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House to Vote on Dodd-Frank Repeal

The House of Representatives is set to vote on a nearly 600-page bill to rewrite the Dodd-Frank Act and roll back hundreds of financial regulations. H.R. 10, the Financial Choice Act, represents a Republican deregulatory wish-list that is unlikely to survive in the Senate.

The House of Representatives is set to vote during the week of June 5, 2017, on a nearly 600-page bill to rewrite the Dodd-Frank Act and roll back hundreds of other financial regulations, according to a notice posted online by the House.

H.R. 10, the Financial Choice Act, is a Republican deregulatory wish-list that, if passed, will have broad ramifications for securities regulations and regulatory agencies’ enforcement of them. Democrats roundly oppose the bill but are unlikely to stop it from passing the House. The Financial Choice Act faces slim chances in the Senate, however, where Democrats are likely to mount a filibuster to block any unraveling of post-crisis reforms. Republicans in the chamber, as well, are expected to produce their own regulatory reform proposal, one that could look substantially different from the House’s vision.

Were it to become law, the Financial Choice Act would abolish core provisions of the Dodd-Frank Act, ease accounting and disclosure rules on public companies, and strip regulatory agencies of certain rulemaking and enforcement powers, among other changes.

The bill provides an “off-ramp” for banks that amass enough capital from prudential requirements in Dodd-Frank and the international Basel III accords. That provision hinges on a bank achieving a 10 percent leverage ratio, a measurement that compares an institution’s capital to its assets.

The largest banks are unlikely to take advantage of that off-ramp because of the amount of capital they would need to raise, according to a recent report on the Choice Act by the Congressional Budget Office (CBO).

The Choice Act would also scrap Dodd-Frank’s “orderly liquidation authority” that gives regulators a means to resolve failing banks and brokerages whose collapse would jeopardize the broader financial system. The bill’s sponsor, House Financial Services Committee Chairman Jeb Hensarling of Texas, and other critics have said the liquidation authority will lead to additional taxpayer funded bank bailouts. They want to replace it with updates to the bankruptcy code tailored for large financial institutions.

The liquidation authority’s defenders, who include former Federal Reserve Chairman Ben Bernanke, say such a change would put the financial system at risk in another crash.

The Choice Act has many significant changes to the supervision of the financial markets. It expands Congress’s authority to review regulatory agency rules. The SEC would see new checks on its enforcement powers, especially its ability to have cases heard by its administrative judges. Public companies with as much as $500 million in market capitalization would be free from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 . In addition, two Dodd-Frank watchdog agencies, the Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB), would see their authority sharply curtailed.

The bill is set to move forward after Hensarling agreed to strip out a provision abolishing the so-called “Durbin Amendment” of Dodd-Frank, which limits the fees banks can charge retailers for debit card payments. A split within the House Republican caucus over the language repealing the Durbin Amendment prevented the bill from reaching the House floor.

Hensarling has said he is open to more such compromises in order to ensure the Choice Act’s passage. In May 23 remarks before the American Enterprise Institute, the Texas Republican said he is “ready to negotiate in good faith with anybody” to advance parts of the bill.

Hensarling also acknowledged the challenges the bill faces in the Senate.

“The Senate has different challenges than we have at the House,” he said during the event at the conservative think tank in Washington. “The Senate inherently is not a majoritarian institution, but… we come up with a bill, they come up with a bill. Hopefully we get to conference; we will see where we go from there.”

The Choice Act passed the House Financial Services Committee in early May on a 34-26 party-line vote. House Democrats are calling the measure the “Wrong Choice Act,” and say the legislation risks restoring pre-crisis levels of risk in the financial system and benefit Wall Street at the expense of consumers.

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