GOP Unveils Dodd-Frank Overhaul

Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, on Tuesday morning announced the GOP’s much-anticipated and much-talked about proposed alternative to Dodd-Frank, entitled the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act.

Hensarling and other Republicans have been outspoken critics of the controversial Wall Street reform legislation that was drafted by Democratic Senator Christopher Dodd and Congressman Barney Frank and signed into law in 2010 by President Obama. Dodd-Frank’s critics accuse the law of using a “one size fits all” approach that was meant to reform Wall Street but instead has adversely affected Main Street.

Another main criticism of Dodd-Frank coming from Republicans is that the law did not end “Too Big to Fail” for the nation's largest financial institutions as it purported to do.

Speaking at the Economic Club of New York Tuesday morning, Hensarling told the audience that Dodd-Frank has been harmful to consumers, going so far as to call the law a “grave mistake Washington foisted upon the American people nearly six years ago. Simply put, Dodd-Frank has failed.”

The Financial CHOICE Act will be formally introduced as legislation later this month, according to Hensarling. The proposal includes three major points: ending taxpayer-funded bailouts of large financial institutions, relieving banks that choose to be strongly capitalized from what Hensarling called “growth-strangling regulation”; imposing tougher penalties on financial predators and fraud perpetrators and at the same time requiring greater accountability from regulators in Washington.

• Ending Too Big to Fail—The Financial CHOICE Act creates a new subchapter of the Bankruptcy Code that will address the failure of large financial institutions. Hensarling said that “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.”
• Strongly Capitalized Banks—According to Hensarling, the Financial CHOICE Act will give banks that elect to be strongly capitalized the option to be exempt from certain regulations. “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,” Hensarling said. “Regardless, the option remains with the bank.”
• Pro-Growth Regulatory Relief—The Financial CHOICE Act includes more than two dozen measures aimed at providing regulatory relief for community banks and credit unions, which included a return to the extended 18-month exam cycle. Dan Berger, President and CEO of the National Association of Federal Credit Unions (NAFCU), said, “NAFCU and our members greatly appreciate Chairman Hensarling’s thoughtful leadership in creating a plan to correct a regulatory pendulum that has swung too far. Lawmakers and regulators have widely recognized credit unions for their prudent business model and for not creating the crisis. Hensarling’s plan addresses a number of issues of great concern to credit unions. We expect a number of other NAFCU-backed regulatory relief measures to be included in the larger package, including requirements for regulators to better tailor rules to different sizes and types of institutions. We look forward to seeing the plan in greater detail.”

“If we want strong economic growth and more freedom, we must empower Americans, not Washington bureaucrats,” Hensarling said. “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. This is the foundation of the Republican plan to reignite growth by replacing Dodd-Frank with real reforms that work.”

The Financial CHOICE Act has an uphill battle ahead, since Democrats have vowed to fight any Republican attempts to roll back or reform Dodd-Frank—something they see as one of President Obama’s biggest victories during his administration.

The Democrats on the House Financial Services Committee released the following statement on Tuesday in response to Hensarling’s unveiling of the Financial CHOICE Act: “The Wall Street Reform and Consumer Protection Act was enacted in response to the worst financial crisis since the Great Depression, caused by years of lax enforcement of regulations and zero accountability for the nation’s financial institutions. Dodd-Frank was passed in 2010 in order to protect consumers from the unfair and deceptive practices and products that led to the 2008 crisis; give regulators the tools to ensure that no Wall Street firm grows too large, complex, or risky so as to threaten the global economy; create transparency in previously opaque markets; provide shareholders with more say over the governance of corporations; and to provide financial regulators with new tools to detect and prosecute fraud. Though the Act has made tremendous progress toward these goals, it has been regularly stymied by a concerted Republican effort to underfund regulators’ operations, pressure them to weaken regulations, and erect roadblocks to implementation. As a result, the progress regulators have made to implement the law remains precarious.

Click here to view a full transcript of Hensarling’s prepared remarks.

Click here for more information on the Financial CHOICE Act.