Just when they thought we weren’t looking, the Republicans on the Senate Banking Committee snuck through a bill last week that would provide “regulatory relief” to “small banks” that are not “systematically important.” While Republicans do have a well-known tendency for understating the size of regulatory reform and businesses, their rhetoric on the Financial Regulatory Improvement Act of 2015 is an unprecedented step in the war on adjectives.
Despite the fact that 760 banks were important enough to be bailed out in 2008, the Senate Banking Committee's bill would remove the designation of "too big to fail" from all but six, and would exclude such “unimportant” banks as PNC, Suntrust, and HSBC North America. All this really does is exempt banks from important regulations such as limiting borrowing and requiring contingency plans for bankruptcies.
For banks that are smaller, though not passably “small,” Senate Republicans are pulling out all the stops and eliminating the "Volcker rule" that would prohibit banks from engaging in speculative investments with depositor dollars. Any bank with under $10 billion in total assets could go back to the good old days when they could gamble with exotic financial products using your deposits. The fact that we have both deposit insurance and an unwritten agreement we will bail banks out means that they will not only roll the dice with your money, but with public funds as well.
Perhaps Wall Street thought its existing representation in Congress was too expensive, because the Republicans also seek to create a taxpayer-funded Office of Examination Ombudsman whose sole job is to represent banks. The office would be faced with the onerous task of hearing out all the whining from the financial lobby, and the somewhat less onerous task of investigating regulators if they do their job.
If there is anyone who needs relief right now, it is not Wall Street, but Main Street. While wages have continued to stagnate or fall, Wall Street has been making, well, bank. This suggests not an industry struggling with red tape but one that needs to come to terms with reality. The real problem that the Banking Committee should address is that our financial system seems to serve itself with bonuses and buybacks rather than support American entrepreneurship and innovation.
The way ahead for this bill is uncertain. Even though it cleared the Banking committee, it needs the support of 60 senators to come to an up-or-down vote. Should this fail, all this bill will ever be is a testament to Wall Street’s capture of the Senate Banking Committee. But recent history is not reassuring; last December a few supine representatives on the House Appropriations Committee attached a Wall Street wish list to the 2015 budget. The budget passed, the government got funded and did not shut down, and Wall Street got away with a lot of “regulatory relief.”
We must make sure such political chicanery is not pulled again. Counter to the delusions of the Republicans on the Banking committee, these banks are still too big to fail and our only hope is to regulate them as such. Otherwise, we put the financial system where it was a decade ago, driving off to the casino with our savings in their pockets and our tax dollars on their debit cards.
