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ABA Publishes Staff Analysis of Financial Choice Act

Posted on 5/8/2017

ABA has published a staff analysis of the Financial Choice Act, Chairman Jeb Hensarling's (R-TX-5) sweeping bill aimed at reforming parts of the Dodd-Frank Act's extensive supervisory regime and providing regulatory relief. The bill was recently advanced by the House Financial Services Committee in a party-line vote of 34-26. While the association acknowledged that there are several issues that will require closer consideration as the legislation moves forward, it called the bill "a good step forward" in bringing much-needed regulatory relief to banks.

A central component of the bill is the "regulatory off-ramp" for larger institutions subject to DFA's heightened prudential standards and Basel III's capital and liquidity standards, provided those institutions elect to maintain a 10 percent non-risk weighted leverage ratio. ABA noted, however, that the restrictions around the exemption -- including the rigidness of the leverage ratio requirement -- could cause some well-run banks to decide against opting in, thus missing out on the chance for regulatory relief. In addition, ABA pointed out that severe penalties would be imposed on banks that fall below the 10 percent standard, including the loss of all reg relief if the capital is not restored to the 10 percent level.

The Choice Act also focuses on ending "too big to fail" by replacing DFA's Orderly Liquidation Authority with a new Bankruptcy Code designed to accommodate the failure of a large, complex financial institution. ABA reiterated its longstanding view that no bank is or should be too big to fail, and encouraged Congress to consider whether repealing the Order Liquidation Authority in its entirety would eliminate some tools necessary for managing financial stability.

Also targeted for reform by the bill is the Consumer Financial Protection Bureau, which would be renamed the Consumer Law Enforcement Agency and stripped of its examination powers and "UDAAP" enforcement authority. The agency would be led by a single director removable at will by the president, and subject to the congressional appropriations process.

Finally, ABA expressed support for a number of regulatory relief provisions included in the bill that are not tied to a specific leverage ratio. These include a Qualified Mortgage safe harbor for mortgage loans held in portfolio, more tailored supervision based on an institution's risk profile and business model, greater flexibility for mutual savings associations, relief from various reporting requirements, and repeals of both the Volcker Rule and the Durbin Amendment.

Click to read the analysis

Click to read the executive summary



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