Banks Balk at Easing Dodd-Frank Capital Requirements for Insurers

By | December 3, 2014

After coming together to help Republicans retake Congress, the financial industry is splitting over the best strategy to accomplish its main goal of paring back the Dodd-Frank Act.

The rift appeared the day after the Republicans’ victory in November. Lobbyists for Bank of America Corp. and JPMorgan Chase & Co. marched to Capitol Hill to discuss a bill that would give insurance companies a break from stiff capital requirements, according to two people with direct knowledge of a meeting held with Senate Banking Committee staff members.

The legislation has broad support from lawmakers of both parties. While Wall Street also backs the bill, the lobbyists told Senate aides that they want something in it that benefits banks too, said the people who asked not to be named because the discussions were private. Otherwise, the measure should be tabled until 2015 when Republicans take over Congress, the lobbyists said.

The broad lobbying effort by the banking industry has riled insurance companies, which thought they had persuaded lawmakers to pass their bill this year. Insurers are concerned that Congress won’t act before a deadline for regulators to stick them with capital rules that are similar to those planned for lenders.

“Life insurers have been working for more than two years to fix this problem and time is running out,” said Chris Stern, a spokesman for Metlife Inc.

$200 Million

Banks, insurers and investment firms donated more than $200 million on the 2014 elections, with almost two-thirds going to Republicans, according to Center for Responsive Politics data. A top goal is persuading the next Congress to roll back rules that have cut profits and risk-taking in the wake of the 2008 financial crisis.

How to achieve that, however, has banks and insurers at loggerheads. They could push for several smaller bills, as the insurers suggest, or follow the banks’ strategy of lobbying for a much broader overhaul, which risks drawing a veto from President Barack Obama.

“The struggle is between getting done something or getting done nothing,” said Francis Creighton, the head lobbyist for the Financial Services Roundtable, which represents banks and insurers. “We’re trying to balance all of our members’ needs.”

A spokesman for JPMorgan declined to comment, while a spokesman for Bank of America had no immediate comment.

Banks’ risky lending and derivatives trades were largely blamed for causing the economic meltdown six years ago. A $700 billion taxpayer bailout of lenders also spurred public outrage that made the industry the main target of Dodd-Frank.

Wall Street Wish List

As a result, Wall Street’s wish list for watering down the 2010 law is much longer than other financial companies. It includes easing the Volcker Rule ban on making bets with their own money, weakening swaps regulations and reining in the Consumer Financial Protection Bureau, an agency set up to oversee mortgage lending and credit cards.

On the insurance bill, the Senate unanimously approved legislation in June that allows the Federal Reserve to impose softer capital rules for insurers than those for banks. If passed by the full Congress, it would mark the first revision to Dodd-Frank since Obama signed the law four years ago.

Banks prefer House legislation that gives insurers what they want, while also including revisions to the prohibition on proprietary trading and a break allowing lenders to charge certain mortgage fees without running afoul of regulators.

Without those and other fixes, the banks want any amendments to Dodd-Frank to wait until 2015. Since Republicans have won back the Senate and maintained control of the House, lenders say the environment in Washington will be more friendly to wholesale changes.

“There were a limited number of areas the insurance industry wanted to address,” said James Ballentine, executive vice president of congressional relations for the American Bankers Association. “I can name 10 issues in Dodd-Frank we want to be addressed immediately and a dozen we want addressed at some time. We have to fight on the whole book.”
–With assistance from Robert Schmidt in Washington.

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