Earlier this week, the Senate got 50 Republicans, 16 Democrats, and one Democratic-leaning independent to move forward on S.2155, the bipartisan bank deregulation bill. With that base of support, prospects for passage are extremely bright — or dark, depending on how you view a bill that the Congressional Budget Office says heightens the risk of a financial crisis for the purpose of loosening rules on banks.

A final vote could come as early as Friday.

There’s just one problem left: Almost nobody has any idea what the bill will ultimately look like. And they almost certainly won’t know until hours, or perhaps minutes, before they have to make a final decision.

Senate Banking Committee chair Mike Crapo, R-Idaho, and four Banking Committee Democrats filed several last-minute changes in what’s known as a manager’s amendment late Wednesday. That’s a bill that incorporates unknown changes to a piece of legislation that has already passed committee. To spot the changes, a reader must compare the language of both bills.

The last-minute moves were made partially in an attempt to insulate lawmakers from criticism about giveaways to big banks. But more alterations are likely, because House Financial Services Committee chair Jeb Hensarling, R-Texas, has demanded his imprint on the final product, in the form of a load of deregulatory bills that the House has approved over the past year.

“We’re up to four dozen bills that we’re expecting to be included in the final package,” Hensarling told Bloomberg News on Wednesday. Those could be tucked into a final manager’s amendment to the Senate bill, without much advance warning, and put on the floor before senators have had a chance to read or analyze it. “[Hensarling’s] going to get a bunch of bills he can crow about,” said one financial services lobbyist working on the bill.

The lobbyist thought the Hensarling additions might be numerous but not necessarily impactful. But we’ve already seen on S.2155 that even insignificant changes, like the one-word shift from “may” to “shall” in Federal Reserve regulatory tailoring language, could have an enormous real-world impact. The Hensarling bills, and their precise language, would have to be diligently scrutinized, and that scrutiny is unlikely to be undertaken, given the brief window available. In fact, it’s already started: A new addition to the manager’s amendment actually benefits disgraced credit reporting company Equifax.

Meanwhile, the scrambling on S.2155 has begun. The manager’s amendment filed Wednesday purported to close several carve-outs that go beyond the oft-stated goal of community bank regulatory relief.

A closer look, though, shows the fixes are fake.


WASHINGTON, DC - JUNE 13: Sen. Catherine Cortez-Masto (D-NV) speaks during a weekly press conference following a policy luncheon on Capitol Hill on June 13, 2017 in Washington, D.C. (Photo by Zach Gibson/Getty Images)

Sen. Catherine Cortez-Masto (D-NV) speaks during a weekly press conference following a policy luncheon on Capitol Hill on June 13, 2017 in Washington, D.C.

Photo: Zach Gibson/Getty Images


First off, Section 104 — which exempts 85 percent of all banks and credit unions from enhanced Home Mortgage Disclosure Act, or HMDA, data requirements used to identify lending discrimination — has caused upheaval within the Democratic caucus. Sen. Catherine Cortez Masto, D-Nev., the Senate’s only Latina, co-wrote an op-ed for the PBS Newshour accusing supporters of “undermin[ing] our nation’s commitment to ensuring equal protection under the law.”

Rebutting claims from Democrats like Jon Tester, D-Mont., that the provision would not harm fair housing enforcement, Cortez Masto wrote, “Without this data, state attorneys general, fair housing advocates, and others would be back to where we stood in the aftermath of the 2008 crash: we could not connect racial, ethnic, gender and age discrimination to mortgages made in our communities and across the country.”

That, of course, is the point.

Under the new manager’s amendment language, banks and credit unions making fewer than 500 mortgage loans a year would still be exempt from the new data requirements. But they would have to comply if they receive a low rating in two successive Community Reinvestment Act examinations.

This is a ridiculous fig leaf. At most, Community Reinvestment Act exams occur once every three years. So exempt banks wouldn’t have to sweat anything until 2021 at the earliest. Plus, since the CRA was enacted in 1977, 97 percent of all banks have received a passing grade — yet lending discrimination still exists. Banks have become skilled at gaming the CRA and ensuring they can pass without meeting its requirements of lending in low- and moderate-income communities.

This “fix” will do next to nothing to expand the number of institutions giving up their lending data.

So this “fix” will do next to nothing to expand the number of institutions giving up their lending data, tying the hands of prosecutors seeking to prove housing discrimination.

Next, Crapo claimed he fixed the provision that would have allowed foreign banks with U.S. operations under $250 billion in assets — like Deutsche Bank, Barclays, UBS, and Credit Suisse — to shake off enhanced regulations. In the new language, foreign banks with over $100 billion in global assets would still be subject to those regulations, which include added capital and liquidity requirements and stronger supervision from the Federal Reserve Board.

What they added is unenforceable word salad. Section 401(g)’s “clarification for foreign banks” says that nothing in the bill shall “affect the legal effect” of the regulatory framework the Federal Reserve implemented for foreign banks in 2014. But critics never argued S.2155 would invalidate the Fed’s foreign bank rule; they argue it will force the Fed to update it. In creating intermediate holding companies for foreign banks, the Fed said it was doing so precisely to create equivalency:

the Board believes that establishing a minimum threshold for forming a U.S. intermediate holding company at $50 billion helps to advance the principle of national treatment and equality of competitive opportunity in the United States by more closely aligning standards applicable to the U.S. non-branch operations of foreign banking organizations under section 165 with the threshold for domestic U.S. bank holding companies that are subject to enhanced prudential standards under Title I of the Dodd-Frank Act.

In English, that means the threshold for foreign and domestic banks was intended to be the same. If the threshold rises for domestic banks to $250 billion in assets, the equality language would trigger the Fed to do the same for foreign banks. Section 401(g) does nothing to change that; foreign banks would still have recourse to sue the Fed for discriminatory treatment if they were subjected to a different standard.

Indeed, Fed Vice Chair Randal Quarles, who would be in charge of implementing this bill, said just three days ago that he would seek “‘additional tailoring and flexibility of our regulations’ for foreign banks operating in the U.S.”

Crapo could have said that all globally important foreign banks would be subject to enhanced standards regardless of their U.S. asset size. Section 401(f) actually says this for domestic banks, closing the “State Street loophole,” because that bank is recognized as systemic, yet has less than $250 billion in assets. But for foreign banks, Crapo just added a few croutons into the legislative word salad.

Bloomberg added that the so-called Citigroup carve-out had also been clarified, so that only custodial banks — Bank of New York Mellon, Northern Trust, and State Street — would enjoy the exemption of their central bank reserves from the supplementary leverage ratio. This is just “fake news”: Not a word of the Citigroup carve-out has changed.

It remains the exact language that the CBO said would give Citi and JPMorgan Chase a “50 percent chance” of taking advantage of the rule and reducing their leverage, enabling more risk at the mega-banks. Even the Wall Street Journal editorial board criticized this as a “sneaky reduction in capital rules.” The Senate could have shifted back to the original language, which specified a percentage of assets under custody and would have officially exempted Citi and JPMorgan. They didn’t.

And there have been no changes to provisions that take consumer protections away from mortgage borrowers, deregulate the manufactured home industry, lighten rules on “stadium banks,” change the frequency of certain stress tests from semiannual to the nebulous “periodic,” give big banks the opportunity to litigate any Federal Reserve regulation, or allow municipal bonds to count as “highly liquid assets” (which they aren’t), to name a few.

There also remains no good policy reason to deregulate banks right now, as they are thriving under the current rules.

One Hensarling gift has already taken root in the manager’s amendment: H.R. 2148, which passed via voice vote on the House floor. This would restrict regulators from requiring banks to hold additional capital against many commercial real estate loans, by exempting them from being considered “high risk.” The commercial real estate sector, pummeled by mall closures, has been teetering of late, and the new capital rules were put in place after commercial real estate failures exacerbated the financial crisis.

Another new provision dumped into the bill, incredibly, would benefit Equifax. Section 310 has the well-intentioned aim of creating “credit score competition” by requiring the Federal Housing Finance Agency to use alternative credit score models other than the dominant one provided by Fair Isaac Co., commonly known as the FICO score. The main beneficiary of this is FICO’s biggest rival, VantageScore, which uses an alternative credit score model. It licenses data provided by the three major credit reporting agencies: Experian, TransUnion, and Equifax.

The bill is also now fully “paid for,” by raiding the Fed’s capital surplus account for the third time in three years. As former Fed Chair Ben Bernanke has explained, this just counts funds already earmarked to go to the Treasury as “new” revenue to fill budget holes.

The manager’s amendment also includes a handful of bills on capital formation that the Senate Banking Committee passed with broad support last year. Amendment votes begin today; Sen. Elizabeth Warren, D-Mass., has introduced several, but so far there’s only agreement to move forward on two Republican amendments, including one from Rand Paul, R-Ky., to audit the Fed, a longtime project of his father, former Texas Rep. Ron Paul, later picked up by Sen. Bernie Sanders, I-Vt.

Hensarling has been admirably upfront about his intention to jam the Senate bill full of more late additions, as the bill is designed for the House to just pass the Senate version, rather than go through a conference committee. “Sen. Crapo … has put together a good bill,” Hensarling told Bloomberg. “But we’ve passed a number of bipartisan measures in the House, and we expect those to be reflected in the final bill that ends up on the president’s desk.”

Americans for Financial Reform released a memo this week outlining some of the Hensarling bills and their implications. Among them are measures that would add an appeals process to financial rulemaking, stop the Securities and Exchange Commission from examining high-frequency trading, exempt insurance company products from CFPB oversight, throw out rules on credit rating agencies, assist payday lenders, and enable title insurance companies to increase fees on mortgage buyers.

What will make the final bill? Nobody knows, including the senators who will be voting on it in a matter of days.

Top photo: Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee, joined by, from left, Sen. John Barrasso, R-Wyo., Sen. John Thune, R-S.D., and Senate Majority Leader Mitch McConnell, R-Ky., right, talks to reporters as the Senate moves closer to passing legislation to roll back some of the safeguards Congress put in place to prevent a repeat of the 2008 financial crisis, during a news conference at the Capitol in Washington, Tuesday, March 6, 2018.