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Barr: Dodd-Frank changes needed for accountability, economic growth
Posted by Rep. Andy Barr (R-KY) on May 24, 2017


Congress will soon vote on a plan to significantly overhaul the 2010 financial control law commonly known as the Dodd-Frank Act.

This is great news for jobs and growth in Kentucky. In the nearly seven years since enactment of the 2,300-page Dodd-Frank law, roughly one in five Kentucky credit unions and community banks has closed its doors.

Nationwide, more than 43 percent of banks under $100 million in assets have disappeared. And whereas nearly 170 new banks were chartered on average per year before the financial crisis, there have been only six new bank charters total since Dodd-Frank.

This decline in community financial institutions, which account for 43 percent of all loans to small businesses and represent the only physical banking presence in 20 percent of the counties in the United States, has limited access to essential financial services and products.

For example, 72 percent of community banks report that Dodd-Frank rules have restricted their ability to extend credit for mortgages, and small-business lending from banks is at a 20-year low.

By limiting services at community financial institutions, Dodd-Frank regulations are clogging the plumbing of our economy, especially in rural and underserved communities.

For these reasons, I have been working with my colleagues on the House Financial Services Committee on a Dodd-Frank fix called the Financial CHOICE Act, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs. This legislation will end taxpayer bailouts for “too-big-to-fail” Wall Street firms, provide Main Street community banks and credit unions an “off-ramp” from the central planning of Dodd-Frank and provide much-needed reform to the unaccountable Consumer Financial Protection Bureau.

Dodd-Frank was supposed to solve the problem of “too-big-to-fail.” Instead, it codified into law taxpayer bailouts of large, systemically important firms. As a result, not only are small banks fewer, but Wall Street banks are bigger.

The Financial CHOICE Act will end taxpayer bailouts of big banks by replacing Dodd-Frank’s “Orderly Liquidation Authority” with a new chapter of the bankruptcy code that will better accommodate the failure of large, systemically important financial institutions, or “SIFIs.” It also repeals regulators’ authority to designate non-bank SIFIs, which signals to investors which firms would likely be bailed out by taxpayers.

Together, these provisions would thwart the contagion of “moral hazard” that occurred during the run up to the financial crisis, when some firms, including government-sponsored enterprises Fannie Mae and Freddie Mac, took on excess leverage and risk with full knowledge that Uncle Sam would bail them out in the event of a crisis. And the legislation further holds Wall Street accountable by imposing the most severe penalties in American history for financial fraud and other crimes.

Meanwhile, the Financial CHOICE Act would deliver much needed regulatory relief to Main Street.

Instead of punishing all financial institutions with Dodd-Frank rules and regulations, the Financial CHOICE Act would allow a bank or credit union to escape much of the regulatory central planning of Dodd-Frank in exchange for maintaining a simple 10 percent leverage ratio. Adequate capitalization would prevent these institutions from overextending themselves in good times and protect them from defaults in bad times.

Finally, our legislation would implement much needed reforms to the Consumer Financial Protection Bureau to enable it to better protect consumers and make it more accountable to the American people. The Financial CHOICE Act does this by subjecting the bureau to the congressional appropriations process, giving Congress the power of the purse over this agency and its regulatory overreaches for the first time. It would also reform the bureau’s unconstitutional structure by making its director removable at will by the president, establishing a Senate-confirmed inspector general, requiring cost-benefit analysis of regulatory proposals, and requiring the bureau to obtain permission prior to collecting consumers’ private financial information.

As local organizations that understand the damage Dodd Frank is doing to our economy, it is no surprise that the Kentucky Bankers Association, the Kentucky Credit Union League and Commerce Lexington have all endorsed the Financial CHOICE Act. By enacting this important legislation, we can finally hold Wall Street and Washington accountable, deliver much-needed relief to Main Street community financial institutions and create more opportunities for all Americans.