It is hard to get the two partisan sides of Congress to agree on much. But on Tuesday both Democrats and Republicans came together to solve a problem which they argue has been plaguing regular Americans; too much bank regulation.
In the aftermath of the 2008 financial crisis, which was caused by banks taking risky bets on subprime mortgages that did not pay off, the US Congress passed the Dodd-Frank Act. These new stringent regulations involved capital and liquidity requirements, stipulating how much of a bank’s assets must be held in a liquid form, a separation between speculative trading and normal bank activities, and restrictions were placed on over-the-counter derivatives trading.
The watering down of these regulations will not hit the biggest banks, with over $250bn in assets, but it does loosen oversight and regulation for hundreds of smaller institutions, including American Express. Proponents of this rollback argue that the onerous rules placed on smaller, and other non-systemically important, banks have strangled growth by stopping lending to small business.
Paul Ryan, Speaker of the House, who is due to retire after this Congress has been dismissed, said:
“Our smaller banks are engines of growth. By lending to small businesses and offering banking services for consumers, these institutions are and will remain vital for millions of Americans who participate in our economy.”
Opponents, though, have argued that banks are already making record profits, and deregulation could herald a return of problems faced during the 2008 crisis. US financial institutions posted profits of $56bn in the first quarter of 2018, an increase of over 25% compared to the same period in 2017. Nancy Pelosi and Elizabeth Warren, two Democrat members of Congress, led the charge against the watering down of the Obama-era legislation. Pelosi, the minority leader representing a Californian district, stated:
“It’s a bad bill under the guise of helping community banks. The bill would take us back to the days when unchecked recklessness on Wall Street ignited an historic financial meltdown.”
President Trump had targeted the regulations during his campaign to win the White House. It is assumed that he does not want to stop here and that further weakening of the regulation may take place in the future. Many of the institutions, such as the Consumer Financial Protection Bureau, created by the law have had their priorities refocused following President Trump appointing new leaders to them.
Supporters hope that the bill is signed into law before Memorial Day, on the 28th of May.
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