House Republicans will go into work tomorrow and pass a bill designed to strip away virtually everything of value in the last round of President Obama’s 2010 financial reforms. And then everyone will get on with their lives, because the bill has no chance whatsoever of becoming law.
House Financial Services Committee Chair Jeb Hensarling, aficionado of industry-paid junkets, knows this. House Speaker Paul Ryan knows this. Not a soul in Congress believes that the CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, the House’s Dodd-Frank overhaul, will see the light of day. But they’re passing it anyway.
And that’s the difference between Republican and Democratic conceptions of legislative power.
Let’s start by pointing out that the Choice Act is a bad bill. The acronym of the title suggests banks would have to make a “choice”: suffer under the allegedly burdensome financial regulations we have today, or maintain a ratio of liquid assets to overall debt—known as a “leverage ratio”—of 10 percent. Higher leverage ratios give banks the ability to absorb losses in case of catastrophe. There’s a germ of an idea here; simple requirements like leverage ratios are easier to enforce than the maddening complexity of much of Dodd-Frank. And if bankers are responsible for their own mistakes with their own money, you could imagine a lighter regulatory touch.
But here’s the problem: There’s no penalty for violators of the leverage rules. Under the act, if leverage ratios fell below the threshold for a regulatory exemption, a bank would get a year to rewrite its capital plan. So you could easily envision banks jumping back and forth, reaching compliance with leverage rules and then falling out, facing no sanction for doing so. A rule without enforcement isn’t a rule, and the only choice for Wall Street in the Choice Act is to do whatever it wants.
Added to this false choice is a dismantling of Dodd-Frank’s biggest features. The Consumer Financial Protection Bureau would be gutted, with its jurisdiction constrained and its budget subject to congressional meddling. Tools to unwind banks in a crisis would be repealed. Enhanced supervision of “systemically important” financial institutions would be eliminated. Securities and Exchange Commission (SEC) registration for hedge funds and private equity firms would be jettisoned. Stress-test methods would be publicly disclosed, allowing banks to prepare for these examinations of their balance-sheet health. The Volcker rule, preventing big banks that take deposits from gambling with customer funds, would be ditched.