House Panel Approves Bills Overhauling Key Dodd-Frank Reforms

WASHINGTON — House Republicans moved two bills through committee on Wednesday that would each roll back key provisions of the Dodd-Frank Act.

The House Financial Services Committee first debated a bill that would subject the Consumer Financial Protection Bureau to congressional appropriations and then turned to a bill that would repeal the Federal Deposit Insurance Corp.'s authority to unwind a megabank. Both bills passed the committee along party lines.

Republicans said Title II of Dodd-Frank, which gives the FDIC authority to borrow from the Treasury Department to manage resolutions, essentially provides for taxpayer-funded bailouts. They argued that using a more traditional bankruptcy approach would not only prevent taxpayers from having to support the unwinding of a financial institution but would also impose market discipline.

"What Title II is, is a parachute clause. … Just in case we get it wrong again like we did in 2008, we have got this little provision here that we can bail out these entities again," Rep. Randy Neugebauer, R-Texas, said during the markup. "Eliminating Title II basically does eliminate the taxpayers from having to be on the forefront … because it takes away an important funding process."

The bill being marked up to repeal Title II was tied to a separate bill creating a special bankruptcy process for big banks, which was passed by voice vote in the House on Tuesday.

But the top Democrat on the Financial Services Committee, Rep. Maxine Waters of California, said Congress created the FDIC's Orderly Liquidation Authority in Dodd-Frank after regulators had determined that the largest banks could not go through bankruptcy without harming the economy.

"Congress adopted Title II to ensure that no institution, even one that cannot go through bankruptcy, can still fail," Waters said.

Waters added that Title II of Dodd-Frank works in concert with Title I which, among other things, requires big banks to draft resolution plans known as "living wills." Banks submit the plans on an annual basis. For institutions with subpar living wills, regulators can require the banks to undergo structural changes to make them easier to resolve in a failure.

"One of the brilliant points of Dodd-Frank [is] … we give the banks an opportunity with these living wills to rebuild how they are organized and how they operate, and now we have a mechanism to determine where the risk is," Waters said.

Earlier in the day, the FDIC and the Federal Reserve Board announced determinations that living wills for five of eight large domestic banks submitted last year were not credible. The banks have until October to address the deficiencies identified by the regulators or they could face more severe regulatory requirements.

But lawmakers said the living will process is too opaque. (Simplified, condensed versions of the plans are generally made public, while the complete reports are seen only by regulators.)

"Living wills are probably a good idea. I just wish I knew what was in them," said Financial Services Committee Chairman Jeb Hensarling, R-Texas. He added: "Now we have regulators coming out saying, 'We find living wills insufficient,' how would we know? … They ought to be out in the public domain so the investing public can make these judgments so the risk can be adequately priced."

The bill proposed to require the CFPB to receive its funding through the regular appropriations process was also hotly contested. Democrats fear that subjecting the bureau to the appropriations process would make it vulnerable to CFPB critics in Congress who would try to defund the agency.

Republicans, on the other hand, say the bureau is left nearly unaccountable as an independent agency with a single director.

"We have been relegated to writing letters to the CFPB or making a phone call, saying, 'Please, the rule you are implanting is not helping the consumers, it is actually hurting consumers.' … We don't have any power, you don't have any control," said Rep. Sean Duffy, R-Wis.

Hensarling said Democrats might be singing a different tune about congressional scrutiny of the agency when it comes time for a Republican president to nominate the next CFPB director.

"I would remind my friends on the other side of the aisle that not only are they on the other side of the aisle, but at some point the shoe will be on the other foot," Hensarling said.

However, Waters brushed off the bill as another attack on the CFPB, saying that the agency in its current form is "here to stay."

"Both of these bills, if enacted, would take our financial system back to September of 2008, when regulators did not have the tools to protect consumers or the broader economy from financial sector ruin," Waters said in a statement.

The bill to repeal Title II was sponsored by Reps. Lynn Westmoreland, R-Ga., while Andy Barr, R-Ky., had introduced the Taking Account of Bureaucrats' Spending Act of 2015 to subject the CFPB to the appropriations process.

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