Houston Chronicle: House poised to pass Hensarling bill rolling back Obama bank regulations
WASHINGTON – The U.S. House is expected to pass sweeping legislation Thursday sponsored by Texas Republican Jeb Hensarling that would roll back major pieces of the Dodd-Frank Act, the banking law passed by Democrats in the wake of the 2007-2008 financial crisis.
The expected party-line vote will represent a milestone for Hensarling, an eight-term congressman who led the opposition to the George W. Bush administration's 2008 bank bailout. As chairman of the House Financial Services Committee, he has focused on loosening the regulatory burdens on banks.
The vote in the Republican-dominated House will set up a tough battle in the Senate, where Democrats who see the legislation as an attack on consumer protections appear to have the votes to block it.
Hensarling's 600-page bill, known as the Financial Choice ACT of 2017, would repeal some of President Obama's signature financial reforms, chiefly the so-called Volcker Rule limiting certain types of speculative investments by banks.
More controversially for Democrats, the bill would weaken the Obama-era Consumer Financial Protection Bureau which was set up to investigate consumer complaints against financial institutions.
Hensarling and his GOP backers have argued that the Dodd-Frank regulations have stifled economic growth by overregulating financial institutions, jacking up banking fees, and making loans harder to get.
"Dodd-Frank represents the greatest regulatory burden on our economy, more so than all the other Obama era regulations combined," Hensarling said Wednesday. "There is a better way: Economic growth for all; bank bailouts for none."
Hensarling said that under his bill, which has become the GOP's primary cudgel for dismantling Obama's landmark Wall Street regulations, no banks would be deemed "too big to fail."
Banks would instead be required to buy privately-financed insurance policies against failure. Under the GOP plan, banks could get of "off-ramp" exemption from a number of regulations if they maintain a 10 percent "simple leverage ratio" as a hedge against financial panics.
Under that formula, Hensarling says, 98 percent of American banks would have survived the 2008 crisis without the controversial government-backed bailouts that many credit with averting a complete economic meltdown during the Great Recession.
Congress approved the bailout in September 2008 after an initially unsuccessful vote that led to a 777-point, one-day drop in the Dow Industrial Average, the largest single-day drop on record. It wiped out trillions of dollars worth of household wealth across America.
At the time, Hensarling was a vocal critic of the $700 billion financial bailout crafted by then Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
Democrats argue that the Republican assault on Dodd-Frank will leave consumers vulnerable to another crisis. California U.S. Rep. Maxine Waters, the top Democrat on the Financial Services Committee, issued a statement calling the bill "rotten to the core."
But Democratic opposition, while nearly universal, has been fairly muted out of a pragmatic consideration for their Wall Street friendly centrists in a House debate where they have little leverage anyway.
The House split 231-188 Wednesday over a preliminary resolution to limit debate and set up a final vote Thursday.
Nevertheless, opponents scored one bipartisan victory in the run-up to Thursday's final vote, forcing Hensarling to give up on an effort to remove the "Durbin amendment," a provision limiting the fees charged to retailers on debit cards.
Among the economic interests that opposed removing the caps were big box retailers.
"The votes weren't there," Hensarling explained on MSNBC's "Morning Joe" show. "I'm sorry … that's part of the Democratic process."
While Democrats say the Choice Act is dead on arrival in the Senate, Republicans have rallied around the bill, which they see as an integral part of President Donald Trump's jobs agenda.
In a statement of support this week, the White House praised provisions in the bill the administration said would foster economic growth, including one affirming the president's authority to remove the director of the Consumer Financial Protection Bureau "at will."
House Speaker Paul Ryan called Hensarling's bill the "crown jewel" of Republican efforts to reduce government regulation.
"This legislation comes to the rescue of Main Street America," Ryan said Wednesday. "... The Dodd-Frank Act has had a lot of bad consequences for our economy, but most of all, in the small communities across our country."
In particular, Ryan singled out community banks, which he said "cannot deal with the costly and the countless rules." Community banks are generally regarded with those with assets of less than $10 billion.
The Congressional Budget Office (CBO) estimates that the bill would cut the deficit by $24 billion over the next 10 years, mostly from reductions in direct government regulatory spending.
The bill has been hailed by conservative groups like Heritage Action for America, which argues that the financial crisis was brought on less by reckless behavior by financial institutions than by ill-considered government efforts to expand home ownership and housing affordability.
Critics of the bill say it would weaken rulemaking and enforcement. A coalition of 20 state attorneys general has sent a letter to House leaders opposing the legislation, saying it would gut the Consumer Financial Protection Bureau by requiring congressional approval for enforcement actions against financial institutions.
Whatever the bill's fate in the Senate, Hensarling's effort represents continuity in a political career that started as an aide to former Texas U.S. Sen. Phil Gramm, known as a champion of deregulation and legislation who repealed much of the Glass-Steagall Act, which separated commercial from investment banking.
Critics charged that Gramm's legislation – signed by President Bill Clinton – contributed to the subprime mortgage crisis that led to the recession. Gramm had steadfastly defended the ability of banks and securities firms to compete.