Banks convince lawmakers to pass massive bank deregulation, despite record earnings

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation reported net income of $56 billion in the first quarter of 2018, up $12.1 billion or 27.5 percent from a year ago.

The Trump administration’s $1.5 trillion tax cuts and higher revenue are responsible for the record income, said FDIC Chairman Martin J. Gruenberg.

Despite the fact that banks are having record earnings, they lobbied hard to get the Republican-led Congress and President Trump to enact huge cuts to regulations.

If banks have record earnings, why do they need to have regulations slashed, so they can make even more?

The main argument was to lessen rules for credit unions and smaller banks. However, the new law will ease restrictions on big banks, such as JPMorgan and Citibank. The Dodd-Frank restrictions passed in 2010 were designed to keep banks and other financial institutions from amassing too much debt.

The House passed the bill Tuesday by a vote of 258 to 159, with 33 Democrats supporting it. The Senate passed it in March. Trump is expected to sign the bill saying he would “do a big number” on Dodd-Frank soon after taking office.

U.S. Senator Sherrod Brown, D-Ohio, said the bill will:

• Rollback current stress testing requirements for all large banks, even the Wall Street megabanks that are designated as “global systemically important” – meaning their collapse could cause harm that ripples across the world. Without effective, annual stress tests, taxpayers could once again be on the hook when “too big to fail” banks collapse.

• Take a “repeal and replace” approach to stress tests for large banks with combined assets of $4 trillion – that’s more than a quarter of all the assets across the entire banking industry. Current, tough, annual stress tests would be eliminated. The Trump Administration’s new regulators would devise new, weaker tests that would be administered on a “periodic” basis.

• Allow dozens of the largest banks to once again borrow more money than they can afford to lose by weakening enhanced capital requirements.

• Gut the oversight of foreign megabanks operating in the U.S. – such as Deutsche Bank, Barclays, and Credit Suisse – that have repeatedly violated U.S. laws.

• Exempt dozens of the largest banks from making plans called “living wills.” A living will make sure that if a bank fails, it won’t bring the entire economy down.

Brown also said the bill will harm home buyers because mortgage rules put in place after the Great Recession to curb abusive lending practices are being eliminated.

“This bill helps large banks that are making record profits,” Brown said. “While wages are stagnant or declining for working families, the bill fails to include any provisions that would benefit hardworking Americans. In fact, it reduces the protections they currently have in the mortgage market.”

He said, just like the GOP tax bill, the bill is a giveaway to special interests that does nothing to put money in the pockets of working people.

Bartlett Naylor, the financial policy advocate for Public Citizen’s Congress Watch Division, said removing key guardrails on Wall Street won’t make America greater again – it will make America crater again.

Mike Litt, consumer campaign director for U.S. PIRG, said it’s hard to watch Congress ignore the painful lessons of the Great Recession that started with a historic financial collapse that occurred less than 10 years ago.

“The warning signs are plain to see,” Litt said. “There is a strong chance we will see an increase in mortgage fraud, racial discrimination, and risky banking practices.”

Just like the Republican tax cut, this one is a loser for consumers.

Update: As expected, President Trump signed the bill Thursday.