Wall Street may win again
The U.S. House of Representatives took its first step toward unwinding national banking regulations that were enacted in the wake of the 2008 financial crisis Thursday, as the House Financial Services Committee approved a bill that would repeal significant portions of the Dodd-Frank Act.
On a party-line vote, the committee voted to send a bill from its chairman, Rep. Jeb Hensarling, R-Texas, to the full House for consideration.
Hensarling’s bill, known as the Choice Act, would scrap provisions of Dodd-Frank that have met heavy opposition from Wall Street, including a ban on allowing banks to trade with their own capital (popularly known as the Volcker Rule).
The Volcker Rule, originally proposed by former U.S. Federal Reserve Chairman Paul Volcker, prevents banks from using depositors’ money for speculative activity — the sensible idea being that such activity is not in the best interests of their everyday customers.
In his successful lobbying push for the provision, Volcker pointed out the many ways that allowing banks to engage in this proprietary trading had exacerbated the country’s financial meltdown.
Hensarling’s bill would also reduce the Consumer Financial Protection Bureau’s ability to enforce consumer protection laws and make its director removable at the will of the president.
The Consumer Financial Protection Bureau is another result of the financial crisis. Its work has been effective at protecting consumers, and it is popular with the public. But it’s not at all popular with Wall Street or other large businesses.
Hensarling’s legislation would also allow banks that hold large cash reserves to opt out of DoddFrank regulations altogether, and it would remove the federal government’s power to disassemble “too big to fail” banks before they can collapse, potentially wrecking the entire economy.
Finally, federal stress tests for major banks — a crucial assessment for the current regulatory process — would be limited to every two years.
In short, the Choice Act would repeal most of the regulations that Congress struggled to put in place after last decade’s financial meltdown.
Defenders of the Choice Act say that the Dodd-Frank regulations have hampered banks from lending — making it harder for regular people to get credit and slowing the nation’s economic growth.
It’s true that the nation’s banks haven’t lent nearly as much to consumers or companies as they did in the go-go years before the financial crisis.
On the other hand, do we really want them to?
While there’s evidence that the Dodd-Frank regulations have restricted consumer lending and buying in recent years, there’s also plenty of evidence pointing to the detrimental role of the financial crisis — and the ensuing mortgage meltdown — in consumers’ purchasing decisions.
Loose money may lead to more spending in the short term, but a stable and responsible banking system leads to sustainable growth for the entire nation.
Economic stability is also better for taxpayers, who aren’t left on the hook for Wall Street’s terrible decision making.
The Choice Act has plenty of opponents, so it would probably be moderated before it would be able to make it through the Senate. But the goal of this legislation is clear — to allow the big banks unfettered freedom, even if the rest of us suffer the consequences.