The House Financial Services Committee ("FSC") examined capital requirements proposed under the Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (the "CHOICE Act"). The Republican-proposed legislation offers a "market-based, equity financed Dodd-Frank off-ramp."
The proposed legislation would allow certain banking organizations that maintained simple leverage ratios of at least ten percent to "elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards and a number of other regulatory burdens that predate Dodd-Frank." FSC Chair Jeb Hensarling noted that although banking agencies would continue to supervise and regulate banking organizations that made capital elections, "the presumption [would] be that such institutions [were] operating safely and soundly." He asserted the credibility of the CHOICE Act's approach:
Importantly, the CHOICE Act relies upon a leverage ratio approach to measuring capital adequacy rather than the discredited risk-based capital regime advanced by the Basel Committee on Banking Supervision that proved so destructive during the last crisis. Nothing is riskier than one centralized, politicized globalized view of financial risk.
The hearing included the following witnesses:
- Mr. John Allison, former President and Chief Executive Officer, Cato Institute;
- The Honorable Jim Nussle, President and Chief Executive Officer, Credit Union National Association;
- Professor Adam Levitin, Professor of Law, Georgetown University Law Center;
- Mr. Alex J. Pollock, Distinguished Senior Fellow, R Street Institute;
- Mr. Jeremy Newell, Executive Managing Director, Head of Regulatory Affairs and General Counsel, The Clearing House Association LLC; and
- Mr. Jim Purcell, Chairman, State National Bank of Big Spring and Chairman, Texas Bankers Association.
Commentary
There was a strong consensus among witnesses in the banking industry that heavier regulation had increased the level of concentration in the financial industry. Mr. Purcell, in particular, cited fairly negative numbers.
In his remarks, Mr. Levitin defended the Dodd-Frank creation of the Consumer Financial Protection Board ("CFPB"). He praised the "amazing talent pool" that formed at the CFPB due to its "mission-driven culture" and "more competitive pay." He also noted that members of the CFPB's "research unit" are allowed to have a "certain percentage of their time available to purpose research of their choosing," which makes this significant "key part" of the CFPB an "incredible draw." What Mr. Levitin does not mention is that this talent pool of highly paid researchers who get to work in a "mission-driven culture" has produced some questionable research. Perhaps they are a little too mission-driven. See, e.g., Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending. Mr. Levitin may want to consider the benefits of employing researchers who are driven not by their "mission" but by the search for truth.
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