By Michelle Price and Pete Schroeder
WASHINGTON (Reuters) - A bipartisan group of U.S. senators said on Monday they reached a tentative deal to ease some banking rules meant to protect consumers, a major step forward for efforts to roll back regulations enacted following the 2008 financial crisis.
The bill would exempt banks with less than $250 billion in assets - including BB&T, SunTrust Banks and American Express - from heightened regulatory scrutiny, in a move that could redraw the domestic U.S. banking landscape by reducing costs and unleashing a wave of mergers and acquisitions activity.
The House of Representatives has already passed a broad rewrite of the Dodd-Frank law, but Senate agreement is necessary before the Republican-led Congress can approve easing the rules for the banks.
Industry expectations on a final deal had been muted because Senate Republicans need eight Democrats to support their efforts in order to pass changes to the post-crisis rules. The Senate bill, which is more limited in scope than the House's original proposal, has nine Democratic co-sponsors, meaning it is likely to pass into law.
Senate Banking Committee Chairman Mike Crapo struck the deal with a group of moderate Democratic senators including Joe Donnelly, Heidi Heitkamp, Jon Tester and Mark Warner, who took over the discussions with Crapo after the committee's ranking Democrat, Sherrod Brown, walked away from the talks last week.
“The bipartisan proposals on which we have agreed will significantly improve our financial regulatory framework and foster economic growth by right-sizing regulation, particularly for smaller financial institutions and community banks," Crapo said in a statement.
The move has been strongly opposed by consumer advocacy groups such as Americans for Financial Reform and some powerful Democrats including Senator Elizabeth Warren, who argue it will increase risks to the system, potentially hurting consumers.
“I understand my colleagues’ interest in agreeing to this legislation, but disagree on the wisdom of rolling back so many of Dodd-Frank’s protections with almost no gains for working families,” Brown said in a statement.
The KBW Regional Banking Index turned positive around midday and was last up about 1.4 percent after steadily climbing in afternoon trading.
RAISING THE THRESHOLD
Central to the bipartisan discussions has been the asset threshold at which banks are deemed systemically important financial institutions or "SIFIs," subjecting them to much stricter oversight including higher capital buffers.
That threshold starts at $50 billion, but Monday's bill would raise it to $250 billion, releasing more than a dozen banks from the stricter rules, according to an analysis by the government's Office of Financial Research.
Banks with assets between $50 billion and $100 billion would
be exempt once the bill is enacted, while those with assets between $100 billion and $250 billion would be exempted 18 months later.
The bill would give the Federal Reserve discretion to release banks in the second bracket from the SIFI designation prior to the 18-month deadline if it sees fit, and to reinstate them as SIFIs afterward, subject to certain conditions still being drawn up.
Raising the threshold would not only reduce costs for many banks but allow those that have hovered beneath the $50 billion threshold to do deals and expand their balance sheets without fear of being caught by stricter oversight.
(Additional reporting by Aparajita Saxena in Bengaluru and Patrick Rucker in Washington and Lewis Krauskopf in New York; Editing by Shounak Dasgupta and Peter Cooney)