Taking aim at U.S. financial services reform, Texas Congressman Jeb Hensarling offers a GOP alternative.
The Republican chairman of the House Financial Services Committee, Texas Congressman Jeb Hensarling, has unveiled a plan to repeal the Dodd-Frank Act, which he has called a “grave mistake,” and replace it with the Financial CHOICE Act.
CHOICE, in the Hensarling plan, is an acronym for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
“If we want strong economic growth and more freedom, we must empower Americans, not Washington bureaucrats,” Chairman Hensarling says in a statement. “We must offer all Americans greater opportunities to raise their standard of living and achieve financial independence. In a phrase, we need economic growth for all and bank bailouts for none.”
Whether Dodd-Frank is eventually scuttled and replaced by the Hensarling proposal or not, both it and the immediate push back and criticism that the proposal received from Democrats can best be seen as salvos in the 2016 presidential campaign. With a Republican Congress in check by a Democratic president (or vice versa, if you prefer), it’s unlikely that the CHOICE plan or any of the other congressional partisan proposals expected to roil the election campaign over the summer will become law – at least until after the November election reshuffles the political deck.
The plan’s real significance is that it lays out financial policy details “should the party win the White House and keep control of Congress in November,” as The Wall Street Journal recently put it.
In fact, after outlining the broad contours of his plan, in a speech before the Economic Club of New York, Chairman Hensarling met with Donald Trump, the presumptive Republican presidential nominee, who on the campaign trail has repeatedly vowed to replace Dodd-Frank, which he called, in a recent Reuters news service interview, a “very negative force, which has developed a very bad name.”
The proposals in the Economic Club speech were condemned immediately by prominent Democrats, including, among others, the ranking Democrat on the House Financial Services Committee, Maxine Waters of California, who, according to the WSJ report, called Chairman Hensarling’s proposal a “page from Donald Trump’s casino playbook” that gambled with the American economy.
One goal of the Hensarling plan is to eliminate the Consumer Financial Protection Bureau, the regulatory body proposed originally by Democratic Senator Elizabeth Warren of Massachusetts and created as part of Dodd-Frank. In his Economic Club speech, Hensarling called the CFPB the “single most powerful and least accountable Federal agency in the history of our nation.” Another goal of the plan, says Hensarling, is to repeal the “misguided and unneeded” Volcker Rule, which is meant to eliminate proprietary trading by banks and limit their size.
Hensarling also finds the Financial Stability Oversight Council “[e]qually offensive,” an “amalgamation of many of the same Washington regulators who failed to do their jobs in the run-up to the last financial crisis.”
In summary, his plan will “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators,” Hensarling says in the statement that followed his speech. “Taxpayer bailouts of financial institutions must end, and no company can remain ‘too big to fail.’ ”
In his Economic Club speech, Hensarling also called Dodd-Frank one of the “principal reasons” for the “slowest and weakest economic recovery in our history,” and he accused its proponents “on the Left” of resorting to a solution to the economic crisis that featured “yet even more stifling government regulations,” that restricted economic liberty and that gave Washington the “power to direct financial institutions.”
Furthermore, Congressman Hensarling said, “Dodd-Frank’s false premise is that an alchemy of Wall Street greed, outsized private risk and massive Washington de-regulation almost blew up the world economy.” De-regulation didn’t cause the financial crisis, he concluded; “it was dumb regulation.”
The “ultimate purpose” of Dodd-Frank, Hensarling also observed in his speech, “is to eventually render effective control of our capital markets to the state; to turn large money-center banks into functional utilities, so that the state can allocate credit within our economy to politically favored classes. In other words, to take over the commanding heights of our economy. This must not be allowed to stand.”
The Hensarling plan proposes that a “strongly capitalized banking sector can help avoid the recurrence of a financial crisis of the magnitude we saw in 2008,” while arguing that under Dodd-Frank “capital standards that were already complex have become even more complex and controlling.”
His Republican “better approach will relieve financial institutions from regulations that create more burden than benefit in exchange for meeting higher, yet simple, capital requirements,” Hensarling said in New York. “Our reform plan allows banks to opt-in to an alternative regime that replaces growth-strangling regulation with reliable accountability. It stops investors from betting with taxpayer money. Think of it as a market-based, equity financed Dodd-Frank offramp.”
That “alternative regime” will allow banks that “maintain a simple leverage ratio of at least 10 percent and, at the time of the election, have a composite CAMELS rating [another measure of risk] of 1 or 2 may elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards, and a number of other regulatory burdens that pre-date Dodd-Frank.”
Under the Republican plan, “no Federal rule establishing ‘heightened prudential standards’ of the type provided for in Dodd-Frank would apply to qualifying banking organizations, including the living will requirement which a recent Government Accountability Office study found has been administered without transparency or due process. In short, a strongly capitalized qualifying bank will be enabled to remove government bureaucrats from its boardroom and lend and invest freely.”
The plan also would “end too big to fail once and for all,” replacing it with a simple principle: “bankruptcy, not bailouts.”
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