ABA has published a staff analysis of the Financial Choice Act, a nearly 500-page bill introduced by Rep. Jeb Hensarling (R-Texas) aimed at rolling back the Dodd-Frank Act’s extensive supervisory regime and providing regulatory relief for banks of all sizes. While the association acknowledged that the draft legislation “represents a good step forward,” it pointed out that there are several issues that will require closer consideration as the bill advances.
A central component of the bill is a “regulatory off-ramp” from the DFA and Basel III supervisory regimes for all banks that elect to maintain a 10% non-risk weighted leverage ratio and have composite CAMELS ratings of 1 or 2. ABA pointed out, however, that the proposed leverage ratio calculation is complicated, and that the overall impact of the provision on member banks is unclear. For example, the largest banks could see their leverage requirements increase by an additional 4%, while community and mid-sized banks that do not currently calculate a leverage ratio may not have the means to do so, the association said.
The Financial Choice Act also focuses on ending “too big to fail” by replacing DFA’s Orderly Liquidation Authority provision with a new Bankruptcy Code designed to accommodate the failure of a large, complex financial institution. While ABA did not offer comment on the specifics of repealing the Orderly Liquidation authority, it encouraged Congress to consider whether repealing the provision in its entirety would eliminate some necessary tools for managing financial stability.
The bill incorporates several regulatory relief measures supported by ABA that would encourage tailored regulation; streamline and clarify reporting processes; provide greater flexibility for mutual savings associations; and modify several existing provisions related to mortgages. The association will continue to solicit member feedback on the bill and will share its comments and concerns with the House Financial Services Committee.
Read the staff analysis.
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