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Hensarling's FCA, the 10% Dodd-Frank option, and a new bankruptcy chapter
Posted on 6/11/17 at 12:07 pm
Posted on 6/11/17 at 12:07 pm
I've long thought that Jeb Hensarling was one of the very best members of Congress, and on Thursday he got his FCA bill passed 233-186 in the House to repeal parts of the 2010 Dodd-Frank financial law. It allows banks to opt out of the wasteful Dodd-Frank regime by adopting a sensible capital reserves approach (currently at 10%), which also happens to be the approach favored by most of the top academics and leaders in the world on this stuff.
WSJ (6/9/17): " A Choice for Wall Street"
And then there's this...
But wait... there's more!
My God, I thought I'd never live to see the day.
For those who remember the 2008 financial crisis, I was pretty much the only person that I know of that highlighted the need for a new chapter of bankruptcy law as the central focus of banking regulatory reform. Now it's true that I've advocated an expanded role for the FDIC in winding down institutions as part of my larger monetary policy reform scheme, but the key preventing financial contagion from bankruptcy events is speed.
I'm still not clear on what the details of the bill are on this new chapter of bankruptcy law, but hopefully whatever passes the Senate will be an adequate solution. There are many different ways to do this, any one of which would be good.
WSJ (6/9/17): " A Choice for Wall Street"
quote:
Financial Services Chairman Jeb Hensarling’s Financial Choice Act addresses this tragic flaw by offering banks an option: Stay subject to Dodd-Frank’s costly regulations, or hold capital equal to 10% of assets in return for more lending freedom and less red tape.
Banks lend with taxpayer-insured deposits, and high levels of capital are a guardrail for taxpayers and shareholders. If the guardrails are high enough, banks can afford to take more risks without bank examiners second-guessing every loan. We’d prefer even higher capital levels, but Mr. Hensarling is raising the bar while moving banks away from their Dodd-Frank status as de facto public utilities.
Democrats call this a favor to Wall Street, but note that the biggest banks oppose the Hensarling bill. They’ve prospered under Dodd-Frank because they can more easily absorb compliance costs than can smaller competitors. By one estimate the average capital ratio of the seven largest banks is around 7%, while most regional or community banks hold 10% or more in capital.
The big banks have also grown bigger, with the five largest now holding more than 40% of U.S. banking assets. Some industry consolidation was inevitable after the crisis, but community banks have been selling out or closing at a rapid rate. The Federal Reserve Bank of Richmond reports that from 2010 through 2013 only four new banks were started in the U.S. Before the panic the average was 100 a year. All of this has cut lending for new small businesses essential for faster economic growth.
And then there's this...
quote:
More good news is that the bill would restructure the Consumer Financial Protection Bureau
But wait... there's more!
quote:
Another move toward ending “too big to fail” is revoking the Financial Stability Oversight Council’s authority to deem “systemically important financial institutions.”
quote:
The Choice Act would limit potential bailouts by ending Dodd-Frank’s “orderly liquidation authority” that allows the Federal Deposit Insurance Corp. to wind down a failing institution. The bill establishes a new chapter of the bankruptcy code to liquidate a firm quickly without arbitrary political interference.
My God, I thought I'd never live to see the day.
For those who remember the 2008 financial crisis, I was pretty much the only person that I know of that highlighted the need for a new chapter of bankruptcy law as the central focus of banking regulatory reform. Now it's true that I've advocated an expanded role for the FDIC in winding down institutions as part of my larger monetary policy reform scheme, but the key preventing financial contagion from bankruptcy events is speed.
I'm still not clear on what the details of the bill are on this new chapter of bankruptcy law, but hopefully whatever passes the Senate will be an adequate solution. There are many different ways to do this, any one of which would be good.
1
Posted on 6/11/17 at 12:08 pm to Doc Fenton
Speaking now in a broader sense, I think it's fair to say at this point that Ryan & McConnell seem to be doing a good job of steering important bills through Congress. I'd say that so far the effects of the Trump Administration is exceeding expectations on a variety of legislative and foreign policy fronts:
LEGISLATIVE
#1. Dodd-Frank repeal -- ON TRACK
#2. ObamaCare repeal -- ON TRACK (see below)
#3. Corporate tax reform -- LOOKS DOABLE (but I'm glad that it seems like the border-adjustment tax is looking DOA)
#4. Immigration & trade -- NOTHING HAPPENING (To me is a good thing, excepting of course TPP & TTIP; I take the lack of action against China & Mexico as silver linings here.)
FOREIGN POLICY
#1. Protecting Syrian rebels -- BETTER (and underappreciated)
#2. Rallying Sunni allies and isolating Iran -- ON TRACK
#3. Shifting the focus on China away from trade war issues, and bringing them closer to cooperation against North Korea -- WELL PLAYED
#4. NATO & Eastern Europe -- NO COMMENT
People like to pretend that the AHCA represents some great disaster for the Republicans, but that seems like nothing more than wishful thinking. The first attempt was a bad bill (with too much of a heavy-handed, micro-managed tax code approach), and to the GOP's credit, it redrafted the bill, and added more state flexibility into it to get it passed.
It would end the individual insurance mandate, and allow the states to bring back high-risk pools and having insurance companies charge more to old people and people who have allowed their coverage to lapse. It would also eliminate the other taxes that came with the ACA.
I think McConnell will get it to pass through the Senate too, assisted in part by all the attention being given to the Trump-Comey spectacle. As 538 has written about well, McConnell has a difficult job in steering a bill to 50 votes that will please both the Cruz-Lee-Paul wing and the Collins-Murkowski-Portman wing of the current Republican majority in the U.S. Senate. However, I ultimately think that Cruz and others will be forced to join anything that repeals the ACA, and that Collins & Portman are probably the ones holding the most powerful cards right now in terms of making or breaking a deal.
But this is where I think Ryan's 3-phase plan is so helpful. It allows GOP Congressmen to view the AHCA within a larger context of getting more things done.
“Let me describe to you what the three phases are ... Number one is this bill, which we use as reconciliation. As you all know, you can’t filibuster a reconciliation bill so this repeal and replace bill is what we pass through reconciliation ... Phase two: all the regulatory flexibility that the Secretary of HHS has to deregulate the marketplace to lower the cost and stabilize the market ... Phase three is to pass the bills that we want to pass that we cannot put in reconciliation because of those budget rules. What’s an example of that? Interstate shopping across state lines. We love that policy, we think it’s critical, but as you well know, you cannot put that in a budget reconciliation bill.” ( speaker.gov, 3/7/17)
So when it comes to long-term problems like (1) reining in Medicare costs, (2) reforming IP law for pharmaceutical drugs, and (3) allowing interstate competition, that can come later, and it shouldn't derail the more immediate-term effort to repeal the ACA.
But the 2nd version of the AHCA passed in the House gives the states the flexibility to do a whole lot in terms of reining in Medicaid costs, and having the option of deregulating mandates on "essential benefits" and "pre-existing conditions". And because this is only an option for the individual states, the Collinses and Portmans of the world shouldn't feel absolutely compelled to vote against it either, because states like Hawaii can essentially be allowed to keep ObamaCare in place if they like it (just without all the expected federal bailouts).
Ryan & McConnell should be hailed as legislative geniuses if they can actually get this to work.
LEGISLATIVE
#1. Dodd-Frank repeal -- ON TRACK
#2. ObamaCare repeal -- ON TRACK (see below)
#3. Corporate tax reform -- LOOKS DOABLE (but I'm glad that it seems like the border-adjustment tax is looking DOA)
#4. Immigration & trade -- NOTHING HAPPENING (To me is a good thing, excepting of course TPP & TTIP; I take the lack of action against China & Mexico as silver linings here.)
FOREIGN POLICY
#1. Protecting Syrian rebels -- BETTER (and underappreciated)
#2. Rallying Sunni allies and isolating Iran -- ON TRACK
#3. Shifting the focus on China away from trade war issues, and bringing them closer to cooperation against North Korea -- WELL PLAYED
#4. NATO & Eastern Europe -- NO COMMENT
People like to pretend that the AHCA represents some great disaster for the Republicans, but that seems like nothing more than wishful thinking. The first attempt was a bad bill (with too much of a heavy-handed, micro-managed tax code approach), and to the GOP's credit, it redrafted the bill, and added more state flexibility into it to get it passed.
It would end the individual insurance mandate, and allow the states to bring back high-risk pools and having insurance companies charge more to old people and people who have allowed their coverage to lapse. It would also eliminate the other taxes that came with the ACA.
I think McConnell will get it to pass through the Senate too, assisted in part by all the attention being given to the Trump-Comey spectacle. As 538 has written about well, McConnell has a difficult job in steering a bill to 50 votes that will please both the Cruz-Lee-Paul wing and the Collins-Murkowski-Portman wing of the current Republican majority in the U.S. Senate. However, I ultimately think that Cruz and others will be forced to join anything that repeals the ACA, and that Collins & Portman are probably the ones holding the most powerful cards right now in terms of making or breaking a deal.
But this is where I think Ryan's 3-phase plan is so helpful. It allows GOP Congressmen to view the AHCA within a larger context of getting more things done.
“Let me describe to you what the three phases are ... Number one is this bill, which we use as reconciliation. As you all know, you can’t filibuster a reconciliation bill so this repeal and replace bill is what we pass through reconciliation ... Phase two: all the regulatory flexibility that the Secretary of HHS has to deregulate the marketplace to lower the cost and stabilize the market ... Phase three is to pass the bills that we want to pass that we cannot put in reconciliation because of those budget rules. What’s an example of that? Interstate shopping across state lines. We love that policy, we think it’s critical, but as you well know, you cannot put that in a budget reconciliation bill.” ( speaker.gov, 3/7/17)
So when it comes to long-term problems like (1) reining in Medicare costs, (2) reforming IP law for pharmaceutical drugs, and (3) allowing interstate competition, that can come later, and it shouldn't derail the more immediate-term effort to repeal the ACA.
But the 2nd version of the AHCA passed in the House gives the states the flexibility to do a whole lot in terms of reining in Medicaid costs, and having the option of deregulating mandates on "essential benefits" and "pre-existing conditions". And because this is only an option for the individual states, the Collinses and Portmans of the world shouldn't feel absolutely compelled to vote against it either, because states like Hawaii can essentially be allowed to keep ObamaCare in place if they like it (just without all the expected federal bailouts).
Ryan & McConnell should be hailed as legislative geniuses if they can actually get this to work.
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