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Bank regulation rewrite won't destabilize system but will help Main Street: Republican senator

  • Easing bank regulations will help stabilize the system — not set the stage for another financial crisis, Sen. Bill Cassidy says.
  • "It will help Main Street. It will help smaller communities," he argues.

Easing bank regulations will help stabilize the system — not set the stage for another financial crisis, Sen. Bill Cassidy, R-La., told CNBC on Thursday.

The Senate voted 67 to 31 on Wednesday to ease regulations on all but the largest banks. If the bill becomes law, it will be the biggest rewrite of financial laws since the Dodd-Frank reform act was passed after the financial crisis.

"It will help Main Street. It will help smaller communities," Cassidy said of the Senate legislation.

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.

Cassidy argued that since Dodd-Frank was passed, the big banks have gotten bigger, while community banks have "dramatically decreased in number."

"It has increased, if you will, the instability of the system if it is judged by concentration of assets. The more that you spread those assets out, the more stable the system," he said on "Closing Bell."

"The degree [to which] it succeeds in getting stronger smaller banks, the more stable the system will be."

However, critics such as Massachusetts Democrat Sen. Elizabeth Warren have argued it would apply to too many banks and damage efforts to protect consumers after the financial crisis.

In a tweet after the Senate vote, 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."

Cassidy said the problem is that the marginal costs for community banks to comply with regulations dramatically impacts their ability to make loans.

"I want lending to be happening in smaller communities. They've suffered over the last eight to 10 years. They need to prosper," he said.

The bill now heads to the House, where it has the support of some moderate Democrats. However, some Republicans have argued it doesn't go far enough and have threatened to tie up a vote by trying to add more provisions.

— CNBC's Liz Moyer, Jacob Pramuk and John Schoen contributed to this report.