate Democrats' support for the Senate bill has created a rift with lawmakers in the party's progressive wing. Mr. Crapo advanced his legislation through the Banking Committee with support from the moderates after a breakdown in talks with Senator Sherrod Brown of Ohio, the panel's top Democrat.
Mr. Brown and other progressive senators like Elizabeth Warren of Massachusetts have warned that the Dodd-Frank changes would harm consumers and increase risk in the financial system. Ms. Warren, one of Wall Street's biggest critics in Washington, has called out Democrats backing the bill by name in fundraising emails, telling supporters "we want everyone to know whose side their senators are standing on."
Democrats like Heidi Heitkamp of North Dakota and Jon Tester of Montana, who were critical in generating support for the legislation in the Senate, have indicated they wouldn't support any major changes to the bill that the House makes.
Ms. Warren's attacks
The infighting among Democrats got ugly. Ms. Warren criticized Democrats who supported the bill in fundraising emails, floor speeches, television appearances, online videos and news conferences. Ms. Heitkamp responded by saying Ms. Warren was making inaccurate claims about the legislation.
"Let's not exaggerate the impact of this bill," Ms. Heitkamp said on the Senate floor this week.
Another change Mr. Hensarling is seeking could benefit private-equity titans, including Apollo Global Management LLC, by removing regulatory burdens for entities known as "business development companies." Business development companies, many of which are controlled by private-equity firms, invest in small businesses.