As part of the Republicans’ deregulation efforts, the House of Representatives voted earlier this month to pass a bill to undue major laws that regulate Wall Street. The following explains the proposed changes to Dodd-Frank:
- The bill intends to eradicate the “Volcker Rule.” This rule was set in place to prevent banks from making risky investments with their customer deposits. It was included in Dodd-Frank to essentially separate commercial from investment banking due to the uninhabited trading that directly contributed to the financial crisis.
- Looser Liquidity Rules. Dodd-Frank had set liquidity rules for Banks with more than $50 billion in assets. These banks are required to undergo a “stress test” every year. This was put in place as regulators worried the banks may lose their ability to provide loans during a recession. Under the new bill, these banks would only have to conduct the test every two years instead of annually.
- Eliminate ways to shut down struggling banks. The bill would also add a new chapter in the bankruptcy code to allow failing banks & other financial companies to be unwound through bankruptcy rather than relying on bailouts or government-imposed restructuring. The Dodd-Frank allowed the Federal Deposit Insurance Corporation the authority to do just that, and dismantle these insolvent institutions to be able to understand the impact on the financial environment.
- Weaken the Consumer Financial Protection Bureau.The CFPB, which has aggressively cracked down on fraudulent financial products, is independently funded by the Federal Reserve. The new bill proposes that the funding would instead come from congressional seizures. The bill also would give the president the ability to fire the CFPB Director at will.
- Remove “Too-Big-To-Fail” Designation.The provision in Dodd-Frank, intensified regulation of institutions at $50 billion in assets (To-Big-To-Fail companies). The Luetkemeyer measure in the new bill would essentially strip the “too-big-to-fail” provision from Dodd-Frank. It would take away authority of the Financial Stability Oversight Council to designate non-bank financial institutions, such as insurance companies, as “systemically important,” as well as aim to raise the asset metric.
- Eliminate fiduciary rule.One provision in the Financial Choice Act would erase the Labor Department’s fiduciary rule, which requires financial advisers working with retirement account holders to act in the best interest of their clients. Also, it would prevent the Labor Department from going forward with any other rule, without the Securities and Exchange Commission creating a rule first.