House Republicans have passed a bill to roll back much of another of President Barack Obama’s signature achievements — the Dodd-Frank package of financial reforms — but the measure faces an uncertain future in the Senate.
The Financial Choice Act would, among other things, scrap Dodd-Frank’s prohibition on federally insured banks from engaging in risky trading, replace the liquidation authority for unwinding large and failing financial institutions, and weaken the powers of the Consumer Financial Protection Bureau (CFPB).
“We will replace bailout with bankruptcy. We will replace economic stagnation with a growing healthy economy,” Rep. Jeb Hensarling (R-Texas), the legislation’s author, said after the legislation passed on a 233 to 186 vote on Thursday. “We’ll replace Washington micromanagement with market discipline.”
Democrats have called the measure “The Wrong Choice Act,” saying it risked creating another financial crisis by removing important regulations and consumer protections.
“These are not the choices that the American people want,” said Nancy Pelosi (D-Calif.), the House minority leader. “House Republicans are feeding American families to the wolves on Wall Street.”
But as The New York Times reports, even Wall Street lobbyists and lawyers were pessimistic about the chances of the bill. “There is zero chance that the Choice Act survives” in its current form in the Senate, said Matthew Dyckman, a lawyer in the financial services practice at Goodwin.
Banking lobbyists, the Times said, expect the Senate to preserve the CFPB and the Volcker Rule, which restricts profitable forms of trading by investment banks. A Senate version also would probably keep in place most of the rules dictating how much capital lenders have to hold in case of losses.
Senate Majority Leader Mitch McConnell (R-Ky.) said last month that he was not optimistic about making changes to Dodd-Frank.
According to an analysis by the Congressional Budget Office, the Financial Choice Act would reduce federal deficits by $24.1 billion over a decade. The budget office cautioned, however, that there was considerable uncertainty in its estimates because it was difficult to predict when a “systemically important” financial firm might fail.