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House Republicans roll out plan to replace Dodd-Frank

U.S. Rep. Jeb Hensarling

House Financial Services Committee Chairman Jeb Hensarling unveiled the Republican plan on Tuesday to repeal much of the Dodd-Frank Act and make sweeping changes to bank regulations and regulatory agencies that oversee banks and mortgage companies. 

During a speech before the Economic Club of New York, the Texas Congressman outlined the broad points of a reform bill dubbed the Financial CHOICE Act, which will be introduced in the House later this month. 

The bill proposes to roll several previously Republican-sponsored measures into a single reform package. One major change would provide a path for banks to avoid many of today’s regulations and oversight under Dodd-Frank and Basel III. Basically, the banks could “off-ramp” from the regulations by building up capital reserves to levels well beyond the norm today. For a big bank, the threshold would be a 10 percent leverage ratio.

Another goal would be to end the government bailouts of the so-called “too-big-to fail” banks by creating a new chapter of the bankruptcy code to deal with the failure of a large bank.   

The measure would also repeal several title reforms in Dodd-Frank that limit capital formation, including the Volcker Rule, which prevents banks from engaging in speculative trading and investing in hedge funds and private equity funds. The bill also would beef up the authority of the U.S. Securities & Exchange Commission to impose sanctions on negligent Wall Street firms responsible for shareholder losses, and increase the penalties for fraud and self-dealing.

In addition, the legislation is expected to call for restructuring several regulatory agencies currently headed by single directors. Those agencies would, instead, be overseen by bipartisan commissions, and Congress would be given direct budget oversight of these agencies. This would affect the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency and the Office of the Comptroller of the Currency. The CFPB would be renamed the “Consumer Financial Opportunity Commission,” with the dual purpose of protecting consumers and encouraging competitive markets. The agencies also would have to do a mandatory cost-benefit analysis of their proposed rules. 

Hensarling echoed often-repeated attacks by Republicans on Dodd-Frank, saying the 2010 reform bill “has failed” and choked off the economy, while also causing smaller institutions to go under while ceding more power to big banks at the root of the financial crisis. 

“Today the big banks are bigger and the small banks are fewer,” Hensarling said. “Dodd-Frank codified into law 'too big to fail' and taxpayer-funded bailouts. This is bad policy and worse economics.”

The American Bankers Association (ABA) and the National Association of Federal Credit Unions praised the initial outline of the reforms.

“Members from both sides of the aisle agree that parts of Dodd-Frank just aren’t working,” said James Ballentine, ABA’s executive vice president of congressional relations and political affairs. “Any law that generates more than 24,000 pages of proposed and final rules will inevitably include problems that should be fixed.”   

 Sen. Elizabeth Warren, D-Mass, one of the architects of the Consumer Financial Protection Bureau, however, called the proposal "a wet kiss to Wall Street" that would undermine consumer protections and the stability of the banking system. 


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