The Economic Growth, Regulatory Relief and Consumer Protection Act and How America's Banks Got Their Way

With very little fanfare or attention from voters, the House has now passed S.2155, the misleadingly named "Economic Growth, Regulatory Relief and Consumer Protection Act" which is now headed to the President for a quick "pencil-whipping".  Most Americans have no idea that this legislation could have a very significant impact on the federal government debt/deficit situation and that, thanks to Congress and both sides of the political divide, the banking sector is far more vulnerable to a repetition of what happened at the dawn of the Great Recession and the home buying public is more vulnerable to abusive banking practices.

While Congress likes to tout S.2155 as a "community bank bill", any benefits to Main Street America are far outweighed by the benefits to Big Banks.  This bill seeks to roll back some of the safeguards that were put in place with the Dodd-Frank Wall Street Reform and Consumer Protection Act aka the Dodd Frank Act.  The bill would alter the regulatory framework for two types of banks; banks will assets exceeding $50 billion and small community banks with assets under $10 billion.  Let's look at an analysis of S.2155 by Americans for  Financial Reform, looking at the sections of the bill that can best be described as a gift to America's banking sector and a negative for Main Street's homebuyers.

1.) The impact on banks:  

Let's start by looking at the pluses to the America's banking sector.  Under Section 401, the bill eliminates most of the requirements for special risk controls that were put in place after the 2008 - 2009 crisis for banks that range in size from $50 billion to $250 billion.  These banks are among the largest banks in the United States and include 25 out of 38 of the biggest banks in America.  In case you've forgotten, Countrywide and Golden West, contributors to the 2008 - 2009 crisis, had assets that fell into this range, requiring nearly $50 billion in taxpayer-funded bailouts.  As well, the Trump Administration has announced that it will use S.2155 to deregulate the operations of giant foreign-based megabucks like Barclays, Deutsche Bank and Credit Suisse, banks that also played a role in the 2008 - 2009 crisis.  It is important to note that, while these banks fall under the $250 billion asset limit in the United States, they have multi-trillion dollar global operations and, as such, pose a major risk to the U.S. economy.

Under Section 402, the bill would allow two of the largest and systemically significant banks to reduce their loss-absorbing capital levels.  BNY Mellon and State Street, banks that received $5 billion in taxpayer-funded bailout funds, would significantly reduce the level of their ability to protect themselves against insolvency.

Under Section 214, the bill would prevent regulators from requiring that banks, even the largest of Wall Street's megabanks, accumulate additional capital to absorb potential losses in commercial real estate loans (i.e. the supplementary leverage ratio).  It was risky investments in commercial real estate lending that drove the implosion of Lehman Brothers in September 2008, giving support to the "Too Big to Fail" mantra.

2.) The impact on consumers:

Now, let's look at the provisions of S.2155 that will impact America's consumers of housing.  Under Section 107, the bill exempts key montage lending for sales of manufacturing homes, allowing the sellers of these homes to manoeuvre customers into overpriced loans, making the public more susceptible to the same types of lending practices that created the unsustainable mortgage/housing market in the period leading up to the Great Recession.

Under Sections 101 and 109, the bill would weaken protection for millions of Americans who borrow mortgage funds from banks with under $10 billion in assets.  The provisions would eliminate protection against overpriced and adjustable rate mortgages at these smaller banks and would eliminate the requirements that ensure that consumers can pay tax and insurance on their homes to prevent these non-payment  bills from resulting in foreclosure.

Under Sections 103 and 100, the bill would weaken protection against fraudulent practices in home sales, making it easier to misinform homebuyers about the terms of their mortgage loans and eliminating the need for homes sold in rural ares to have an appraisal.

Now, let's look at the bottom line.  Thanks to the Congressional Budget Office, we can see that the implementation of S.2155 will have an impact on the federal government's finances as shown here:

In total, over the decade between 2018 and 2027, S.2155 is expected to add $671 billion to the federal deficit, rating from $19 billion in 2019 to $100 billion in 2021.

Now, let's look at the legislative background of S.2155.  The bill was sponsored by Senator Mike Crapo (R-ID) on November 16, 2016 and here is a list of co-sponsors:

Here is a list of who voted for and against S.2155 in the Senate:

Here is a list of who voted for and against S.2155 in the House:

As you can see, S.2155 appealed to both sides of the political divide with and with 16 Democratic Senators voting in favour along with 51 Republican Senators and  33 Democratic House members voting in favour along with 225 Republican House members. 

Let's close this posting with a quick look at how much the commercial banking sector spent on lobbying in Washington over the past two decades:

Here is a breakdown of how much the commercial banking sector contributed to political candidates in the period 2017 to 2018:

I think that we now have a pretty good idea of who we can blame the next time that Washington is forced to, once again, bail out America's banking sector and why S.2155 was enacted in the first place.  As we already know Washington is for sale and America's commercial banks are buying.