Bankruptcy for Banks
The legislation would remove Dodd-Frank’s so-called orderly liquidation authority, which provides regulators with a process for winding down large financial institutions in distress. It would replace that framework with a new chapter of the bankruptcy code. The bill would also eliminate the ability of a group of regulators known as the Financial Stability Oversight Council to designate large nonbanking financial institutions as “systemically important,” a label that comes with heightened oversight and new rules.
Goodbye to Volcker and Fiduciary Rules
The Republican plan would revoke the Volcker Rule, a Dodd-Frank provision that bans banks from trading for their own gain and limits ownership in hedge funds and private equity.
The bill would also eliminate the Labor Department’s fiduciary rule, which requires brokers to act in the best interest of their clients when providing investment advice about retirement. The first parts of the rule are scheduled to go into effect on Friday, following a 60-day delay mandated by the agency. The rule was completed last spring under President Barack Obama after years of development.
Perhaps the most novel aspect of the legislation is its proposal that banks with a simple leverage ratio of 10 percent or higher be exempted from a number of regulatory requirements, including Dodd-Frank’s heightened standards for larger lenders. The biggest banks have said that maintaining the ratio would be too costly, though some smaller institutions, including community banks, could gain significant relief from the proposal. Currently, there are 37 banks above the regulatory threshold for the heightened standards, those with assets of at least $50 billion.
In addition to more targeted provisions, the bill would broadly alter the regulatory landscape for the banking industry. It would place all federal financial regulators, except for the Federal Reserve’s monetary policy operations, under the congressional appropriations process.
It would also mandate that agencies conduct a rigorous cost-benefit analysis for any new regulations. Congress and the White House would be required to sign off on major rules estimated to cost $100 million or more a year, in line with a proposal known as the Regulations From the Executive in Need of Scrutiny, or Reins Act. In addition, the legislation would limit the Fed’s independence by imposing a rule-based approach to monetary policy and opening the central bank up to annual audits.
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