Finance Magnates has learned that the House Financial Services Committee has approved legislation to revamp the federal government’s approach to regulating Wall Street banks, the first step towards replacing the 2010 Dodd-Frank Act which was adopted in the wake of the financial crisis, according to a report in the WSJ.
Join the industry leaders at the Finance Magnates London Summit, 14-15 November, 2016. Register here!
The vote came just days after Wells Fargo agreed to pay regulators $185 million for illegal sales practices, including opening as many as two million deposit and credit-card accounts without customers’ knowledge, $100 million of which was imposed by the Consumer Financial Protection Bureau (CFPB).
The bill comprises a number of initiatives to eliminate core elements of the Dodd-Frank law, including limiting the CFPB’s power to penalise institutions for “abusive practices”.
According to the WSJ, other provisions of the bill would:
- Provide an ‘off ramp’ for banks to opt into an alternative regulatory apparatus, freeing them from of certain regulatory burdens under Dodd-Frank if they met specific requirements such as holding more capital in reserve to absorb any losses.
- Take away the government’s power to label firms ‘systemically important’ and impose constraints on those institutions.
- Repeal a Dodd-Frank provision that gives regulators a role in helping to steer financial institutions through bankruptcy if they run into severe distress. Instead, institutions would follow the bankruptcy code, either unwinding themselves or reorganizing themselves on their own.
- Repeal the so-called Durbin Amendment to Dodd-Frank that limited the fees charged to retailers on debit-card transactions. Opponents of the amendment say that retailers have kept most of the savings rather than passing the money back to consumers.
The Wells Fargo issue came up repeatedly throughout the committee’s session with Democrats which criticised Chairman Hensarling for failing to call a hearing to examine Wells Fargo’s sales tactics.
Hensarling replied, stating that his bill “holds Wall Street accountable with the toughest, strongest, strictest penalties ever, far greater than those in Dodd-Frank. And as recent headlines attest, obviously stronger penalties are needed.”
Industry associations that represent small institutions like the American Bankers Association and the Independent Community Bankers of America have endorsed the bill, welcoming efforts to remove regulations that are particularly costly to smaller banks. Donald Trump has also pledged his support for the smaller companies and is keen to part with the cumbersome regulations that have stifled the development of the retail forex industry in the U.S.
However, the bill has generally been regarded as a Republican blueprint to scale back restrictions on the financial industry and rein in the CFPB and is therefore not expected to get traction in the Senate. President Barack Obama also pledged to veto any bill to dismantle the 2010 law.