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The fate of bank regulation rests with the House after the Senate approved a bill that would relieve smaller banks of some of the restrictions put in place after the financial crisis 10 years ago.
The bill has the support of moderate Democrats, but some Republican members of the House have said it doesn't go far enough and have threatened to tie up a vote by trying to add more provisions. It is considered the biggest rewrite of financial regulation since the Dodd-Frank Act of 2010.
One of the main provisions would raise the threshold for banks to be considered so vital to the financial system that they must be subjected to extra oversight and submit to mandatory annual stress tests. The current asset level is $50 billion, and the bill would raise that to $250 billion. That would spell regulatory relief for more than two dozen banks, including SunTrust, Regions and even Goldman Sachs.
It would also lift restrictions on trading for banks smaller than $10 billion of assets and loosen or eliminate some mortgage lending regulations.
"The Dodd-Frank Act has proven to be far too blunt an instrument for regulating our financial system," Senate Majority Leader Mitch McConnell said in a statement Wednesday. "Regulations meant for Wall Street are crushing Main Street."
The House isn't expected to take up a vote immediately, though analysts said the bill is expected to pass by the House's August recess.
While its supporters say the goal is to make lending and community investment easier for regional and smaller lenders, analysts say there could be a wave of mergers as a result of the changes. "We expect this to lead to greater capital returns and more M&A," said Jaret Seiberg, an analyst at Cowen and Co. in a note earlier this month.
Bank mergers have been rare in recent years as companies tried to avoid surpassing the asset-size threshold that would bring the strictest regulation. "In the past, banks were wary to cross the $50bn asset marker," said Barclays analyst Jason Goldberg in a note Thursday. "We think this threshold now increases to $100bn."
That could mean combinations of banks in the $40 billion-asset range (banks this size include Silicon Valley Bank, Signature and Bank of Oklahoma) and smaller banks (like BankUnited and First Hawaiian).
The Senate passed the bill, which was sponsored by Republican Sen. Mike Crapo of Idaho on Wednesday evening by a vote of 67 to 31.
The snag could be Rep. Jeb Hensarling, the Texas Republican who heads the Financial Services Committee in the House, and has been pushing to add provisions from multiple bills passed by the House.
"I look forward to combining them with our helpful House bipartisan banking bills and getting that combined bill to the President's desk," he said in a statement Wednesday.
In a meeting with reporters Thursday, Hensarling said he has a package of 30 House bills to discuss including the Senate bill, and added he was open to private negotiations or a formal conference with the Senate to iron out differences. He said the bill "will not move" from the speaker's desk without being negotiated.
The Senate already tried to incorporate many of the provisions in its own bill to keep moderate Democrats happy. "This is a clear effort to buy support in the House, especially Financial Services Chairman Jeb Hensarling," Seiberg wrote in his note. "Senate GOP leaders want the House to simply approve the Senate Bill as written rather than adopt changes that would require a conference."
Seiberg added, "We believe this bill goes about as far as the Democratic sponsors are willing to go."
Opponents of the Senate bill have sarcastically named it "the Bank Lobbyist Act." In a tweet after the Senate vote, Massachusetts Democrat Sen. Elizabeth Warren said: "Instead of working to #EndGunViolence – Republicans and Democrats came together today to deregulate the big banks and set the stage for another financial crash. Bankers are popping champagne because the #BankLobbyistAct just passed the Senate."
— CNBC's Kayla Tausche contributed reporting.