House Republicans Pass Bill to Rip Up Post-Crisis Bank Rules

  • Jeb Hensarling’s Financial Choice Act opposed by Democrats
  • Sweeping overhaul of Dodd-Frank faces long odds in the Senate

Rep. Hensarling Says Dodd-Frank Made Banks Even Bigger

House Republicans made headway on President Donald Trump’s pledge to dismantle post-crisis financial rules by approving a sweeping bill Thursday that rips up major aspects of the Dodd-Frank Act.

House lawmakers approved the legislation in a 233-to-186 vote. But the bill -- called the Financial Choice Act -- has little chance of passing the Senate in its current form.

Senate Democrats, whose votes will probably be needed to adopt it, have repeatedly said they have little interest in revisiting Obama-era constraints on Wall Street that were meant to make the financial system safer. Another issue: Republicans are distracted by more pressing topics such as health care and taxes.

Last month, Senate Majority Leader Mitch McConnell laid out the difficult task ahead by saying he’s pessimistic Congress will revamp Dodd-Frank anytime soon.

A Perilous Path Ahead for Dodd-Frank Banking Law: QuickTake Q&A

The bill overhauling bank rules, which is sponsored by House Financial Services Committee Chairman Jeb Hensarling, represents Republicans’ most aggressive effort to ease strictures that the president blames for stifling lending and economic growth.

“Hopefully, the nightmare of Dodd-Frank will be gone soon,” Hensarling, a Texas Republican, said in an interview Thursday. “Of all the regulations that were imposed on our economy in the Obama era, Dodd-Frank was the worst. In the House, we just threw it off. The animal spirits of free enterprise can roam yet again.”

The legislation is part of the deregulatory agenda that has swept through Washington since Trump’s election win. In the coming days, the Treasury Department is expected to release a report that will add to the push by laying out recommendations for cutting back what Republicans see as red tape that was wrapped around banks after the 2008 crash.

At a press conference yesterday, House Speaker Paul Ryan called Hensarling’s bill “the crown jewel” of Republican efforts to revamp regulations toward a goal of “creating good-paying jobs and getting back to real economic growth.”

Formidable Hurdle

But the Senate poses a formidable hurdle. Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, said in an interview Thursday that he plans to craft his own legislation, and will seek input from the Trump administration and Senate Democrats.

“The Choice Act is a very solid piece of legislation that will also be a part of what we consider,” Crapo said.

The Senate Banking Committee’s top Democrat, Sherrod Brown of Ohio, has struck a more critical tone. In a statement yesterday, he called Hensarling’s legislation a dangerous plan that will “put taxpayers back on the hook for Wall Street’s greed and recklessness.” 

Brown’s opposition likely means any deal Crapo can strike with Democrats won’t include some of the most ambitious elements of the House bill, like gutting the Consumer Financial Protection Bureau, a watchdog created to shield consumers from lending abuses. Instead, making small tweaks to Dodd-Frank, such as providing relief for community banks, is more probable.

Bank Resistance

Hensarling, speaking to reporters in Washington Thursday, said Crapo could try to attach changes to Dodd-Frank to a must-pass bill, such as legislation that funds the government. Hensarling said another option is breaking his legislation up and trying to pass specific provisions independently.

Ironically, one group that isn’t a fan of everything in Hensarling’s bill is Wall Street. To be freed from some rules, the legislation requires banks to raise hundreds of billions of dollars in new capital.

Hensarling also wants to do away with what’s known as Dodd-Frank’s orderly liquidation authority, which empowers regulators to wind down banks should they run into trouble. While Republicans argue that that part of the law didn’t resolve the fact that some Wall Street lenders remain too-big-to-fail, investors appreciate that it laid out a plan to prevent a collapsed bank from spreading contagion through out the financial system.

Aspects of Hensarling’s bill that do have financial-industry backing: Its reduction in the frequency of burdensome exams that test whether banks can endure another crisis and its repeal of the Volcker Rule, which restricted banks from making speculative market bets with their own capital. The legislation also scraps the so-called fiduciary rule, which imposes tough standards on brokers by requiring them to put their customers’ interests ahead of their own when handling retirement accounts.

Plan B

Because getting a bill through the Senate is so challenging, some Republicans have discussed trying to revamp Dodd-Frank via a complicated budget process known as reconciliation that doesn’t require support from Democrats.

The strategy, which is already being used to go after Obamacare, requires Republicans to show that provisions in Dodd-Frank are a strain on federal spending. The nonpartisan Congressional Budget Office has estimated that repealing the 2010 law’s orderly-liquidation authority regulators’ would save the government $14.5 billion.

The bill is H.R. 10.

— With assistance by Anna Edgerton, and Kevin Cirilli

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