Week Ahead: House Panel to Debate Financial CHOICE Act

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By Jeff Bater

Sept. 9 — The House Financial Services Committee has scheduled a markup in the week ahead for a Republican plan to scale back the Dodd-Frank law.

Analysts don't believe the bill (H.R. 5983) sponsored by Chairman Jeb Hensarling (R-Texas) will make it through Congress. Instead, they see the Financial CHOICE Act as a platform for Dodd-Frank foes next year.

In a Sept. 9 report, Keefe, Bruyette & Woods analyst Brian Gardner predicted the bill will not go far beyond the committee in 2016. “We see next week's vote as part of an effort by House Republicans to show what their 2017 agenda would look like,” he wrote. “We do not see next week's vote as a serious step towards replacing Dodd-Frank since, in our view, there is no chance the Senate will vote on the bill this year.”

Hensarling unveiled his plan in June and the committee held a hearing July 12. A witness, Adam Levitin, a Georgetown University law professor, acknowledged Dodd-Frank's shortcomings, but said the draft bill is “the wrong solution” and would endanger U.S. financial stability.

Republicans say the bill will end taxpayer-funded bailouts of large financial institutions and relieve banks that elect to be strongly capitalized from “growth-strangling regulation.”

Orderly Liquidation Authority

A summary of the proposal calls for repealing Dodd-Frank’s Title II orderly liquidation authority, which authorizes the Federal Deposit Insurance Corp. to borrow from the Treasury to lend to a failing firm, buy its assets, guarantee its obligations and pay off its creditors. Hensarling said Title II should be replaced with a new chapter of the Bankruptcy Code designed to accommodate the failure of a large, complex financial firm.

Hensarling wants to replace the Consumer Financial Protection Bureau with a five-member panel known as the Consumer Financial Opportunity Commission. In addition, under the Republicans' plan, banks that maintain a simple leverage ratio of at least 10 percent and have a composite CAMELS rating of 1 or 2 may elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards, and a number of other regulatory burdens that predate Dodd-Frank.

Jim Purcell, chairman of State National Bank of Big Spring, Texas, supports the bill, along with other Texas lenders. “Perhaps there is a post-Dodd-Frank business model that works by spreading the ever-rising costs of regulatory compliance over a growing or more affluent customer base, but that doesn't work for banks located in small towns and rural areas,” he said in remarks for the July 12 hearing.

KBW's Gardner said he doubts the Financial CHOICE Act will pass intact next year, either, but thinks some of it, especially provisions for small bank regulatory relief, could become part of banking legislation in 2017.

“We think some observers underestimate the prospects that Congress and a new administration will try and modify Dodd-Frank in ways that are positive for community and regional banks and negative for the G-SIBs (global systemically important banks),” he wrote.

Brainard Speech

Also in the week ahead, a Federal Reserve governor, Lael Brainard, will address an event sponsored by the Chicago Council on Global Affairs, a nonpartisan research group.

Brainard's Sept. 12 speech is slated to focus on the economic outlook and monetary policy implications. But the text of the remarks or a subsequent question-and-answer session could turn to the topic of banking regulation.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Mike Ferullo in Washington at mferullo@bna.com

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