Jeb Hensarling, the Republican chairman of the House of Financial Services Committee, disclosed a legislative plan on Tuesday which aims to remove significant portions of the Dodd-Frank financial regulatory overhaul.
Jeb Hensarling’s speech provided financial institutions, large and small, an alternative to the existing post crisis regulatory regime. They would be allowed to opt in to the alternative plan if they can surpass critical thresholds, including a 10% leverage ratio, which is a measure of capital held by a bank against its total assets and hence curbs the amount of borrowing, or leverage, banks can do.
“Our reform plan allows banks to opt-in to an alternative regime that replaces growth-strangling regulation with reliable accountability,” Hensarling said in remarks prepared for a speech at the Economic Club of New York. “It stops investors from betting with taxpayer money. Think of it as a market-based, equity-financed Dodd-Frank off-ramp.”
Presently, U.S. banks are required to meet a 6% leverage ratio which is higher than the 3% buffer the Basel Committee on Banking Supervision requires institutions to maintain. Even the Basel Committee sets guidelines for global banking regulation, it is up to individual countries to determine how, if at all, to implement its proposals.
Although the proposals have no chance to becoming law this year, lawmakers could turn to them as an option for replacing the 2010 financial regulation law if Donald Trump wins the White House and Republicans keep control of Congress in November elections. Both political parties are loath to be seen as doing favors for Wall Street, and Hensarling aims to strike a balance in dumping regulations while still making life difficult for the biggest banks.
Donald Trump claims he will deliver his own plan for overhauling Dodd-Frank. The Republican presidential candidate and Hensarling planned to meet Tuesday in New York to discuss efforts to revise the law, according to Hensarling’s spokeswoman Sarah Rozier.
President Obama, in a recent speech on the economy, reiterated the White House’s stance against broad rollbacks of the financial reform law, underscoring the uphill battle the legislation would face in the current political environment.
“Have we really forgotten what just happened eight years ago? It hasn’t been that long ago,” Mr. Obama said last week in Elkhart, Ind. “And because of their reckless behavior, you got hurt. And the notion that you would vote for anybody who would now allow them to go back to doing the same stuff that almost broke our economy’s back makes no sense.”