Dodd-Frank reforms prevail in House; now what?

Dodd-Frank reforms prevail in House; now what?”

The Republican-led House last Thursday voted to free Wall Street from numerous constraints put in place after the 2008 financial crisis, the opening salvo in what is likely to be a protracted battle over deregulation of the powerful banking industry.

-Community financial institutions - banks and credit unions - are critically important to serve many Americans. It could provide a blueprint for regulators to rewrite the Dodd-Frank rules, as Trump continues to fill out his team of top financial overseers.

The financial industry cheered the Treasury report as a step in the right direction. In stark contrast, the "Financial Choice Act", as the newly passed bill was titled with Orwellian flair, contrives to pretend the crisis never occurred - which, as it happens, is also the devout wish of Wall Street.

The Volcker Rule, which is already under serious threat of being scrapped from potential Dodd-Frank replacement the Financial CHOICE Act, "requires substantial amendment", according to the Treasury. Wall Street and Republicans have been pushing against the rule, which compels financial pros who charge commissions to put their clients' best interests first in advising them on retirement investments. Later from the House floor he labeled the legislation a "real stinker". "This is appropriate in light of the complexity and lack of systemic risk of such financial institutions", the Treasury report said.

By availing themselves of this voluntary mechanism, community banks will have more options when it comes to product innovation and services for small businesses, consumers, families, farmers and our entrepreneurs across the nation. Many supporters of the current rules believe they protect consumers from abusive lending and have prevented banks from taking on so much risk that they threaten the broader financial sector.

While Republican speaker Paul Ryan supports the Bill, it has been strongly criticised by Democrats and some Republicans, and is viewed as highly unlikely to get through the Senate.

"A sensible rebalancing of regulatory principles is warranted in light of the significant improvement in the strength of the financial system and the economy", the Treasury said.

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Proposed House changes in the new legislation that would make it easier for banks to engage in increasingly risky lending activities include the removal of the Financial Stability Oversight Council's ability to determine the systemic importance of certain large non-banking financial institutions and their need to be under greater regulatory supervision. The bank agreed to pay over $100 million in fines and refunds for opening unauthorized consumer bank accounts. Living wills, the plans lenders must submit to regulators to show they can be broken up without threatening the financial system, would also be required every two years instead of annually.

In order to further boost market liquidity, the Treasury recommended delaying the domestic implementation of the net stable funding ratio (NSFR) and the fundamental review of the trading book (FRTB) rules until they can be appropriately calibrated and assessed.

Put all this together, and it's pretty obvious that Dodd-Frank is essentially gone if it all passes. It also seeks to diminish the powers of the Consumer Financial Protection Bureau.

Wall Street has praised the thoroughness of the report.

"Yes, Dodd-Frank had these mechanisms that said that big banks shouldn't be allowed to engage in proprietary trading, but in practice, a lot of these banks moved those trading arms into other entities, and so they were operating at arm's length".

Hensarling's bill would strip the agency of some of its most important powers.

"Since its establishment, the CFPB has returned almost $12 billion in relief to more than 29 million people who've suffered at the hands of big banks like Wells Fargo, for-profit colleges like ITT Tech, car-title and payday lenders, credit card companies, and other financial institutions".

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