In the News

Behind the scenes, his then top economic adviser and a powerful senator settled on a less ambitious plan. And in recent weeks, Mr. Trump called a senior House lawmaker, urging him to move forward despite objections from Republicans who wanted broader changes.

The strategy to seek modest Dodd-Frank changes, agreed to in private by Sen. Mike Crapo (R., Idaho) and former National Economic Council Director Gary Cohn in early 2017, paid dividends on Tuesday: The House of Representatives by 258-159 approved the resulting bipartisan legislation, sending it to the president for his expected signature.

The bill cuts regulations for small lenders and raises the asset threshold at which larger regional lenders automatically face stricter rules, adding up to the most significant changes to the 2010 Dodd-Frank law. The plan leaves untouched most of Dodd-Frank’s major planks, such as emergency government powers and curbs on derivatives, an outcome that is expected to cement those provisions for years to come.

The story of how the legislation came together, based on interviews with current and former officials, demonstrates how policy makers scaled back their priorities to maintain support for a compromise.

“Could it have done more? Sure,” said Rep. French Hill (R., Ark.). “But Sen. Crapo should be congratulated for producing a bill in these partisan times.”

A senior White House official said the administration wanted to help smaller lenders and “recognized that this was about as much as we could get.” The bill is one part of the administration’s agenda to roll back Dodd-Frank rules, the official said.

The bill reflects the outline agreed to by Messrs. Crapo and Cohn. It would raise to $250 billion from $50 billion the threshold at which big banks automatically face strict stress tests and other rules. It would also make community banks eligible for relief from mortgage-underwriting standards.

Mr. Crapo, who declined to comment, became Senate Banking Committee chairman in 2017. A conservative known for his “no drama” demeanor, he told Mr. Cohn that he believed he could enact significant Dodd-Frank changes.

The senator discussed with the former Goldman Sachs Group Inc. executive the outlines of legislation rolling back rules on smaller to medium-sized banks. Both agreed such legislation would be worth doing, even though the strategy would leave behind other GOP priorities. They didn’t, for instance, try to reorganize the Consumer Financial Protection Bureau, a move backed by Republicans but opposed by Democrats.

Mr. Crapo, in the previous Congress, had reached broad agreement on such a package with four moderate Democrats: Sens. Joe Donnelly (D., Ind.), Heidi Heitkamp (D., N.D.), Jon Tester (D., Mont.), and Mark Warner (D., Va.). He wagered he could win their support again, and that they would bring additional members of the Democratic caucus  to secure the requisite 60 of 100 Senate votes.

Democratic supporters in the Senate—17 in all—say the legislation is needed to help smaller, community banks unduly affected by post-crisis regulations. “Too big to fail had become too small to succeed,” Ms. Heitkamp said.

Ten of them are also up for re-election in 2018, with seven representing states that Mr. Trump won in 2016.

During the negotiations, Mr. Crapo rejected potentially controversial proposals, such as consumer bureau changes. He narrowed others to win Democratic support: Mortgage-underwriting-standards relief would go only to banks with fewer than $10 billion in assets, for example.

Democrats, anxious to limit the bill’s scope, resisted some provisions related to capital markets. Lawmakers also ultimately didn’t include language giving new class-action rights to trial lawyers.

Meanwhile, Mr. Cohn spoke with wary Democrats, sometimes daily, reassuring them that the White House wouldn’t scuttle a limited deal.

By Halloween, Sen. Sherrod Brown (D., Ohio), the liberal top Democrat on the banking committee, said he couldn’t support the bill and ended his negotiations with Mr. Crapo.

That evening, at Ms. Heitkamp’s Capitol Hill home, the North Dakota senator and Mr. Tester shared beers and vowed to press on. The two began the process of finding co-sponsors by dividing up names in the Democratic caucus on a napkin.

On Nov. 13—two weeks later—Mr. Crapo said he had a bipartisan deal. It split moderate Democratic supporters and more-liberal opponents led by Mr. Brown and Sen. Elizabeth Warren (D., Mass.), who thought the bill went too far to help an industry posting record profits.

Ms. Warren criticized other Democratic supporters by name in a fundraising email, a move some colleagues felt crossed a line.

After the bill passed the Senate, House Financial Services Committee Chairman Jeb Hensarling (R., Texas) invited lobbyists to a meeting in the Rayburn office building and vented that the Senate bill didn’t go far enough, attendees said. Mr. Hensarling urged them to ask senators to negotiate changes with the House.

Banking groups instead pressed for a quick House vote. Over Congress’ Easter break, community lenders met for lunch with Reps. Steve Stivers (R., Ohio) and Keith Rothfus (R., Pa.) at Pittsburgh’s Duquesne Club.

“Don’t just tell us how you like [small banks], go out and vote for this bill to help us” is how Tim Zimmerman, Standard Bank’s chief executive and the Independent Community Bankers of America’s chairman, described their message to the lawmakers.

Mr. Hensarling met with Mr. Warner, who told him Democrats wouldn’t support additions to the Senate bill.

At a St. Patrick’s Day lunch, Mr. Cohn sought out GOP lawmakers. He told House Majority Leader Kevin McCarthy (R., Calif.): “This [bill] is not a fine wine. It’s not getting better with time.”

Mr. Trump also called Mr. Hensarling from the Oval Office during a briefing on the bill’s status.

“Jeb, I want the bill now,” Mr. Trump said.

“I informed him that negotiations were going well and I thought we would have a pathway forward on our…bills soon,” Mr. Hensarling said, referring to the call.

Mr. Hensarling emerged from the brief standoff without changes to the bill but with a commitment from Senate Majority Leader Mitch McConnell (R., Ky.) to vote on a separate package before the midterm elections. It is unclear what provisions will be included in the separate bill or whether it will have sufficient support to advance in the Senate.