WASHINGTON (AFP) - The US House of Representatives on Thursday (June 8) took a major step towards gutting banking regulations passed in the wake of the 2008 financial crisis, which critics say imposed undue restrictions on lending.
The Republican-controlled House approved the Financial Choice Act by an overwhelming vote of 233 to 186.
The Bill would eliminate many of the provisions of the Dodd-Frank Act that tightened rules on banks in an effort to ward off another financial crisis.
It still must be approved by the Senate before it can take effect, however, and that will be more of a challenge since it will require some Democrats to join the majority Republicans.
Critics argue that Dodd-Frank cramped lending - despite data to the contrary - and imposed undue costs and restrictions on smaller community banks, which were not involved in the risky behavior that fuelled the mortgage crisis.
Community banks "are being crushed by the costly rules imposed on them by the Dodd-Frank Act. This law may have had good intentions, but its consequences have been dire for Main Street," House speaker Paul Ryan said in a statement.
"The burdens created are real. These costs are unsustainable for small, community banks, who cannot afford to meet all the requirements and can't hire a team of lawyers to decipher the seemingly endless rules."
Despite the focus on the concerns of small banks, the Choice Act takes many more far-reaching steps.
It would eliminate the rule preventing banks from engaging in speculative trading, and remove the authority of the multi-agency Financial Stability Oversight Council to label some institutions as "systemically important" - more familiarly known as "too big to fail" - which subjects them to additional requirements to protect the broader banking system from potential collateral damage.
The Bill also gives the President the ability to fire the head of the Consumer Financial Protection Bureau, and gives Congress control of the agency's budget, meaning it could be defunded entirely.
Opponents of the act say the reform would be disastrous for working Americans.
The Consumer Federation of America denounced the measure as "a deregulatory wish-list from special interests that repeals many of the significant achievements in the Dodd-Frank Act."
"Without such protections, consumers and investors will be exposed to greater risk of being harmed in concrete ways and the financial system will be exposed to greater risk of instability and crises."
And consumer financial watchdog group Better Markets said in a statement that "it is not the case that financial protection rules and economic growth are mutually exclusive. In fact, durable, sustainable economic growth requires effective rules."