On June 8, 2017, House Republicans voted to repeal major portions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and simultaneously passed H.R. 10 the Financial CHOICE Act by a 233-186 vote. Despite the outcome of this vote, a simple Republican majority in the House does not guarantee legislative passage; that requires subsequent wholesale Senate approval. In earlier articles, we talked about the challenges of dismantling Dodd-Frank, and the most likely replacement options, but this is where it gets interesting.
The traditional 60 vote filibuster-proof majority required in the Senate would definitely pre-empt a wholesale replacement passage of the House bill, given the Republicans hold only 51 seats in the upper chamber. However, reconciliation affords the Senate the option to devise and pass their own bank reform bill with only 50 votes, which is seemingly achievable, but still complicated. The CHOICE Act is controversial among some Republicans and even the banking industry, mainly because of its high capital component.
Realistically, dismantling Dodd-Frank in conjunction with a preferable replacement option comes down to a tradeoff of higher capital requirements for less regulation. As presented in my last post on the replacement options for Dodd-Frank, the Financial CHOICE Act was proposed by Jeb Hensarling (R-TX), chair of the House Financial Services Committee. The proposal would allow banks to opt out of certain provisions of Dodd-Frank in exchange for a relatively high 10% simple leverage ratio—considered a “blunt” measurement of a bank’s capital against total assets.