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Thursday, April 20, 2017

Hensarling Releases Full Text of Financial Reform Bill

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has released the latest legislative text of his Financial Choice Act, a 600-page bill aimed at rolling back and reforming parts of the Dodd-Frank Act’s extensive supervisory regime, as well as providing regulatory relief for banks of all sizes. A similar version of the legislation cleared the committee in the previous Congress. The committee is scheduled to hold a hearing on the bill next week.

Title V of the Choice Act contains numerous provisions long sought by ABA. These regulatory relief measures would provide a Qualified Mortgage safe harbor to mortgage loans held in portfolio, tailor supervision to banks’ risk profiles and business models, raise the small bank holding company policy statement asset threshold to $5 billion, create an independent exam appeals process, provide charter flexibility for thrifts, stop data collection on small business loans, clarify the QM rule’s points and fees test, expand the short-form Call Report, enhance mortgage relief for smaller banks and smaller mortgage originators and prevent future “Operation Choke Point” activities.

The bill further details plans to reform the CFPB, which would be renamed the Consumer Law Enforcement Agency and would be stripped of examination powers and “UDAAP” enforcement authority. The Choice Act would also repeal the Durbin Amendment, 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 would bring the new CLEA, FDIC, OCC, Federal Housing Finance Agency, National Credit Union Administration and supervisory functions of the Federal Reserve into the congressional appropriations process, mandate cost-benefit analyses of regulations and require congressional approval for “major rules.”

Additional regulatory relief would be available for banks maintaining a 10% non-risk weighted leverage ratio that elect into the alternative regime. Qualifying banks would be exempt from federal capital and liquidity requirements, blocks on capital distributions, systemic risk regulations and limitations on mergers and acquisitions provided any new entity also maintains the minimum leverage ratio.

Another key component of the Choice Act is ensuring no institution is “too big to fail” by replacing Dodd-Frank’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.

View the full text of the bill.


Per Kurowski said...

“10% non-risk weighted leverage ratio” does not distort credit allocation and is therefore safer for the banks and for the real economy.
But you need to be sure the banks that adopt this, can compete with the risk-weighing banks.

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