WASHINGTON — In a largely symbolic party-line vote Wednesday, the Republican-led House Financial Services Committee voted Wednesday to repeal the government's authority to wind down large, failing financial institutions, and recommended slashing funding for the Consumer Financial Protection Bureau.
The proposals have no chance of passing the Senate and becoming law this year, but they offered the GOP an opportunity to propose budget cuts while framing the financial reform debate on their own terms. Democrats fought back by offering amendments that put Republicans back on the defensive.
The backdrop for Wednesday's debate was a budget resolution passed by the House last month, which instructed the Financial Services Committee to find roughly $30 billion in savings over 10 years. The committee's leadership responded by crafting a package that would go further, saving $35 billion, based on Congressional Budget Office estimates.
The $35 billion in total savings includes $22 billion from repealing the orderly liquidation authority that was established by the Dodd-Frank Act, although there is dispute over whether the repeal will actually lead to budget savings in the long run.
That's because the CBO estimated that the federal government will need to use its liquidation authority within the next 10 years, but it will take longer to recover the costs of that wind-down from other industry participants.
Brian Gardner, a policy analyst with Keefe, Bruyette & Woods, said in a client note Wednesday that the purported $22 billion in savings is "budget gimmickry."
"It's tough to understand where the $22 billion comes from — it's a wild assumption since there are currently no cash flows involved with this part of Dodd-Frank," Gardner wrote.
The GOP proposal to repeal the liquidation authority drew sharp opposition from committee Democrats as well as Treasury Secretary Timothy Geithner.
"By eliminating this authority, this provision would critically undermine the government's ability to limit the damage to the economy in the event of future financial crises," Geithner wrote in a letter Tuesday to committee Chairman Spencer Bachus. "This provision was carefully designed to have no cost to the taxpayer over the long run. Eliminating this provision would increase the risk that future financial crises would increase future deficits."
The Republican measure also seeks to change the CFPB's funding structure, forcing the agency to rely on congressional appropriations rather than receiving a percentage of the Federal Reserve Board's operating expenses. The bill recommends that CFPB receive $200 million in appropriations, down from the $547 million it is slated to receive in the current fiscal year.
Over 10 years, the Republican proposals to change the CFPB's funding stream are projected to save $5.4 billion.
Democrats responded to the CFPB proposal by offering amendments that would subject the Office of the Comptroller of the Currency and the Federal Reserve Board's bank regulatory functions to the congressional appropriations process. The amendments, which failed, were designed to show that the Republicans are simply using the funding mechanism as a way to rein in an agency whose creation they opposed.
The Republican bill also calls for an end to expenditures under the Obama Administration's mortgage modification program, known as HAMP. That provision would save an estimated $2.8 billion over 10 years.