The House Financial Services Committee yesterday released the full text of the Financial Choice Act, a nearly 500-page bill aimed at rolling back the Dodd-Frank Act’s extensive supervisory regime and providing regulatory relief for banks of all sizes. The bill’s chief architect, committee Chairman Jeb Hensarling (R-Texas), first introduced the plan in a speech earlier this month.
At the core of the proposed legislation is a regulatory “off-ramp” from the DFA and Basel III supervisory regimes for all banks that elect to maintain a 10 percent non-risk weighted leverage ratio and have composite CAMELS ratings of 1 or 2. Qualifying banks would be exempt from certain rules and regulations that limit mergers, acquisitions or other transactional activities whenever those limitations are based upon capital or liquidity standards, or upon regulators’ assessment of systemic risk. The regulatory relief provided by the bill would be contingent upon the bank maintaining the specified leverage ratio and ratings.
Another key component of Hensarling’s plan is ensuring no institution is “too big to fail” by stripping the Financial Stability Oversight Council’s authority to designate firms as systemically important and replacing DFA’s Orderly Liquidation Authority provision with a new Bankruptcy Code designed to accommodate the failure of a large, complex financial institution. Additionally, it significantly restricts the Federal Reserve’s ability to make discounted loans or bail out financial firms or creditors.
The bill further details plans to overhaul and demand greater accountability from the various federal regulatory agencies, including the Consumer Financial Protection Bureau; impose more stringent penalties for Wall Street in cases of fraud or deception; and repeal sections of Dodd-Frank that limit capital formation, including the Volcker Rule. It also seeks to reduce the regulatory burden on community institutions by incorporating more than two dozen proposed regulatory relief measures.