Sen. Bob Corker (R-Tenn.) has proposed stripping the bipartisan Senate banking bill moving toward passage of a provision critics fear would allow some of Wall Street’s biggest firms to take on more financial risk.
Corker, who sits on the Senate’s Banking Committee, filed an amendment Monday to strike a section of the bill that could weaken one of the capital requirements imposed on banks in the wake of the 2008 financial crisis as a safeguard against another crash. The banking bill cleared a Senate procedural vote last week and is expected to pass as early as this week.
Liberal Democrats and some experts have said the banking bill, as currently drafted, opens the door for JPMorgan and Citigroup — two firms with more than $1 trillion in assets each — to lower their safeguards against a financial crisis. The bill's drafters have said JPMorgan and Citigroup will not benefit from the change, while recognizing that the decision will ultimately be left up to banking regulators.
At issue is a special capital surcharge imposed by regulators on banks holding more than $250 billion in assets. For every dollar of assets they have on their balance sheet, these banks are required to keep an offsetting percentage in capital.
Last week, Corker filed a separate amendment to the bill to make clear that only three custodial banks -- Bank of New York Mellon, State Street and the Northern Trust Corporation -- could benefit from the proposed weakening of the surcharge. (These banks primarily hold on to assets on behalf of financial institutions and do not engage in either trading activities of their own or provide services to ordinary consumers.) But this week, Corker is going further, putting forward an amendment that would eliminate the part of the bill pertaining to capital requirements for custodial banks altogether.
Corker said doing so was intended to put the discretion for those choices back in the hands of federal regulators.
“I’m not sure if we wouldn't be better off if instead of the Congress weighing in on how these are going to be dealt with, letting [federal regulators] decide,” Corker said in an interview.
Sen. Sherrod Brown (D-Ohio), the ranking Democrat on the committee and a vocal opponent of the bill, welcomed Corker’s proposal and would vote for it, according to a spokesperson. It's not clear if Corker's amendment will be brought up for a vote.
"Removing this and revisiting it with fresh eyes is a very good idea," Mike Konczal, a banking expert at the Roosevelt Institute, a left-of-center think tank, said of Corker's latest amendment. "Leverage requirements are incredibly important and robust to all kinds of problems regulators will not catch."
Ultimately, the decision on how to enforce the new law is expected to fall to the nation’s banking regulators — the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
An internal analysis by the FDIC found JPMorgan and Citigroup might be able to reduce the amount of money they must keep on hand as a buffer against collapse by a collective $30 billion under the bill.
The bill also offers small banks a range of regulatory relief, including exemption from a rule barring banks from making risky bets with their own money. It also reduces several oversight measures for banks with between $50 billion and $250 billion in assets, paring back “stress tests” that gauge their financial stability and “living wills” that require banks to produce detailed emergency plans if they have to shutter. These changes would not be affected by Corker's amendment.