NOTE: This post is a preview of a Pro Bill Analysis from POLITICO Pro's Legislative Compass tool. This excerpt was originally published on July 12, 2017.
By MARY LEE and ZACHARY WARMBRODT
07/12/2017 01:50 PM EDT
The House Financial Services Committee approved the Financial CHOICE Act H.R. 10 (115) May 4 on a 34-26 party-line vote. Supporters hope the bill, which seeks to overturn significant parts of the 2010 Dodd-Frank law (PL 111-203), will reach the House floor the week after the Memorial Day recess.
House Financial Services Chairman Jeb Hensarling introduced his original CHOICE bill last Congress, but it remained stuck in limbo during the Obama administration. Now, with support from banks and the White House, he’s introduced this updated version, which would roll back many of the sweeping Dodd-Frank banking regulations that foisted 2,300 pages of rules on the banking system after the 2008 financial crisis.
In the Texas Republican’s 589-page bill, CHOICE 2.0 would rebrand the CFPB as the Consumer Law Enforcement Agency, tasking it with the dual mission of consumer protection and promoting competitive markets. The bill would restructure the agency with a single director removable by the president, and subject it to congressional oversight. It also would abolish the bureau’s supervisory authority, but retain enforcement authority over the consumer protection statutes enumerated in Dodd-Frank (Sec. 711).
Hensarling’s bill would repeal Dodd-Frank's Orderly Liquidation Authority, which allows the FDIC to wind down failing megabanks, and would establish a new chapter of the bankruptcy code instead. The bill would strip FSOC’s authority to designate firms as systematically important financial institutions and would gut the Fed’s authority to supervise and set regulations for nonbank financial institutions (Sec. 111).
The bill would remove the FDIC from Dodd-Frank’s “living will” process, in which banks map out a dissolution strategy in the event of potential bankruptcy or liquidation. Currently, living wills are under FDIC and Fed jurisdiction. It also would revise the living will process by limiting it to biennial submissions, requiring agencies to provide feedback on living wills to banks within six months of submission and requiring agencies to disclose their assessment framework (Sec. 111).
The bill would increase the SEC’s civil penalty authority, as well as criminal sanctions under federal law. It would establish a new fourth tier that triples fines for recidivist offenders. It also would increase penalties for insider trading and other corrupt practices, including leaking information related to living will and stress test processes (Sec. 211).
Hensarling’s bill would put all financial regulatory agencies under the REINS Act, repositioning them under congressional oversight and funding them through congressional appropriations (Sec. 361).
Other provisions the bill would repeal include the Chevron doctrine (Sec. 718); the Office of Financial Research (Sec. 151); the Volcker rule, or bank proprietary trading ban, which Republicans say makes capital markets less liquid and jeopardizes financial stability (Sec. 901); the Franken Amendment and other requirements imposed on credit rating agencies (Sec. 857, 855); Dodd-Frank's Durbin Amendment, which caps interchange fees on debit card transactions (Sec. 735), and the Department of Labor’s fiduciary rule, which requires financial advisers to consider only their client’s best interest (Sec. 841).
The bill would provide an “off-ramp” for banking organizations that hold a leverage ratio of at least 10 percent from some regulatory requirements, including the Basel III capital and liquidity standards (Sec. 602).
It would relax bank stress tests by requiring an annual company-run examination instead of a semi-annual test and change the Comprehensive Capital Analysis and Review stress test from an annual exercise to a biennial cycle. It also would extend the Fed’s regulatory relief from CCAR’s qualitative assessment to all banks (Sec. 118).
CHOICE 2.0 would bring the FDIC, FHFA, NCUA and OCC into the congressional appropriations process (Sec. 361-365).
The proposed legislation also would prohibit the CFPB from regulating small-dollar credit, including payday loans and vehicle title loans (Sec. 733).
Hensarling says he’s not deregulating the financial system to cater to Wall Street titans. Rather, he argues he’s detangling intrusive government regulations that have become a threat to markets and consumers.
His bill would allow banks to escape a wide swath of the regulatory regime if they accept more stringent capital requirements. That trade-off seems appealing to small banks but not the biggest lenders, which would have to raise immense sums to meet the threshold.
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