Congress has forgotten the “devastating impact of the financial crisis,” Senator Elizabeth Warren said on Tuesday as Republicans moved closer to relaxing banking regulations implemented after the financial crash of 2008.
A vote of 67-32, with support from a coalition of moderate Democrats, a number of whom are facing tough midterm elections, allowed the Senate to begin debating a bill that would scale back some of the 2010 laws, known as Dodd-Frank, meant to prevent future abuses in the financial system.
The strong bipartisan vote paves the way for the Senate to pass the bill by the end of the week. Lawmakers in the Republican-led House would still need to approve the measure before it comes law.
Republican leaders said the bill would boost small banks and businesses. Senior Democrats said it was an attempt to deregulate big banks that caused the 2008 crash, inviting similar disaster.
“This bill seeks to right-size the regulatory system in our country and to allow our community banks and credit unions to flourish,” senator Mike Crapo, chair of the Senate banking committee and the author of the legislation, told reporters on Tuesday.
The legislation would increase the threshold at which banks are subject to stricter capital and planning requirements. Lawmakers are intent on easing those rules for midsize and large regional banks, asserting that would boost lending and the economy.
Warren, the Massachusetts Democrat who worked with the Obama administration on banking industry oversight after the 2008 crash, pledged to fight the bill, even if she faced long odds.
“There’s Democratic and Republican support because the lobbyists have been pushing since the first day Dodd-Frank passed to weaken the regulations on these giant banks,” she said during a morning press conference.
She added: “People in this building may forget the devastating impact of the financial crisis 10 years ago – but the American people have not forgotten. The American people remember. The millions of people who lost their homes; the millions of people who lost their jobs; the millions of people who lost their savings, they remember and they do not want to turn lose the big banks again.”
She was joined in her rebuke of the legislation by Vermont senator Bernie Sanders, who said in a statement: “Now is not the time to deregulate banks that have more than $3.5tn in assets and lay the groundwork for another massive financial collapse. Now is the time to take on the greed and power of Wall Street and break up the largest financial institutions in the country.”
Pat Toomey, a Pennsylvania Republican who chairs a key banking subcommittee, touted the measure as “progress” toward providing relief from regulation for small credit unions and regional banks.
“This begins the process of pushing back a little bit on the excesses of Dodd-Frank,” Toomey said, “which are holding back economic growth and imposing completely unreasonable costs on small banks and banks that are not systemically a threat to the country.”
The House financial services committee chairman, Jeb Hansarling, said his chamber’s bill was “a very modest recalibration” of Dodd-Frank “that’s going to help community banks and credit unions”. The legislation would increase the threshold at which banks are considered too big to fail and are subject to stricter regulations.
Warren said the Senate bill contained a change to wording that would allow the biggest banks to pressure the Federal Reserve. The language in the bill now says “the Fed shall tailor the rules for the biggest banks”, instead of may.
“That one word change will allow the banks to sue the Fed if they don’t weaken the rules the way the banks want,” Warren said. “And that pressure on the Fed will lead to a systematic weakening of the rules for all the big banks.
“This may be the single most dangerous provision in the bill and it applies only to the biggest Wall Street banks.”
Analysis of the Senate bill by the non-partisan Congressional Budget Office (CBO), released on Monday night, found it would increase the likelihood of a taxpayer-funded bailout of failed banks.
“CBO estimates that the probability is small under current law and would be slightly greater under the legislation,” it said.
Warren said: “I don’t understand how anyone regardless of political party could support a bill like that. That means that the American taxpayer is going to take all the risk and all the profits are going to go to giant banks. That’s just fundamentally wrong.”
She had a dozen amendments “ready to go” she said, including one to impose mandatory penalties on companies like Equifax when they lose consumer data and one to prohibit employers from requesting credit reports as part of job applications.
Warren said she would do everything she could to stop the bill passing the Senate.
“We’ve seen this movie before and we know how it ends,” she said, adding: “It’s a demonstration of what’s wrong with Washington: the lobbyists speak loud here but the people don’t.”