As the 2016 Presidential debates begin in earnest, scrutiny is intensifying around a number of issues that will have a significant impact on banks. One of these is the possible repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act (aka Dodd-Frank).
President Obama signed Dodd-Frank into law in 2010 to safeguard the economy from another situation like the 2008 financial crisis. Many regulators and banking industry professionals have observed that, instead of helping the banking industry as intended, Dodd-Frank ended up prompting regulations that actually hindered economic growth.
Introducing The Financial CHOICE Act
The Republican response to Dodd-Frank is the Financial CHOICE Act. The bill was unveiled by Texas Representative and Chairman of the House Financial Services Committee Jeb Hensarling. It cleared the committee on September 13, 2016. "CHOICE" is an acronym for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
The Financial CHOICE Act, which works to repeal portions of Dodd-Frank, currently sits at 512 pages. While some of you might enjoy digging into a document like this, we’re betting that you don’t have the time (or inclination) to perform a detailed analysis. The HORNE Banking team has done the work for you.
Here are seven highlights of this bill, which could bring about significant change in the way the Dodd-Frank Act functions.
- Banks that maintain a high level of capital will gain the option to depart from Dodd-Frank supervisory and capital and liquidity ratios. Banking agencies will be able to perform stress tests on organizations that have chosen to apply the capital levels. These results will be made public and include notice and a comment period. Specific provisions will be related to limitations on mergers, consolidations, or acquisitions of assets or control – to the extent that the limitations relate to capital or liquidity standards or concentrations of deposits or assets.
- The Financial Stability Oversight Council (FSOC) will have less authority to designate certain firms, payments, and clearing organizations as systemically Dodd-Frank Title II would be replaced by a new chapter of the Bankruptcy code designed around the collapse of large, complex financial institutions.
- The name of the Consumer Financial Protection Board (CFPB) will change to the Consumer Financial Opportunity Commission (CFOC). This newly named entity must conduct a cost-benefit analysis for any proposed rules, restructure key roles and authorities, and gain approval before obtaining any personal information on consumers.
- All financial regulatory agencies will be subject to the REINS Act, bipartisan commission reviews, and the appropriations process, giving Congress the ability to exercise proper oversight. Ensure that Congress can exercise proper oversight of the agencies and conduct cost-benefit analysis of any proposed regulations. Reauthorize the SEC with funding, structural and enforcement reforms for a set period of time. Abolish the Office of Financial Research.
- Penalties for financial fraud will increase, as will the monetary fines for individuals convicted of insider trading or similar illegal activity. The Act will release all fines collected by the Public Company Accounting Oversight Board (PCAOB) and the Municipal Securities Rulemaking Board to the Treasury.
- The Volker Rule, which prohibits banks from making certain capital investment decisions, will be repealed. The SEC would lose some ability to restrict securities arbitration, remove the requirement for certain non-material specialized disclosures, and incorporate certain capital formation bills.
- The Act would also create and pass a series of bills to provide regulatory relief for community banks.
If the Financial CHOICE Act is signed into law, the points mentioned above could have a significant impact on the increasingly complex banking environment. Passage of the Act and the repeal of sections of Dodd-Frank will impact how your organization functions in the near future.
Now, more than ever, it is important to stay up-to-date on election issues and the changes happening in Washington. Doing so can feel like a cumbersome task, which is why it’s so valuable to have access to a partner who will stay informed and bring you the information you need to know. If you haven’t already subscribed to the HORNE Banking Blog, now is a great time. Our team is carefully watching the election, the regulatory environment, and the financial industry, with the eye of an experienced advisor who can help you decipher and turn complexities into opportunity.
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