Senate Banking Committee Chairman Richard Shelby, R-Ala., unveiled a discussion draft Tuesday of his highly anticipated legislation to reform the banking industry. The bill tackles a number of areas, including changes to a key Dodd-Frank Act threshold for enhanced prudential standards and the Consumer Financial Protection Bureau's qualified mortgage rule.

Republican committee aides told reporters repeatedly that the proposal was crafted explicitly to "attract bipartisan support" and that it focuses on measures that have either been considered or passed by either the House or the Senate in recent years.

"This discussion draft is a working document intended to initiate a conversation with all members of the Committee who are interested in reaching a bipartisan agreement to improve access to credit and to reduce the level of risk in our financial system," Shelby said in a press release. "I look forward to engaging with members of the Committee on specific proposals in the discussion draft."

But Sen. Sherrod Brown, the panel's top Democrat, released a statement criticizing the bill, saying it went too far.

"Democrats are ready, willing, and able to work with Republicans to get community banks and credit unions the regulatory relief they need right now," Brown said in the statement. "Rather than focusing on issues that enjoy broad bipartisan support, this draft bill is a sprawling industry wish list of Dodd-Frank rollbacks. This sweeping proposal holds Main Street financial institutions hostage to a partisan effort to dismantle Dodd-Frank's consumer protections and sensible rules for the large banks and nonbanks that played central roles in the financial crisis."

Lawmakers will have until next week to hash out any potential changes to the Financial Regulatory Improvement Act before a panel vote on May 21, though Shelby and Brown have both complained about the negotiation process thus far.

One GOP aide said that some panel Democrats have indicated they are willing to work on the bill now that is being publicly released.

Mortgage Finance

The draft proposal includes several provisions related to the mortgage finance system, including Fannie Mae and Freddie Mac. The bill would prohibit Congress from using guarantee fees to offset unrelated government spending and would ban the sale of Treasury-owned preferred stock in the government-sponsored enterprises without the approval of Congress.

The bill would also direct the Federal Housing Finance Agency to provide lawmakers with updates on the establishment of a common securitization platform and would transition the platform over time to a non-profit available to approved issuers beyond Fannie and Freddie. It would also mandate that the GSEs' risk-sharing levels be at least 150% the previous year's level, with at least half of the total as front-end risk sharing.

Community Banks

The bill contains 25 different measures designed to loosen regulations on the country's smallest banks, including several bills that have won bipartisan support in both the House and Senate.

The measures include relief from annual privacy disclosure requirements, permission for privately insured credit unions to become members of the Federal Home Loan Bank system, an exemption for banks under $10 billion of assets from the Volcker Rule and a requirement that the National Credit Union Administration hold public hearings and receive comment on its budget.

The title also includes several provisions previously criticized by Democrats, but aides say the language has been amended to take into account concerns from a variety of sources. For example, the draft proposal includes a change to the CFPB's Qualified Mortgage rule allowing all loans held in a bank’s portfolio to be eligible for the rule's safe harbor provisions, but the bill makes changes banning certain types of loans, such as "no-doc" loans that helped spur the financial crisis.

Similarly, though the bill contains a controversial measure amending how certain "points and fees" are calculated under the QM rule, it removes language regarding affiliated title companies that spurred much of the earlier criticism.

SIFI Threshold

As previously reported, the legislation would alter aspects of a key Dodd-Frank threshold mandating tougher capital and oversight on banks over $50 billion. Under the bill, all institutions over $500 billion would be considered "systemically important" financial institutions, and regulators would have the discretion to examine any banks over $50 billion to be considered systemic.

The Federal Reserve Board would make a recommendation to the Financial Stability Oversight Council to evaluate a particular bank holding company, though the FSOC would have the ability to launch its own evaluation as well. Regulators would need to use several factors including, size, interconnectedness, substitutability, cross-border activity and complexity to determine whether a bank should be considered a SIFI.

The FSOC would be able to vote to change the list of criteria over time, and the $500 billion threshold would also be indexed for GDP growth.

FSOC Process for Non-Banks

The draft legislation would codify changes to the FSOC process for designating nonbanks as systemically important. The changes are designed to provide additional transparency to the process. Lawmakers have criticized FSOC's designation process as being too opaque. The bill would create a similar process for banks being considered as potential SIFIs.

The FSOC would be required to give detailed explanations for why regulators are considering a designation; provide opportunities for companies to meet with council representatives; analyze a company's remedial plan for removing a SIFI designation and allow for revisions; and offer an explanation if the council moves forward with a formal designation.

Regulators would also be required to hold a hearing for designated companies at least once every five years and would have to vote to renew the decision to designate.

Fed Reforms

The bill also focuses on several changes to the Federal Reserve System. The Fed's Federal Open Market Committee would be required to release quarterly reports on economic conditions around the country, though the Fed chair would still testify before Congress semi-annually. The proposal would also direct the formation of an independent commission to evaluate the structure of the Fed system, including looking at the number and structure of the Fed's 12 districts.

Under the bill, the Fed would be required to publish a study every two years on its regulation and oversight of nonbanks, a provision that would sunset after 10 years. The Government Accountability Office, meanwhile, would be required to publish a study looking at the agency's regulation of systemically important institutions, with an eye toward issues around regulatory capture.

Swaps, Emerging Growth Companies

This title includes several measures related to Securities and Exchange Commission registration and regulation. For example, it would remove indemnification requirements on swap data so that it can be shared with foreign regulators more easily and would establish a "grace period" for emerging growth companies working toward an initial public offering.

Insurance Oversight

This section of this bill includes several provisions related to the insurance industry. One measure would prohibit the Federal Deposit Insurance Corp. from capturing funds or assets from a savings and loan holding company that's also an insurance company if a state insurance regulator determines it would materially affect the company's financial condition.

Another measure would require state and federal insurance regulators to provide greater transparency around international negotiations on insurance matters.

Technical Corrections

The final section of the bill, which spans more than 50 pages, is focused solely on technical corrections. Republican committee aides emphasized that the revisions did not contain any changes that could be considered substantive and that it focused on typos and obvious mistakes that needed fixing.

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