This bill — known as the Financial CHOICE Act — would implement a number of reforms to the laws and regulations of the financial industry, including the Dodd-Frank Act. In general, it seeks to end “Too Big to Fail” bailouts of financial institutions, expand small businesses’ access to capital, enhance punishments for financial crimes, and reform the Consumer Financial Protection Bureau (CFPB).
Ending “Too Big to Fail” and Bank Bailouts
The bill would reform the bankruptcy process for large financial institutions by repealing the FDIC’s Orderly Liquidation Authority under Dodd-Frank and replacing it with a new chapter of the Bankruptcy code that’s designed to accommodate the liquidation of complex financial firms. It would also retroactively eliminate the ability of the Financial Stability Oversight Council (FSOC) to designate firms as systemically important financial institutions, or payment and clearing organizations as systemically important “financial market utilities.”
The Treasury Dept.’s Exchange Stabilization Fund would be prohibited from being used to bailout financial firms or creditors. The Federal Reserve’s discount window lending would be restricted to when Bagehot’s dictum applies, which is that to avoid panic central banks (like the Fed) should lend without limit to solvent firms against good collateral at sufficient rates.
There would be an “off-ramp” from the post-Dodd-Frank supervisory regime and the Basel III capital and liquidity requirements for banks that maintain high levels of capital. Banks that choose to make a qualifying capital election, meaning they choose to pursue the off-ramp by keeping more cash on hand, but fail to maintain the proper non-risk weighted leverage ratio lose that regulatory relief. Exempted banks would be free from federal laws and regulations related to mergers or acquisitions, limitations on capital or liquidity standards, or federal regulators considering their risk to the financial system’s stability when reviewing their application to consummate a transaction or commence an activity.
Accountability For Wall Street
The Securities and Exchange Commission (SEC) would be allowed to triple the monetary fines it seeks in administrative or civil actions where the penalties are tied to the defendant’s illegal profits. In circumstances involving “fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement” the SEC would be granted the new authority to impose penalties equal to investor losses where the loss or risk of loss is significant and punish repeat offenders more harshly.
The maximum criminal fines for individuals and firms engaging in insider trading and other corruption would be increased, and penalties for financial fraud and self-dealing would be enhanced. In general, the minimum and maximum penalties for these crimes are doubled by this legislation. All fines collected would be provided to the Treasury for deficit reduction.
Accountability for Financial Regulators & Devolving Power From Washington
All financial regulatory agencies would have their major regulations subject to Congress’s approval under the REINS Act, and their funding would be subject to appropriations. An across-the-board requirement would be put in place for financial regulators to conduct a detailed economic analysis of all proposed and final regulations to ensure the costs imposed are outweighed by the benefits.
The SEC would be reauthorized, along with funding, structural, due process, and entitlement reforms. Financial regulators and the Dept. of Justice (DOJ) would be prohibited from requiring that donations be made to non-victims in settlement agreements.
Helping Small Businesses and Job Creators Access Capital
Some sections and titles of the Dodd-Frank Act, such as the Volcker Rule which prohibits banks from conducting certain investment activities with their own accounts or owning private equity funds or hedge funds, would be repealed by this bill. It also contains a number of provisions that have also been introduced as standalone bills in this Congress or the last, including bills aimed at the following:
Making it easier for startups to pitch angel investors on their business plans.
Creating a safe harbor for investment fund research by brokers and dealers.
Increasing the number of investors in a venture capital firm before it becomes subject to SEC regulation.
Regulatory Relief for Main Street and Community Financial Institutions
This section of the bill contains a number of individual pieces of legislation aimed at providing regulatory relief to community banks and credit unions, including:
Requiring regulators to consider the risk profiles and business models of financial institutions when proposing regulations;
Prohibiting federal banking agencies from terminating the accounts of customers or groups of customers unless there is a material reason to do so, rather than because of their reputation risk as occurred during Operation Choke Point which targeted gun shops, payday lenders, pawn stores, and cigar shops.
Creating a safe harbor for mortgage lenders that keep mortgages on their balance sheets.
Consumer Financial Protection Bureau Reform
The name of the Consumer Financial Protection Bureau (CFPB) would be changed to the Consumer Law Enforcement Agency (CLEA), and it’d be tasked with the dual mission of consumer protection and competitive markets. Cost benefit analyses of rules would be performed by the newly-formed Office of Economic Analysis.
The CLEA would be structured as an agency of the executive branch, rather than an independent agency as the CFPB was, thereby subjecting it to Congressional oversight and the appropriations process. Its supervisory function would be eliminated, and it’d be required to enforce enumerated consumer protection laws. The CFPB’s market-monitoring function would be eliminated, and CLEA would have to obtain permission before collecting consumers’ personally identifiable information. The CFPB’s “unfair, deceptive, or abusive acts and practices” authority would be removed, and the Dept. of Labor’s fiduciary rule would be repealed.