While the political class and the media were entertaining themselves with the Comey Senate hearings, the House Republicans passed legislation that will gut the Obama-era Dodd-Frank Law that regulates the banking system in the United States. Many observers believe that the law, enacted in the wake of the financial collapse of 2008, has smothered the financial system and inhibits Economic Growth through overregulation. Economic growth during the Obama years was anemic, never exceeding three percent of GDP per annum. Democrats disagree, claiming that Dodd-Frank is needed to prevent a repeat of the calamity that occurred during the last year of the younger Bush’s administration.
What is Dodd-Frank?
Dodd-Frank is a wide-ranging law that clamps down on regulations of banks and other financial institutions. The theory behind the law was that dangerous lending practices by the banks led to the financial collapse of 2008 that created the necessity to bail out the banks. Its critics maintain, with some validity, that the law made it more difficult to start businesses by cutting off sources of credit. The law created a myriad of regulatory agencies with vague rules that have been fleshed out by unelected regulators, which during the Obama era tended to be hostile to private business.
What does the Financial Choice Act do?
The Financial Choice Act, passed by the House on party lines, makes a number of reforms to Dodd-Frank.
The main provisions of the Act allow the president to fire the heads of a number of Dodd-Frank regulatory agencies, including the Consumer Financial Protection Bureau, at will. It also gives Congress purview over the CFPB’s budget. These two provisions would do much to restore the executive and legislative branches’ power over the financial system.
The bill will be especially useful for smaller, community banks who have traditionally lent money to small business startups. In turn, those provisions should spark more economic growth and Job Creation.
What happens next?
Reform of Dodd-Frank now moves to the United States Senate. The betting is that the Senate will pass its own version of the bill which will then have to be reconciled with the House’s in conference.
Senate Republicans will have the choice of attracting eight Democrats to pass a comprehensive bill or else resorting to reconciliation for a more modest set of reforms with just a 51 vote majority. The chances of passage are uncertain, considering the strategy of Senate Democrats to obstruct everything that Republicans propose, no matter what the merits. They are emotionally invested in preserving as much of the Obama legacy as possible, not matter what harm it has caused.
