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Dodd-Frank debate: Here's how the House could change financial legislation

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Roger Yu , USA TODAY 6:10 p.m. ET June 6, 2017

President Trump’s agenda to deregulate the financial industry could take a big leap forward this week.

The House of Representatives plans to begin debating on Thursday an ambitious Republican bill that aims to scale back much of the landmark Dodd-Frank Act, which was enacted in 2010 in the wake of the financial crisis and regulates banks and financial service companies.

Sponsored by Jeb Hensarling (R-Texas), the Financial CHOICE Act proposes to defang a consumer financial protection agency created by Dodd-Frank, eliminate liquidity requirements for large banks and remove a rule that prohibits banks from investing in risky securities using clients' money.

The bill will likely pass the Republican-controlled House. But it will likely be dead on arrival in the Senate, where a smaller-scale bill is being considered and at least 60 votes are required to avoid a Democratic filibuster.

Still, the bill’s passage in the House represents a symbolically significant step in the Republicans' years-long quest to undo Dodd-Frank. Critics of the legislation argue that it is too broad in scope, contains too many cumbersome rules that hinder new loans and that it costs banks too much money.

Its proponents say the law prevents the industry's riskiest practices, helps to maintain banks' financial health, and empowers regulators to robustly crack down on scams

Here are some of the new bill's key proposals:

* Repealing the Volcker Rule.  The bill seeks to eliminate the so-called Volcker Rule, which prevents banks from using customer deposits to conduct “proprietary" trading, or trading of speculative securities for banks' benefit. The rule was included in Dodd-Frank as a direct response to the rampant trading of derivatives that contributed to the financial crisis. .

* Exempting banks from some rules. Under the bill's proposals, some large banks with high levels of capital would be exempted from Dodd-Frank's liquidity rules. The act requires that banks with assets of $50 billion or more undergo "stress tests" each year. The bill proposes to conduct the test every two years rather than annually. These tests — run by bank management and separately by the Federal Reserve — were put into place because regulators were afraid banks might lose their ability to provide loans to households and businesses during a severe recession.

Weakening the Consumer Financial Protection Bureau. The bill also proposes to have the CFPB, an influential enforcement agency established by Dodd-Frank, to get its funding from congressional appropriations. It also proposes to give the president authority to fire the CFPB director at will. The CFPB, which has aggressively cracked down on fraudulent financial products, is independently funded by the Federal Reserve. The director serves a five-year term and can be removed only for cause.

* Eliminate ways to shut down struggling banks. The bill seeks to eliminate the Federal Deposit Insurance Corporation's authority to quickly dismantle insolvent banks and financial companies. In April, Trump ordered a review to see whether court-supervised bankruptcy may be a better way to wind them down. But Dodd-Frank proponents argue that bankruptcy procedures can't effectively assess the broader effects of a company's failure on the financial system.

* Removing "too big to fail" designation. The bill would remove the authority of the Financial Stability Oversight Council, a Treasury Department organization, to designate non-bank financial institutions, such as insurance companies, as "systemically important." These "too-big-to-fail" companies are now subject to additional regulatory restrictions.

 


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