WASHINGTON – House Financial Services Committee chairman Jeb
Hensarling (R-TX) will discuss the Republican plan to replace the Dodd-Frank
Act at a Heritage Foundation event on Thursday that will also include a discussion led by
the authors of foundation publication “The Case Against Dodd-Frank.”
A media alert from Hensarling’s office indicated that he
will discuss the Financial CHOICE Act as part of his keynote speech at the Heritage Foundation event. Financial CHOICE stands for Creating Hope and
Opportunity for Investors, Consumers and Entrepreneurs.
The Financial CHOICE Act is designed to end taxpayer-funded
bailouts of large financial institutions, relieve banks that elect to be
strongly capitalized from “growth-strangling regulation” that slows the economy, and harms consumers and imposes tougher penalties on those who commit fraud as
well as greater accountability on Washington regulators.
The foundation said its publication, “The Case Against
Dodd–Frank: How the ‘Consumer Protection’ Law Endangers Americans,” grew from a
shared concern among the contributing authors about the direction that
financial regulation in this country has taken since the 2007 to 2009 financial
crisis as a result of the regulations imposed under the 2010 Dodd-Frank Wall
Street Reform and Consumer Protection Act.
The foundation said the contributors to this volume have
used their knowledge of the financial sectors covered by Dodd-Frank to explain
problems the act creates, and to propose solutions to them.
Thaya Brook Knight, the associate director of financial
regulation studies for the Cato Institute, co-wrote a chapter of the book with
colleague Mark Calabria, Cato Institute director of financial regulation
studies, on executive compensation and credit rating agencies.
“A hallmark of Dodd-Frank is that it’s sort of a grab bag of
people’s wish lists,” Knight told the SE Texas Record.
She said the law
operates under the “idea that the government needs to be a super director.”
Knight said some of the regulations of credit rating
agencies “absolutely play into the crisis,” while executive compensations do
not. She said institutional investors can only buy investment-grade bonds, but
that “the issuers were the ones paying for the ratings” that were the basis for
many investment decisions.
“Dodd-Frank regulations make it more difficult for a new
company to come in,” Knight said, adding that credit agencies should be “part
of the mix” in considering which investments to make, “instead of the gold
Knight said the emotional response to executive compensation
in connection with the financial crisis is understandable, but that regulations
designed to address this issue “haven’t always worked.” For example, Knight cited
a Securities and Exchange Commission regulation that requires companies to
compare executive compensation to that of the average worker at the same
“What is the average worker?” Knight asked. “That’s just an invitation
to [use] the system” by hiring lower paid employees as contractors.
Specifically, the Financial CHOICE Act will create a new
subchapter of the Bankruptcy Code tailored to specifically address the failure
of large, complex institutions, and banks that choose to be strongly
capitalized will be eligible for relief from Washington regulations “that
create more burden than benefit,” Hensarling said in a news release. As a
result, the banks will be required to raise additional equity capital under the
act, with most community banks needing to raise little-to-no additional
The Financial CHOICE Act also includes more than two dozen
measures to provide additional regulatory relief for community banks and credit
In a speech in early June, Hensarling said Dodd-Frank caused
an “inventory of harm” to consumers and the economy. He called the law “a grave
mistake” that “has failed.”
“Pro-growth reforms in our plan will provide much-needed
relief to community financial institutions that are being crushed by
Washington’s one-size-fits-all regulatory approach,” Hensarling said.