Update 182: House Passes CHOICE Act; Ball is in Senate Banking’s Court Now
A couple of hours ago, the U.S. House adopted HR 10, Financial CHOICE Act of 2017, by a vote of 233-186 — without a single Democrat — in the opening bid on the most sweeping financial (de)regulatory bill in the 115th Congress. No one expects a bill repealing Dodd-Frank’s foundational provisions to make it in the Senate, so consider CHOICE as adopted today to be DOA there.
But that doesn’t mean DFA is in the clear. The road ahead for CHOICE and for the defense of DFA is mapped out below.
The Senate Banking Committee is the next legislative venue for the bill or its own financial regulatory legislation. To earn any Democratic votes, Committee Republicans would have to abandon Hensarling’s leverage ratio, repeal Orderly Liquidation Authority, and attempts to gut the CFPB. Not much else would be left of Hensarling’s bill.
White House Unclear on CHOICE
The Committee will be excused for having trouble with the administration’s position on the bill. The Trump team has issued statements on the bill ranging from complete indifference to measured support. White House Statement of Administration Policy on HR 10 expressed support for aims to “eliminate taxpayer bailouts, simplify regulation, and hold regulators accountable,” and endorses allowing firms to opt out of regulatory requirements, allowing the president to fire the CFPB director, and subjecting the CFPB to congressional appropriations, but the administration is still in review and may yet offer additional views relating to HR 10.
The SAP makes no reference to CHOICE Act provisions repealing OLA and limiting FSOC. Watch for forthcoming Treasury Department conclusions on these items pursuant to an Executive Order issued a couple months ago.
NEC Director Gary Cohn at one point criticized the leverage ratio. Secretary Mnuchin seemed almost 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.”
Senate Banking’s Agenda
From here, Senate Banking can either consider the CHOICE Act in full, in part, or ignore it entirely. Committee Republicans have expressed an interesting in partnering with the administration on re-evaluating DFA regulations and retooling FSOC. But the Committee will not take up consideration of the House’s Financial CHOICE Act in its full form.
The only provisions of CHOICE that may find their way intact into a Senate Banking bill relate to regulatory relief for community banks and credit unions. Element like this at essential to passage, whichwould require bipartisan support (eight Democratic votes) to invoke cloture and block a filibuster.
Community Banks and Credit Unions
SBC Republicans have consistently argued for the need to relieve community banks and credit unions of regulation. This area could see bipartisan compromise on the Senate panel. Ranking Member Sherrod Brown and Sen. Jon Tester of Montana support discussing reducing regulations on community banks, but would oppose a package including the repeal of valued portions of Dodd-Frank including the Consumer Financial Protection Bureau.
This morning, Senate Banking held a hearing on challenges facing community banks and credit unions. Witnesses called for bipartisan measures to exempt smaller banks from Dodd-Frank regulations to relieve compliance costs. Yet there were some familiar spurious claims at this hearing, such as confusing causality and correlation ob DFA and the consolidation of the banking industry. Most Republicans blame Dodd-Frank for increasing bank mergers and acquisitions over the last few years. Yet Prof. Levitin of Georgetown pointed out this is part of a broader predating Dodd-Frank.
SBC and DFA Lately and Prospectively
In the last Congress, then-Chair Richard Shelby sought to pass Dodd-Frank “reform” legislation, albeit on a more modest scale than Jeb Hensarling. Shelby’s Financial Regulatory Improvement Act aimed to alter the SIFI designation process and change the way the Fed does business. While the measure made it out of Committee, the bill did not earn a Senate floor vote. Republicans have lost two seats since. This suggests the more extreme Choice Act wouldn’t gain any traction in today’s Senate, which has a slimmer majority and a tougher climb to a 60-vote filibuster-proof majority.
Crapo Likely to Engage Brown
Current Committee Chair Crap I has differed with Jeb Hensarling over the last year on approaches to Dodd-Frank reform. Crapo has encouraged the administration’s regulatory re-evaluation efforts, particularly praising the president’s two-for-one order, but doesn’t appear to share Hensarling’s urgency on whole-scale DFA repeal. Where Hensarling made no attempts to modify ideas to win Democratic votes, Crapo has consistently steered toward crafting bipartisan legislation in the Senate.
Sen. Crapo has said he intends to work with Ranking Member Brown to produce bipartisan legislation on financial reform. Brown calls “this partisan, dangerous legislation [that] would once again leave families, seniors, and service members at the mercy of predatory lenders, and put taxpayers back on the hook to pay for Wall Street’s greed and recklessness.”
Senator Crapo is holding further comment until the Treasury Department reports its conclusions and proposals pursuant to the Executive Order to review financial regulation.
Next Steps: Executive Orders et al.
Committee is not likely to act on CHOICE anytime soon. It may wait to act until the Treasury Department issues recommendations pursuant to President Trump Executive Orders a couple months ago. Crapo has closely monitored White House posturing on financial regulation. Watch for attempts to work across the aisle on community banks and credit unions, but expect a cold shoulder on much of the CHOICE Act. Sen. Crapo knows how little can get through the Committee without Democratic votes.