Chairman Jeb Hensarling sponsored the Financial Choice Act (H.R. 5983) on September 13, 2016. This bill alters many parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as addressing long-standing and recent issues.
Financial Policy Regulation Changes: Leverage Ratio
Under a leverage ratio, all assets are treated the same regardless of riskiness. This ratio is calculated by dividing the capital by the assets.
Under the FCA a banking organization receiving high ratings on any recent examination would now be subject to a higher 10% leverage ratio. If banks choose to be subject to this 10% leverage ratio, they would be considered exempt from risk-weighted capital ratios, liquidity requirements, limitations on dividends and many other regulations.
These proposals aimed to provide regulatory relief to lenders because many financial regulators felt as if there was an excessive amount of legislation. These proposals include the following:
Repealing Section 619 of the Dodd-Frank Act (The Volcker Rule): The Volcker rule prohibits banks from trading risky assets and from having relationships with risky investment funds. Eliminating the Volcker rule also exempts banks from trading regulations Congress previously imposed, such as risk-mitigating hedging and market-making.
Regulators are now allowed to report less information about their health and performance every other quarter.
Supervisors can no longer retaliate against regulators for appealing their bank complaints and supervisory exams. Essentially, this undermines the supervisor’s ability to regulate fraudulent and risky behavior.
Repeal Section 1075 of the Dodd-Frank Act (Durbin Amendment): The interchange fee for debit card issuers with over $10 billion in assets was previously capped by the Federal Reserve. Previously, the Federal Reserve limited the interchange fee for debit card issuers with more than $10 billion in assets. The Durbin Amendment was designed to ensure that the fee charged was reasonable and proportional, but this amendment will now be repealed.
Systemically Important Financial Institutions
This proposal would repeal the section of the Dodd-Frank Act that gave the Federal Reserve the ability to restrict the size and activities of a financial firm that posed a threat to financial security. This would limit the Federal Reserve’s authority and eliminate their emergency authority to secure bank debt and use of the Exchange Stabilization Fund.
Changes to Regulatory Structure
The consumer Financial Protection Bureaus’ current director will be replaced with a five member bipartisan commission. These commissions would be nominated by the President with the consultation and approval of the Senate to five-year, nonrenewable terms. This structure would also apply to other financial commissions that have a single director or leader at the top.
Any listed financial regulators are required to perform the following:
Both a quantitative and qualitative assessment of any predicted costs and benefits,
Explanation of any predicted changes in market structure, and
Review of how any burdens imposed by the regulations will be distributed among participants.
This proposal would restrict the SEC’s authority to permanently or temporarily prohibit individuals from serving as an officer or director.
While this bill is very controversial it is expected to be enacted by the end of 2016. It may serve as a model for any other revisions to the Dodd-Frank Act.