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US plan to roll back Dodd-Frank wins bipartisan backers

The Financial Times logo The Financial Times 11/13/2017 Alistair Gray in New York
a close up of a sign: A Wall Street sign is displayed in front of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Nov. 11, 2016. U.S. stocks fluctuated in whipsaw trading, with the Dow Jones Industrial Average spinning near a record, as investors speculate how Donald Trump's policies will impact the economy and interest rates. Small caps headed for the best weekly gain in five years. Photographer: Michael Nagle/Bloomberg© Bloomberg A Wall Street sign is displayed in front of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Nov. 11, 2016. U.S. stocks fluctuated in whipsaw trading, with the Dow Jones Industrial Average spinning near a record, as investors speculate how Donald Trump's policies will impact the economy and interest rates. Small caps headed for the best weekly gain in five years. Photographer: Michael Nagle/Bloomberg

The number of banks deemed systemically important and subjected to extra regulation in the US could be cut by two-thirds, after a plan to roll back Obama-era reforms attracted bipartisan support.

As the Trump administration and congressional Republicans push to reverse Dodd-Frank, Washington’s central piece of post-crisis financial legislation, the agreement with several key Democrats on the Senate banking committee on Monday raised the chances of banks securing relief from significant provisions in the law.

The plans would raise the threshold for banks deemed systemically important — a label that carries tighter supervision including annual stress tests — from $50bn to $250bn. Banks with less than $100bn would be freed immediately. The benefits for banks above the threshold would be phased in, and the number of systemically important banks could fall to about a dozen from almost 40 currently.

Sizeable mid-sized operators including BB&T, SunTrust and Citizens Financial, as well as smaller community banks and credit unions, would enjoy relief.

Backers of the plans, led by the Republican Senate banking committee chairman Mike Crapo, pitched them as a way to boost the US economy by slashing red tape and encouraging lending.

“We’ve seen a one-size-fits all approach to our financial system that strangles economic growth in towns across the country,” said Jon Tester, a Democrat who represents Montana.

The move came under immediate fire from some other Democrats, however, and will have to pass significant Congressional hurdles to become law. Senator Sherrod Brown, ranking member of the committee, said: “Banks made record profits last year and it looks like executives will get bigger bonuses this year. Hourly wages have stagnated for 40 years, and too many Americans are still feeling the impact of the 2008 financial crisis. Who needs help the most?”

The Republicans’ narrow majority in the Senate effectively rules out a full-scale repeal of Dodd-Frank, despite President Donald Trump having floated the prospect. Yet the deal on Monday shows more limited reform can win support across the aisle.

“This bipartisan regulatory relief package is an example of what we can achieve when we work together,” said Joe Donnelly, another Democrat on the Senate banking committee.

The package carries a series of reforms for community banks and credit unions, including simpler capital requirements.

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