Community Banks Not Wall Street Will Benefit From Dodd-Frank Repeal
Last month the Congressional Budget Office (CBO) released its report on the Financial CHOICE Act, which the House will vote on later this week. The CHOICE Act repeals major provisions of the law largely responsible for the country’s sluggish economic recovery.
Ever since Chairman Jeb Hensarling (R-TX) introduced the bill last Congress, Democrats insist the CHOICE Act will deregulate Wall Street leaving the American people vulnerable to practices that caused the financial crisis. To Democrats, the CHOICE Act “allows Wall Street to return to the Wild West.”
First, it’s worth remembering federal housing policies-not supposed deregulation-drove the behavior behind the financial crisis. Yet, the Dodd-Frank financial overall came to life based off the idea banks were woefully unregulated. CBO’s latest findings underscore the dishonesty of this argument.
The CBO found that community banks-not Wall Street- get regulatory relief under CHOICE. The legislation gives financial institutions the option to hold more capital, lowering the likelihood of failure and subsequent bailout, in exchange for of an off-ramp from Dodd-Frank regulations.
Again, CBO concludes, “the eight large banks headquartered in the United States…would not make the election because they would have to raise much more capital.” It’s the small banks who will see a reduced regulatory burden. “CBO expects that most of the financial institutions that chose to maintain a leverage ratio at 10 percent would be those with assets below $10 billion, commonly known as community banks.”
Hensarling even explains “the Financial Choice Act is not what Wall Street wants.” It gives community banks the ability to compete again. Wall Street had the resources to hire compliance officers, while community banks took the hit from Dodd-Frank.
It’s ironic that critics of the CHOICE Act characterize the bill as promoting rampant lawlessness on Wall Street at the expense of the consumer. In reality, the CHOICE Act strengthens penalties on Wall Street, provides the economy with a needed boost, ends “too big to fail,” lowers the deficit, and curbs the power of truly lawless actor in the financial markets – the Consumer Financial Protection Bureau.