House Financial Services Committee Chairman Unveils Plans for Dodd-Frank Overhaul

On Tuesday, June 7th, House Financial Services Committee Chairman Jeb Hensarling (R-TX) unveiled his plans for a proposed legislative overhaul of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act during a speech to the Economic Club in New York.

According to an executive summary issued by the House Financial Services Committee, the proposal would “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.”

As reported in the Wall Street Journal, the bill would effectively let banks opt into the alternative plan in lieu of current post-crisis regulatory regime if they can surpass critical thresholds, including a 10 percent leverage ratio. According to Chairman Hensarling, banks that choose to qualify for regulatory relief by meeting this requirement will be “significantly better capitalized than Dodd-Frank or any U.S. or global regulator currently requires,” as U.S. prudential regulators require a six percent leverage ratio for those considered globally systematically important and Basel only requires 3 percent. As Hensarling explained, “for banks willing to put their investors in front of hardworking taxpayers in the event of a failure, the Republican plan will free banks to help more Americans finance their individual American dreams.”

The proposal also speaks to a number of other Dodd-Frank related topics, ranging from Consumer Financial Protection Bureau and Financial Stability Oversight reform, to enhanced SEC fines and penalties for financial fraud and self-dealing. The White House, Ranking Financial Services Committee Member Maxine Waters (D-CA) and Senate Banking Committee member Elizabeth Warren (D-MA) have publicly criticized the proposal. SFIG will continue to monitor this proposal as it matures in the process and develop guidance as needed.  

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