Bank Deregulation Under S. 2155

Mark Berookim did not write this blog post and the content within this article does not express his views on the topic.

In 2010, President Barack Obama signed into effect the Dodd-Frank Wall Street Reform and Consumer Protection Act. The purpose of Dodd-Frank was to offer protection to American families from predatory lending practices at banks. Now, a new bill, S. 2155, threatens to roll back those protections and hand banks a big gift in the form of deregulation. The bill’s opponents have begun referring to it as “The Bank Lobbyist Act” in reference to the fact that it is lobbyists and not constituents who are responsible for pushing the bill forward.

The global financial crisis of a decade ago began with the collapse of Bear Stearns, an enormous investment bank in March 2008. Debts from bad mortgages brought the bank down and led to a $29 billion government bailout. Countrywide was one of the many banks that received some of this bailout money.

Dodd-Frank required banks to make sure that people had the means to pay back loans before giving them home mortgages. Under the terms of the new bill, banks that have up to $10 billion in assets will be permitted to give borrowers predatory mortgage loans similar to the ones that ultimately harmed both homeowners and financial institutions prior to the passage of Dodd-Frank. Under the new law, more than 97 percent of banks will be exempt from verifying assets, debts and income of potential borrowers. Homeowners would only be required to demonstrate the ability to pay an initial rate instead of one that is fully amortized. Homeowners who cannot keep up with the long-term payments risk foreclosure and financial institutions will be at risk once again as borrowers default on their loans.

Under the new bill, the threshold above which banks will face additional supervision from the Federal Reserve will increase to $250 billion from $50 billion. This essentially has the effect of deregulating around two-thirds of the country’s 38 largest banks. In 2008, before bailout funding became available, the FDIC deposit insurance fund spent around $9 billion bailing out IndyMac. The passage of S. 2155 means that customer deposits, backed by the FDIC, will be placed at risk once more.

Passage of the bill will require 60 votes. This means that it needs to be a bipartisan effort, but already, 11 Democrats have agreed to co-sponsor it.