Sens. Sherrod Brown (pictured) and Elizabeth Warren argue that the proposed regulatory rollbacks go too far. | AP Photo Democrats split over support for GOP-led bank bill In an unusual development, nine Democrats are co-sponsoring the package, which would scale back rules for many banks.

A Republican-led proposal to roll back banking regulations is drawing support across party lines in the Senate, building momentum for the biggest rewrite of financial rules in years and setting the stage for a showdown among Democrats.

In an unusual development, nine Democrats — enough needed to pass the bill with Republicans in the months to come — are co-sponsoring the package, which would scale back rules for many banks.


The legislation was negotiated by Senate Banking Chairman Mike Crapo (R-Idaho) with a group of red-state Democrats who have been working for years to ease regulations that they say are stifling lending.

They are pushing ahead despite opposition from liberal lawmakers, including two prominent finance industry critics — Sen. Sherrod Brown of Ohio, the top Democrat on the Banking Committee, and Sen. Elizabeth Warren of Massachusetts, who has attracted a massive following by attacking Wall Street. Brown and Warren argue that the proposed regulatory rollbacks go too far.

"Clearly, they're my friends and clearly I don't agree with them or I wouldn't have put this package together," said Sen. Joe Donnelly (D-Ind.), one of the members who negotiated the legislation. "People can make up their own minds."

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The debate is exposing philosophical differences in the Democratic Party as it struggles to define itself on economic issues in the wake of last year's stunning electoral defeat.

For years, Senate Democrats have maintained a nearly impenetrable wall against efforts by the banking industry and Republicans to roll back sweeping financial regulations that President Barack Obama signed into law in 2010.

That landmark legislation, known as Dodd-Frank, imposed new rules across the finance industry, affecting the biggest Wall Street banks and the smallest local lenders.

Revisions by Congress have been few and far between over the years as Senate Democrats refused to help enact the long list of rollbacks passed by the Republican-controlled House of Representatives.

"There's always been concern that making any changes might be opening up Pandora's box," said Emily Liner, senior policy adviser at the centrist think tank Third Way. "There's definitely leaders of the party who don't want to open up that box."

Now, with Republicans making a new push to rewrite financial industry rules while they control Washington, a number of Democrats who have long been open to revising Dodd-Frank are volunteering to help ease regulations in the name of promoting economic growth.

The effort was years in the making.

Two years ago, when Senate Republicans drafted another wide-ranging "regulatory relief" package that Democrats opposed, a group of moderates from both parties sought to salvage the opportunity by hashing out areas of common ground.

Although they got close, a formal bill never saw the light of day. Dodd-Frank remained largely untouched.

Last November's Republican sweep of the White House and Congress re-energized the drive to pare down the law. Over several months of this year, Crapo and Brown tried and failed to work out an agreement.

Along the way, moderate Democrats urged them to hurry up and get a deal done. Warren drew clear red lines for any rollback of regulations.

On Halloween, Brown said he and Crapo were unable to reach a compromise "that protects consumers while supporting small banks and credit unions."

With Brown stepping away, the same group of moderate Democrats wasted no time in taking their own stab at a new bill in cooperation with Crapo.

The new negotiations were driven by Democrats who, like Brown, are up for reelection in states that Donald Trump carried in last year's election: Sens. Heidi Heitkamp of North Dakota, Jon Tester of Montana and Donnelly. Virginia's Mark Warner also participated in the talks.

With staff working around the clock, Crapo and the Democrats announced an agreement on Nov. 13. Crapo said the package would boost economic growth by "right-sizing regulation."

The legislation they released was co-sponsored by 10 Republicans, nine Democrats and one independent.

“Our bill is an example of how if Democrats and Republicans can put partisanship aside and work together, we can reach real compromises that support the country,” Heitkamp said.

The deal includes several proposed regulatory revisions intended to help smaller, community banks — a sector of the finance industry with broad political support.

At a March hearing, Heitkamp talked about what it was like securing a loan in the 90-person town where she grew up, emphasizing the role of "relationship bankers."

"It’s character banking, and we're losing it in this country," she said. "Part of why rural America is retracting, I believe, is that we don't have that anymore."

In addition to the small-bank provisions, the bill has a handful of consumer protection measures. One would require credit bureaus to offer consumers a free annual credit freeze. Another would shield veterans from having certain medical debt appear on their credit reports.

The most controversial element of the package would lift regulations for several banks with more than $50 billion in assets — a threshold that subjects lenders to stricter government oversight under Dodd-Frank.

Momentum for the change had been building for years, after Federal Reserve officials and former Rep. Barney Frank (D-Mass.), one of the lead legislators behind Dodd-Frank, suggested that Congress should raise the threshold.

Eliminating the backstop completely was a lobbying priority for a coalition of regional banks and credit card companies that wanted to let regulators choose which lenders should be subject to more stringent rules, rather than leaving it up to what they argued was an arbitrary numerical trigger.

Crapo and the moderate Democrats agreed to move the threshold to $250 billion over a phase-in period, a change that could help several large banks across the country.

They agreed to give the Fed the authority to continue keeping close tabs on the health of banks with $100 billion to $250 billion in assets and to bring them back into a tougher regulatory regime if necessary. The world's biggest banks that are based in the United States, including JPMorgan Chase and Bank of America, were carved out of the regulatory rollback.

Donnelly said the bill would make it easier for "safe and stable" mortgages to be made. He said it would not threaten the Consumer Financial Protection Bureau, the watchdog agency that has been under attack by Republicans and finance industry lobbyists since Democrats established it in 2010.

"My priorities were to make sure that this worked for average families," Donnelly told POLITICO.

Brown, Warren and their allies say the bill does not achieve that goal.

"We really hope [Senate Minority Leader Chuck] Schumer holds the line on this and that this proposal gets very vigorous debate," said Marcus Stanley, policy director for Americans for Financial Reform, a coalition of consumer and labor groups that advocates for stricter Wall Street oversight.

In a press conference last week, Warren suggested that helping big banks was out of touch with what voters want.

"I just did my 16th town hall so far this year in Greenfield, Massachusetts," she said. "In all of these town halls, and the thousands of people that I have seen, and the thousands of people who have come through the photo line and told me what matters most to them, not a single one has said, 'Senator Warren couldn't you please help banks with $200 billion in assets be regulated a little less?'"

The conflict will likely escalate in the coming weeks. The Banking Committee is scheduled to vote on the bill and consider amendments on Dec. 5.

Sen. Jack Reed (D-R.I.), one of the senior Democrats on the panel, said the bill had some good points but that it could be improved. One area of concern: A provision that would scale back the frequency of bank stress tests.

"That's been a very valuable tool for financial stability," he said.

Virginia's Warner left open the possibility that critics could be brought on board.

"I'm always looking for ways to see if there's other things we could do to gain their support," he said.

Analysts said the bill likely had the votes it needed for passage — a path that could take months with its own procedural uncertainties. Revising the bill to satisfy Wall Street watchdogs on the Banking Committee would likely require trade-offs that could jeopardize support among other senators.

"It is sub-optimal to work around the committee’s ranking member, and its more clarion progressive voice, but all indications are that the moderate Democrats have crafted a package that they are willing to go to the mattresses for," Compass Point analyst Isaac Boltansky said.