June 9, 2017 House passes Rep. Hensarling's bill repealing broad elements of Dodd-Frank Act, 233-186 No Democrats support sweeping rewrite of 2010 financial reforms; bill's chances in Senate appear slim as Sen. Crapo pursues bipartisan approach The House on June 8, 2017, passed HR 10, a sweeping rewrite of the Dodd-Frank financial reforms enacted in 2010. The vote was 233-186, with no Democrats supporting the bill and one Republican voting against (Walter Jones, R-NC). House Financial Services Committee Chairman Jeb Hensarling's (R-TX) 600-page Financial CHOICE Act would repeal or restructure broad elements of the Dodd-Frank Act, including much of its post-crisis capital and prudential rules for banks; powers granted to the Financial Stability Oversight Council (FSOC); the FDIC's authority to wind down large, failing banks and non-bank financial firms; the structure and mission of the Consumer Financial Protection Bureau (CFPB); and many other provisions affecting the Federal Reserve, the SEC and other regulators. Attached with this Alert please find: — A section-by-section staff summary of HR 10 as reported out of the Financial Services Committee on May 4 Senate prospects. Many of HR 10's provisions would be unlikely to survive a Democratic filibuster in the Senate, where Banking Committee Chairman Mike Crapo (R-ID) has so far taken a more narrow approach to revisiting Dodd-Frank, working to identify changes that have bipartisan support. Some elements of Hensarling's bill — such as its repeal of Dodd-Frank's orderly liquidation authority for large banks and its reshaping of the CFPB — could be included in a fiscal 2018 budget-reconciliation bill that would require only 51 votes to pass the Senate, but rules governing the reconciliation process would probably disqualify most of its other provisions. Treasury Secretary Steven Mnuchin is also compiling recommendations for changes to financial regulations and is expected to submit them to the White House this month, as required by an executive order signed by President Trump on February 3. These could guide the approach of agencies such as Treasury, the Fed, the SEC, FDIC and CFTC that decide to revisit Dodd-Frank regulations by promulgating new rules through a notice-and-comment process. Speaking with reporters about the bill's prospects, Hensarling said, "My job is to put forth the best bill that we can put forth in the House. Then I've got to see what the Senate is able to do. We'll look at every opportunity to get as much of the final Financial CHOICE Act on President Trump's desk as is possible." White House position. A Statement of Administration Policy (SAP) released by the White House on Tuesday (June 6) praised HR 10 for provisions that would "eliminate taxpayer bailouts, simplify regulation, hold financial regulators accountable, and foster economic growth by facilitating capital formation. In particular, HR 10 would allow well-capitalized banking organizations to opt out of certain regulatory requirements, affirm the President's authority to remove the Director of the … CFPB at will, subject the CFPB to the congressional appropriations process, require broader use of cost-benefit analysis by financial regulators, and provide regulatory relief for community financial institutions. … The [A]dministration's ongoing review of financial regulation, including the reviews of the Secretary of the Treasury pursuant to Executive Order 13772, may yield additional views with respect to other provisions of HR 10." The statement said "the [A]dministration looks forward to working with the Senate on arriving at a final piece of legislation." Manager's amendment. The House approved, by a vote of 232-185, a manager's amendment offered by Rep. Hensarling. Among several other changes to the Committee-passed bill, the amendment would allow the FDIC and National Credit Union Administration to collect and spend certain fees only as approved in advance by appropriations laws. The amendment would also give Congress access only to public meetings of the Financial Stability Oversight Council and require FSOC to keep transcripts of all non-public meetings, and removes a 60-day deadline for the President to appoint an inspector general of the CFPB (which the bill would rename the Consumer Law Enforcement Agency). Notably, the manager's amendment would also remove a controversial provision that would have repealed Dodd-Frank's "Durbin Amendment" language requiring the Federal Reserve to set limits on the interchange fees that banks charge for debit card transactions. Other amendments adopted The House also: — Adopted, 231-180, an amendment by Trey Hollingsworth (R-IN) that would allow closed-end funds, which are listed on a national securities exchange and meet certain requirements, to be considered "well-known seasoned issuers" permitted to use Form S-3 to register a securities offering. — Adopted, by voice vote, an amendment by Lloyd Smucker (R-PA) expressing the sense of Congress that consumer reporting agencies and their subsidiaries should implement stronger authentication procedures when providing access to personal information files to better protect consumer information from identity theft. — Adopted, 235-184, an amendment by John Faso (R-NY) that would allow Mutual Holding Companies to waive the receipt of dividends. — Adopted, by voice vote, an amendment by Martha McSally (R-AZ) that would require Treasury to submit a report to Congress regarding its efforts to work with federal bank regulators, financial institutions and money service businesses to ensure that legitimate financial transactions along the southern border move freely. — Adopted, 233-185, an amendment by Ken Buck (R-CO) that would require the General Services Administration (GSA) to study the (renamed) Consumer Law Enforcement Agency's real estate needs due to changes in the Agency's structure. It then authorizes the GSA to sell the current CLEA building if CLEA's real estate needs have changed and no government department or agency can use the building. CHOICE Act provisions FSOC, leverage ratio 'off-ramp,' stress tests and living wills. Among other provisions reshaping Title I of Dodd-Frank, the bill would repeal the FSOC's authority to designate non-bank firms as systemically important (SIFIs) — which places them under the supervision of the Fed with enhanced prudential requirements — and remove all of the FSOC's current SIFI designations. The leaders of FSOC member agencies, such as SEC and CFTC commissioners, would have to agree to FSOC actions, whereas currently only the chairmen of such agencies participate in the Council. The FSOC's Office of Financial Research would be eliminated. The Fed would only be able to require banks to submit "living will" resolution plans every two years, and would have to propose rules governing living wills. The Fed would also have to propose regulations for its stress tests for larger institutions, with tests occurring every two years instead of annually. Notably, the bill would create an "off ramp" exempting banks from Dodd-Frank's stress tests, living wills, capital and liquidity requirements, and limits on mergers and issuing dividends if they maintain a 10% leverage ratio of capital to assets. Outside analysts have estimated that the largest US banks would need to raise a total of about $420 billion to achieve such a ratio. Orderly liquidation and bankruptcy. The bill would make substantial changes to Title II of Dodd-Frank, which established a new "orderly liquidation authority" for the FDIC to safely wind down large, failing financial firms while serving as their receiver. Republicans have described OLA as perpetuating bailouts because it allows Treasury to draw upon a line of credit from Treasury to keep a bank operating while its debts and other complex transactions are resolved. The bill would repeal OLA altogether and create a new chapter of the Bankruptcy Code devoted to financial companies with more than $50 billion in assets. CFPB. The bill would make a number of changes to the Consumer Financial Protection Bureau (CFPB). The Bureau would be subject to congressional appropriations instead of being funded through a transfer of a portion of the Fed's budget. (Other agencies that are now independently funded would also come under the appropriations process, including the Federal Reserve, the FSOC, the FDIC, the Office of the Comptroller of the Currency, the Federal Housing Finance Agency and the National Credit Union Administration.) Notably, the latest version of the CHOICE Act would not restructure the Bureau into a bipartisan commission led by a chairman, like the SEC and CFTC. The agency would still have a single director, but the president would be able to remove that person for any reason. The bill would strip the Bureau's authority as a supervisory agency that can examine banks and other entities, leaving the Bureau as an enforcement agency only. It would no longer be able to regulate "unfair, deceptive or abusive acts and practices" (UDAAP) among financial products. DoL Fiduciary Rule, Volcker Rule. The bill would repeal some high-profile financial regulations enacted or finalized under former President Obama. The Labor Department's 2016 rule requiring advisors to retirement plans to work under a fiduciary standard of care to their clients would be repealed, and the DoL would be required to follow the SEC's standards for regulation of broker-dealers. The bill would also repeal the "Volcker Rule," found in Section 619 of Dodd-Frank's Title VI, which prohibits banks from proprietary trading for their own accounts and maintaining relationships with hedge funds and private equity funds. Federal Reserve reforms. The bill includes a section (Title X) imposing new requirements on the Federal Reserve, in line with a package of reforms the Financial Services Committee approved under Chairman Hensarling in the previous Congress. Among other provisions, the GAO would be allowed to conduct an audit of the central bank's policies for setting monetary policy, and the Fed would have to follow a "rules-based" approach to setting interest rates. The bill would change the composition of the Federal Open Market Committee (FOMC) to add a sixth representative from the Fed's regional banks and require groups of members from existing regional banks to rotate off the FOMC in alternating even- or odd-numbered years. Executive pay, corporate disclosures and proxy ballot. The CHOICE Act would repeal Dodd-Frank's recently finalized rules on incentive-based compensation at financial institutions, along with a controversial SEC rule requiring public companies to disclose the ratio of their CEO's pay to that of a median employee at the firm. The bill would place limits on Dodd-Frank's "Say on Pay" language requiring shareholder votes on a company's executive compensation, and repeal Dodd-Frank's provision requiring public companies to disclose the use of conflict minerals in their supply chain. The bill would also place new restrictions on shareholders' access to the proxy ballot, which had been eased by Dodd-Frank, requiring shareholders to hold at least 1% of a company's stock in order to seek changes on the corporate ballot (instead of holding $2,000 worth of shares). Risk retention, credit rating agencies. The bill would repeal Dodd-Frank's SEC registration requirement for advisors to private equity funds, and exempt certain companies from Dodd-Frank's risk retention rules, which require banks that securitize mortgages to retain a portion of those loans on their own portfolios. The bill also would ease a number of rules that Dodd-Frank applied to credit rating agencies. Among other changes, the bill would repeal language barring companies from choosing their own rating agency and a provision requiring ratings firm CEOs to attest that the company has adopted internal controls. ———————————————
——————————————— Section by Section
Summary
CBO cost
Amendment text
White House
| |||||
| |||||
