by Countable | 6.7.17
The House will vote Thursday on the Financial CHOICE Act, which reforms a number of the financial industry regulations spawned by the Dodd-Frank Act in the aftermath of the 2008 financial crisis. One such provision that the bill would bring an end to is a controversial, never-used tool that lets regulators liquidate large, complex financial institutions during a crisis and replace it with a new process.
The current tool — known as orderly liquidation authority (OLA) — is a process for unwinding the assets of a "too big to fail" firm outside of the bankruptcy process to prevent instability in the financial system. In it, the Treasury lends the Federal Depository Insurance Corporation (FDIC) money to resolve the struggling financial institution (i.e. liquidating assets to pay down debts and keeping operations going), and if there’s a net cost that’s recovered through a fee on other large, complex firms. OLA can only be used with the backing of two-thirds of the Federal Reserve Board of Governors and the treasury secretary, who in turn is required to consult with the president on the matter.
Although it has never been used outside of economic simulations, the tool has been criticized as contributing to the problem of "too big to fail" firms rather than reducing the threat they pose to the financial system. Detractors argue that OLA creates a moral hazard problem: the government having the power to bailout firms gives banks an incentive to grow large enough that they'd need to be rescued so they can enjoy the benefits of size and an assumed government bailout. Supporters, however, argue there hasn’t been much evidence of firms trying to grow to gain OLA’s protections and that large firms don’t get that much of a benefit.
Under the Financial CHOICE Act, OLA would be repealed and replaced with a new chapter of the bankruptcy code that’s tailored to addressing the liquidation of complex financial firms. That section of the underlying legislation was passed by the House as a standalone bill in April 2017 on a voice vote after a similarly bipartisan vote in committee.
Those who support the OLA process created by Dodd-Frank think a new bankruptcy process may not go far enough in offering stability to the financial system. They fear that a widespread crisis could leave firms that'd normally offer debt financing for an insolvent firm to go through the bankruptcy process and reemerge as a viable business would lack the funding to do so, causing the struggling firm to fail and potentially destabilizing financial markets.
That question — whether OLA (if it still exists) or a new bankruptcy process is better at addressing the failure of a large financial institution — will remain unresolved until a new financial crisis causes an insolvency at a firm that economists and politicians fear is "too big to fail."
— Eric Revell
(Photo Credit: David Shankbone / Creative Commons)
Written by Countable
Let Don-Frank Act stand. Do not change. If anything we should go back to Glass Steagall Act of 1933. To big to fail is to to big.
Do not decrease consumer protections by giving the banks the latitude to abuse the public.
Don't vote away our protection from the big banks!
The Dodd-Frank Act is necessary to protect individuals from improper activities that banks perform with money entrusted to them. Risky investments and credit default swaps are not investments that banks should even be allowed to invest in. The rules are too lax now.
Are we going to let history repeat itself? Did no one learn anything from the earlier crisis? I don't understand why this inhuman group of white haired old men are allowed to continue with their agenda to destroy this country. Please put an end to this insanity!
Why is there such a push to undo all the consumer protections enacted after the 2008 financial collapse? One might think our members of Congress are more interested in what the financial industry and fossil fuel producers can do for their campaigns than how to protect consumers from their abuses. Haven't we learned anything from the mortgage crisis? That was caused by greed and lax oversight too.
Is this one of the big bills congress wants to repeal while the public is distracted by the Russian investigation? Is this the big bill republicans want passed prior to impeachment proceedings on 45? This bill must not pass. Consumers need protection from big banks. I'm one of the Wells Fargo customers who had accounts opened without permission. That was going on much longer than was made public? I believe so. Say no to big banks. Let them fail.
If financial institutions had a moral compass and were capable of self-restraint, we wouldn't need the Dodd-Frank Act, the Volker Act, or the now-repealed Glass Steagall Act. However, we know better: they have no ethics and will manipulate their way into unscrupulous and dangerous behavior. Since the last time they almost crashed the entire system, financial institutions have grown even larger and now seek to lobby their way into an even stronger position with the potential of yet-again jeopardizing our entire financial system. If Dodd-Frank needs amending, do it (without touching the CFPB), but do not undo the protections that keep banks from self-dealing and manipulating markets. Return to Glass Steagall or keep Dodd Frank!
Dodd Frank and the agencies that come with it are the protections out in place against another financial melt down like the one we had in 2008. Weakening or repealing the law will put our economy at risk as Wall Street and banks are already engaged in activities similar to before 2008 that helped lead to the melt down. Dodd Frank includes critical consumer protections that helped all the customers scammed by Wells Fargo seek recompense. It also helps hold bankers and traders and investment counselors accountable for serving the best interests of the clients and customers they serve and not their own interests first. Please vote NO on the Choice Act. It is a bad law and it will be bad to most Americans.
More regulations not less.
Too big to fail has already failed. Don't do it again
Do not vote to destroy Dodd Frank. Do not decrease consumer protections from Wall Street. We need MORE not LESS protections.
I cannot believe we are having this discussion. We need consumer protection because we tried the GOP "let the market solve itself and let the banks regulate themselves by reducing oversight". Well, that didn't really work out the way they intended. Sometimes a concept on paper should stay a concept. So vote no on this idea or you will be voted no when elections come.
Stop the corporate welfare- now!
Give life to Glass Steagall. Anything else tells us again what's already clear. The "big banks" are more important to and have complete control of the legislative branch. The people do not matter.
The financial choice act will weaken the Dodd-Frank act even further. The only definitive way to prevent a banking crisis like the one in 07-08 is to bring back Glass-Steagal. Conservatives have done an amazing job convincing the public that regulations hurt business but the truth is if you want a stable system then everyone has to operate by the same rules. It was the lack of regulation that allowed the banking industry to get so out of control. The next time it happens will be 10 times worse than 07-08 because republicans have already weakened Dodd-Frank allowing banks to grow even bigger than they were then! For over 30 years Republicans have done everything they can to consolidate wealth into the hands of the wealthy with supply side economics and have forgotten that the economy has a demand side as well that requires that people have enough disposable income to spend creating a robust economy that will last. Wages have remained flat over the last 30 years and 90% of all the wealth went to the top 1%. I don't see how this is going to be sustainable.
Let Dodd-Frank stand.
Please vote no, on to big to fail, Thank You
Please vote NO on HR10. Thank you
Don't allow Dodd-frank to be gutted!