Receiving immediate support from organizations such as the Consumer Bankers Association and the American Bankers Association, Rep. Jeb Hensarling, the Texas Republican who also is the U.S. House Financial Services Committee chairman, has a plan he described as a way to replace the Dodd-Frank Act and promote economic growth.
During a speech to the Economic Club of New York on Tuesday, Hensarling shared details of the Financial CHOICE Act, with CHOICE standing 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,” said Hensarling, a devout critic of not only Dodd-Frank but also the Consumer Financial Protection Bureau.
“We must offer all Americans greater opportunities to raise their standard of living and achieve financial independence,” he continued. “In a phrase, we need economic growth for all and bank bailouts for none. This is the foundation of the Republican plan to reignite growth by replacing Dodd-Frank with real reforms that work.”
Hensarling cited an inventory of harm caused to consumers and the economy by Dodd-Frank and branded the law “a grave mistake” that “has failed.”
The Financial CHOICE Act, which Hensarling said will be introduced as legislation later this month, has seven main components, including:
1. Economic growth must be revitalized through competitive, transparent, and innovative capital markets.
2. Every American, regardless of their circumstances, must have the opportunity to achieve financial independence.
3. Consumers must be vigorously protected from fraud and deception as well as the loss of economic liberty.
4. Taxpayer bailouts of financial institutions must end and no company can remain too big to fail.
5. Systemic risk must be managed in a market with profit and loss.
6. Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by the Washington powerful.
7. Both Wall Street and Washington must be held accountable.
“Accountability is at the heart of our Republican reform plan. If we are to successfully protect consumers and grow our economy, we must demand greater accountability from both Washington and Wall Street,” Hensarling said. “Our plan toughens penalties — not out of some ideological or poll-driven war against Wall Street — but simply to better protect consumers and strengthen their markets. This is key to economic growth.”
To end taxpayer-funded bailouts and “too big to fail,” Hensarling highlighted that the Financial CHOICE Act would create a new subchapter of the bankruptcy code tailored to specifically address the failure of large, complex institutions. In April, the House approved similar bipartisan legislation to establish a new bankruptcy process for financial institutions with assets of $50 billion or more.
“Taxpayer bailouts of financial institutions must end, and no company can remain ‘too big to fail,’” Hensarling said.
As a result of the Republican plan, “some large firms will likely become smaller because the credit they now obtain will be priced according to their inherent risk of failure without implicit government guarantees backing firms that are ‘too big to fail.’ As a result, failure — when it does happen — will be more contained,” he continued.
Banks that make the choice to be strongly capitalized will be eligible for relief from Washington regulations “that create more burden than benefit,” according to Hensarling.
“To avail themselves of this exchange, many larger banks will have to raise significant additional equity capital. Most community banks will have to raise little to no additional capital. Regardless, the option remains with the bank,” he went on to say.
Hensarling mentioned the Financial CHOICE Act also includes more than two dozen measures to provide additional regulatory relief for community banks and credit unions. He insisted that while big banks have gotten even bigger since Dodd-Frank became law nearly six years ago, community financial institutions are disappearing at an average rate of one per day.
The chairman added that dozens of witnesses representing small banks and credit unions have come before the Financial Services Committee to describe the harm caused to their customers by the avalanche of Washington’s post-crisis regulations.
“Pro-growth reforms in our plan will provide much-needed relief to community financial institutions that are being crushed by Washington’s one-size-fits-all regulatory approach,” Hensarling said. “This allows America’s small hometown banks and credit unions to focus their time and resources on their customers rather than the dictates of Washington bureaucrats.”
Richard Hunt, president and chief executive officer of the Consumer Bankers Association, immediately cheered Hensarling’s proposal.
“Like any 2,300-page bill, the Dodd-Frank Act is imperfect. We applaud Chairman Hensarling for his persistent commitment to seeking needed changes to the Dodd-Frank Act that will bring balance and consistency to an industry serving millions of consumers,” Hunt said.
“Most especially, we thank the chairman for his inclusion of a five-person, bipartisan board at the CFPB in order to provide stable, long-term leadership at the CFPB — regardless of a President Trump or Clinton,” he continued. “We look forward to working with the chairman and the entire committee throughout this process.”
And James Ballentine, ABA’s executive vice president of congressional relations and political affairs, added this perspective: “We appreciate the work of Chairman Hensarling and members of the House Financial Services Committee as they strive to remove regulatory impediments that stand in the way of economic growth.
“Members from both sides of the aisle agree that parts of Dodd-Frank just aren’t working. Any law that generates more than 24,000 pages of proposed and final rules will inevitably include problems that should be fixed,” Ballentine continued.
“We look forward to working with the committee and anyone who will help remove obstacles that make it harder for America’s banks to serve their customers and meet the needs of their local communities,” he went on to say.
An executive summary of the Financial CHOICE Act can be downloaded here.
Hensarling’s complete prepared remarks from Tuesday’s event can be read here.