Update 181: House OLA Repeal Vote; Hensarling’s Bid to Reform Dodd-Frank
Tomorrow, House Financial Service Chair Jeb Hensarling will get his vote on HR 10 — the Financial CHOICE Act of 2017, a measure to undo much of Dodd-Frank, with little support beyond fellow House Republicans. After heated debate within the party, the GOP last week gave up on the Durbin Amendment provision (to remove limitations on fees charged to retailers for debit card processing) in order to move the bill forward.
The House GOP will vote unanimously to pass the CHOICE Act despite antipathy or disinterest among stakeholders from depositors to Senate Republicans, even to Wall Street. More below. No mentions of Comey, promise.
CHOICE vs Dodd-Frank: Overview
Hensarling’s CHOICE Act is premised on the notion that the Dodd-Frank Act (DFA) has destroyed the economy and codifies bailouts. The House GOP conference has amnesia, for the economy is healthier after the adoption of Dodd-Frank, lending is up, and job creation has not stopped one month since it was signed.
Under DFA, the financial system is safer, as American financial institutions hold 41 percent more risk-based capital than at the end of 2009, decreasing the likelihood of financial crisis, lessening the scale of losses in a crisis, and measurably diminishing the TBTF problem.
The CHOICE Act takes many swings at DFA. Most significantly, it seeks to repeal capital and liquidity requirements set forth so banks can support themselves in crisis. And, for failing, systemically interconnected firms, the CHOICE Act modifies the bankruptcy process and repeals OLA, the DFA provision extending resolution authority to the FDIC over non-deposit-taking financial firms and obviating bailouts.
House Republicans may forget that, in 2008, the Lehman bankruptcy put the entire financial system at risk, leading to $700 billion in taxpayers expense to bail out banks across the country. When adopted in 2010, OLA was the consensus solution, passing with over 90 Senate votes, co-sponsored by conservative Senator Richard Shelby to ensued managers and creditors, not taxpayers, cover the burden of liquidation.
Yesterday at Brookings, former Fed Chair Ben Bernanke expressed surprise that the OLA has been targeted:
For no reason I can see, there is this desire to eliminate this critical backstop authority…I agree Title I and bankruptcy should be the normal course of events, particularly in a situation where you have an individual firm that is in great stress, but the rest of the system is at least in reasonable condition. But under circumstances like we had in 2008, I really don’t see that as being realistic.
The CHOICE Act makes bailouts more likely, placing undue faith in an arbitrary, one-size-fits-all leverage ratio to allow interconnected firms freedom from important rules safeguarding systemic stability. The bankruptcy route has obvious shortcomings, mostly that it is unsuited to handling multiple contemporaneous cases of instability at all the sector’s largest firms.
Amendments Up for Votes Tomorrow
Tomorrow, HR 10 will be considered on the House floor under a structured rule, with 90 minutes of debate, controlled by the Committee on Financial Services. Debate will be managed on the Republican side by Congressman Buck, and on the Democratic side by Congresswoman Slaughter. Only Republican amendments will be debated on the floor. They include:
- FDIC, NCUA Appropriations and Congressional Participation in FSOC — Introduced Committee Chair Hensarling, this amendment would subject FDIC and NCUA to the congressional appropriations process. It would also allow Congress to participate in FSOC deliberations, undermining the independence of the Council’s determinations.
- . Closed-End Fund WKSI Consideration —Currently, close-end funds are barred from being considered Well-Known Seasoned Issuers. Cong. Hollingsworth (R-IN) introduced this amendment to remove this exclusion. It will permit closed-end funds to enjoy all the advantages that come with WKSI status.
- Consumer Reporting Agencies Authentication– Cong. Smucker (R-PA)’a Sense of the Congress amendment holding that consumer reporting agencies should have strong multi-factor authentication procedures to verify the identity of consumers
- MHC Waivers– This amendment, offered by Cong. Faso would allow Mutual Holding Companies to waive receipt of dividends.
- . Treasury Reporting on Southern Border Transactions —Cong. McSally offered an amendment to require the Treasury Department to report to Congress its efforts to ensure legitimate financial transactions move freely along the southern border.
Amendments That Didn’t Make It
Each Democratic-introduced amendment was withdrawn by the Rules Committee. They included striking the repeal of the DOL-administered fiduciary rule, preserving DFA rules on executive compensation, amending High-Cost Mortgage and “point and fees” definitions, assuring loan performance information transparency, removing exemptions to SEC filings, preserving S&L lending caps, and preventing the NCUA from being subject to congressional appropriations.
One noteworthy bipartisan initiative voted down in the Rules Committee was a proposal introduced by Congs. Kaptor and Jones to reinstate the Glass Steagall Act of 1933.
Confusion and Dissent in GOP Ranks
The House GOP pursues the CHOICE Act despite disagreement from the grassroots, the White House, and Senate Republicans. Activists and Indivisible chapters across the country have held anti-CHOICE Act rallies targeting GOP members Dave Trott, Peter King, Sean Duffy, and Tom MacArthur, as well House Financial Services Republicans Lee Zeldin and Trey Hollingsworth for their views on Dodd-Frank.
Even the administration is not on the same page as Hensarling on the CHOICE Act. NEC Director Gary Cohn criticized the leverage ratio. Secretary Mnuchin almost seemed to embrace FSOC in an FT interview saying, “I intend to use FSOC as a very important tool as part of the administration’s policies.” The sole White House Statement of Administration Policy on HR 10 expressed support for aims to “eliminate taxpayer bailouts, simplify regulation, and hold regulators accountable.”
Yes While embracing the permission of firms to opt out of regulatory requirements, allowing the president to fire the CFPB director, and subjecting the CFPB to congressional appropriations, the statement referred to the administration’s ongoing review of regulation, which may yield additional views relating to more of HR 10. The White House SAP makes no reference to CHOICE Act provisions relating to FSOC or OLA and expresses that the administration looks forward to working with the Senate on a final version.
The CHOICE Act will pass tomorrow with votes along party lines, but will be dead on arrival in the Senate. A Senate hearing tomorrow morning will discuss relief measures for community banks, another indication the Senate will consider smaller-scale legislation as opposed to Hensarling’s CHOICE Act.