A rare bipartisan moment allows a timid rollback of banking regulation

REPUBLICANS in the House of Representatives had hoped to cut a swathe through the Dodd-Frank act, a titanic set of financial regulations passed in 2010 in the wake of the 2007-09 crisis. The “Financial Choice Act”, drafted last year, would have lessened bureaucratic oversight and relied more on stiff capital requirements. Responsibilities and penalties would have been made clearer and regulators’ discretionary powers would have been reined in. President Donald Trump, who had promised on the campaign trail to “do a number on Dodd-Frank”, was effusive when the House endorsed the Choice Act last year.

But the bill approved by the House on May 22nd, and expected soon to be signed into law by Mr Trump, is a distinctly tamer affair. It moves the line between big, systemically risky banks and the rest, set in Dodd-Frank at $ 50bn in assets, to $ 250bn. That cuts the number of institutions subjected to stress tests and stricter supervision from 38 to 12. It also eases some restrictions on proprietary trading. But only the very smallest banks will be allowed to substitute higher capital for strict regulation. Even as bold thinking was thrown out, one truly bad idea made it in, presumably under pressure from representatives from heavily indebted states. Municipal bonds will be granted special treatment in the composition of bank capital, incentivising lenders to load up on them.

Greater ambition was foiled by the need to gain support from at least some Democrats. They made it clear that sweeping measures would doom the entire bill. If Jeb Hensarling, head of the House Financial Services Committee and the primary author of the Choice Act, added “a bunch of crazy shit, [the bill] is going to die”, said Jon Tester, a Democratic senator. Changing as little as a full stop would end the law’s chances of passing, one congressman says he was told by a colleague in the Senate. Republicans took what they could get. Mr Hensarling was promised a vote on a package of other proposals, but there appears to be little appetite for a second round.

Deregulation continues by other, less obstacle-strewn routes, however. On May 21st Mr Trump signed the repeal of a directive imposed by the Consumer Financial Protection Bureau on car lending under the previous administration. Because it came into force near the end of Barack Obama’s time in office, it was subject to congressional review under Mr Trump. Many in Washington, and inside the banks, say that the way federal agencies wield power under the new administration has changed: for its supporters, becoming more reasonable and judicious; for opponents, becoming more cursory and irresponsible.

One consequence is that the pressure to rip up Dodd-Frank has eased, not least because the big banks have built vast compliance operations which they believe give them an edge over smaller rivals. A renewed deregulatory push is generally thought unlikely unless the Republicans retain or increase their hold on both branches of Congress in the mid-terms, or prevail in the 2020 presidential election.

There is another possibility. Gains by Democrats in the mid-terms could lead to pricklier supervision and more zealous enforcement of Dodd-Frank provisions. That in turn could re-whet appetite for a big deregulatory push, says a former supervisor. A lasting rollback of the rules needs legislation, not just forbearance.

This article appeared in the Finance and economics section of the print edition under the headline “Not quite a number”