The House Passes the Financial CHOICE Act

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On June 8, 2017, the House of Representatives passed the Financial CHOICE Act (“Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs”). The act regulates banking institutions’ qualifying capital through numerous exemptions and policies. Further, the act repeals the Financial Stability Oversight Council’s authority while overhauling multiple parts of the Dodd-Frank Act. The act proposes to make achieving financial independence more feasible for Americans as well as increase financial opportunities for small businesses. It regulates the power of Wall Street and Washington, striving to hold both more accountable for their actions. At the same time, the act gives more power to smaller, community-based financial institutions.
The act’s executive summary, comprised of seven characteristics, is below.
This bill is not expected to pass in the Senate, who has the tools to implement their own financial reform; however, nothing has been passed yet.
This act involves four primary focuses: the Dodd-Frank Bill, reallocating the power of financial institutions, giving more to small business and less to large powerhouses, and granting Americans more financial independence.
The Dodd-Frank Bill is officially titled The Dodd-Frank Wall Street Reform and Protection Act. It was passed by the Obama Administration in 2010 to address the 2008 financial crisis and was designed to transform the financial regulatory system at that time. Donald Trump wanted to repeal the Dodd-Frank because he did not like the regulations that it imposed on business growth. It has been amended throughout the years and was most recently affected by the Financial Choice Act. The act proposes three major reforms to the current Dodd-Frank Bill.
Title II aimed to make changes to the bankruptcy process that large companies underwent upon failure. During the financial crisis of 2008, this process did not adequately support large companies. Title VIII was passed to address high financial risk and give companies more financial security and stability through the use of financial market utilities, which, according to the Federal Reserve, are “ multilateral systems that provide the infrastructure for transferring, clearing, and settling payments, securities, and other financial transactions among financial institutions or between financial institutions and the system.”The basic meaning behind Hotel California is a place where you check in but don’t check out. In the context of the Dodd-Frank bill, this meant that companies regarded as “systematically important financial institutions” could not back out of that designation. This is where the “too big to fail” label comes about; these types of companies are much more closely scrutinized than their counterparts. Take a look at a specific instance involving General Electric in this New York Times article. Today, the financial industry is still trying to find a balance between imposing adequate regulations while keeping companies satisfied.
Four sections of the act aim to monitor and regulate the power of financial institutions. The provisions of the first, “SECTION ONE: Provide for election to be a strongly capitalized, well managed financial institution,” are below:
This act primarily addresses banking institutions’ qualifying capital through exemptions and policies. The first proposed change also involves leverage ratio. In short, this aims to ensure the financial stability and perseverance (the ability of a company to withstand economic shocks and/or other financial adversity) of wealthy organizations. Similarly, the second proposed change allows banks to conduct stress tests, which gauge a company’s ability to respond to financial stress. With the new regulations to ensure more company wide stability, the last two changes give these larger companies more freedom when conducting financial operations.
The second section is titled: “End “Too Big to Fail” and Bank Bailouts.” Its contents are below.
The bulk of these provisions involve changes to the Dodd-Frank Bill, discussed in detail above. Parts four and five restrict banks in two ways. The first involves restricting a bank’s discount window, “the facilities that central banks, acting as lender of last resort, use to provide liquidity to commercial banks.” The second involves the exchange stabilization fund (ESF), which, according to Investopedia, is “money available to the U.S. Treasury Department primarily used for participating in the foreign-exchange market in an attempt to maintain currency stability.” The provision no longer allows firms to use the ESF as bailout.
Sections four and five center on holding Wall Street and Washington accountable, and involve several policy changes. Section four involves The Regulations From the Executive in Need of Scrutiny (REINS) act, which aims to “increase accountability for and transparency in the federal regulatory process by requiring Congress to approve all new major regulations.” To further increase accountability, the Choice Act proposes to reauthorize the SEC for five years as well as provide Americans with adequate due process in the event of “government shakedown.”
Section five centers on holding Wall Street more accountable for fraud and deception. These suggest improvements to the process of penalizing individuals for acts of fraud and deception as well as tightening the SEC’s authority on these matters, to mitigate future offences. Some of the provisions are below.
Section three, “Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors,” details how the Choice Act seeks to grant Americans financial independence. These policies are built to rebrand certain aspects of the financial industry. The act suggests changes in the processes of electing personnel, name changes, and in the Commission’s authority. These changes present large companies in a more optimistic and fair light by creating a balance between themselves and consumers. Some of the proposals are below.
Sections six (“Unleash opportunities for small businesses, innovators, and job creators by facilitating capital formation”) and seven (“Provide regulatory relief for Main Street and community financial institutions”) strive to grant small businesses and community institutions with more freedom by increasing their ability to raise capital and dampening financial regulations, respectively. Section six repeals several parts of the Dodd-Frank bill, including the Volcker rule. This section also suggests that Congress pass numerous H.R. bills, including but not limited to:
These bills would facilitate small businesses’ ability to raise capital, creating a better balance between small businesses and large corporations, allowing both not necessarily equal success, but equal opportunity for success.
Section seven exclusively involves regulatory relief bills, some of which are below.
These bills similarly emphasize community financial institutions rather than global institutions, and also serve to mitigate the effects of tightened regulations after the 2008 financial crisis.
To view the executive summary of the act which includes the sections discussed in this article in full, click here.
https://financialservices.house.gov/uploadedfiles/financial_choice_act-_executive_summary.pdf
https://www.federalreserve.gov/paymentsystems/title-viii-dfa.htm
https://www.federalreserve.gov/GeneralInfo/Basel2/NPR_20060905/NPR/section_4.htm
http://www.investopedia.com/terms/v/volcker-rule.asp
https://www.congress.gov/bill/115th-congress/house-bill/26
http://www.investopedia.com/terms/e/exchangestabilizationfund.asp
http://libertystreeteconomics.newyorkfed.org/2011/03/why-do-central-banks-have-discount-windows.html
http://www.investopedia.com/terms/t/tier-1-leverage-ratio.asp
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