US Republicans have taken the first step to replacing the controversial Dodd-Frank Act which reformed the banking system in the wake of the financial crisis.
Republicans say the act, which imposed much tighter lending restrictions on banks, is damaging smaller banks and their ability to lend to small businesses.
The CHOICE Act introduced into the House of Representatives would allow banks to choose between complying with Dodd-Frank rules or holding more capital to protect against insolvency.
The new act is part of US President Donald Trump’s move to deregulate government and make it easier for businesses to borrow.
CHOICE would eliminate the Volcker rule that limits banks’ trading activities, and reform the Consumer Financial Protection Bureau, set up to guard against fraudulent lending.
The act was passed by the House, but commentators expect it to fall in the Senate. However, Senate banking committee chairman Mike Crapo, a Republican, said he would hold several hearings in the months ahead with the aim of "ultimately passing a meaningful and bipartisan reform package", according to Reuters.
“The CHOICE Act makes a positive move away from government micromanagement, and returns to basic principles of safety and soundness and market-driven principles,” he said in a statement.
Dodd-Frank was hailed as one of President Obama’s biggest achievements. Democrats have warned that diluting the lending rules it imposed could bring about another financial disaster.