The chairman of the House Financial Services Committee revealed the GOP’s plan today to provide banks with an alternative to Dodd-Frank regulation, according to an article by Donna Borak for The Wall Street Journal.
Banks would be required to surpass certain thresholds, such as having a 10% leverage ratio, or the measure of the bank’s capital versus its total assets, therefore decreasing the amount of borrowing or leverage banks can do, according to the article.
From the article:
“Think of it as a market-based, equity-financed Dodd-Frank off ramp,” Rep. Jeb Hensarling, (R., Texas) was due to tell the Economic Club of New York around 8 a.m. Tuesday, according to prepared remarks. “The Republicans’ better approach will relieve financial institutions from regulations that create more burden than benefit in exchange for meeting higher, yet simple, capital requirements.”
Currently, U.S. banks are required to meet a 6% leverage ratio-that is higher than the 3% buffer the Basel Committee on Banking Supervision requires institutions to maintain. While the Basel Committee sets guidelines for global banking regulation, it is up to individual countries to determine how, if at all, to implement its proposals.
That being said, without a republican win in the presidency and congress, there is little chance of the bill being passed, according to the article.
Recently, Hensarling spoke out against Dodd-Frank.
“Dodd-Frank stands as a monument to the arrogance and hubris of man in that its answer to incomprehensible complexity and government control is even more incomprehensible complexity and government control,” Hensarling said.
Already credit unions have gotten behind Hensarling to support his new proposal.
“NAFCU and our members greatly appreciate Chairman Hensarling’s thoughtful leadership in creating a plan to correct a regulatory pendulum that has swung too far,” said Dan Berger, National Association of Federal Credit Unions CEO. Lawmakers and regulators have widely recognized credit unions for their prudent business model and for not creating the crisis.”
“Hensarling’s plan addresses a number of issues of great concern to credit unions,” Berger said. “Specifically, we appreciate that his plan would repeal the federal price caps within the Durbin amendment. We expect a number of other NAFCU-backed regulatory relief measures to be included in the larger package, including requirements for regulators to better tailor rules to different sizes and types of institutions. We look forward to seeing the plan in greater detail.”
Hensarling isn't the only one who things the nation's biggest banks would better serve the nations fiancial stability by adopting stricter capital requirements. Just last week, Fed governors Daniel Tarullo and Jerome Powell said that the central bank would more than likely require eight of the largest U.S. banks to maintain more equity to pass annual "stress test," exams, according to an article by Ryan Tracy and David Reilly for WSJ.
“That’s not good for us,” J.P. Morgan Chase CEO James Dimon said Thursday at a financial-investor conference in response to the comments. The bank is the country’s largest by assets and would be hardest hit by any changes, according to the article.
“Hopefully we’ll be able to adjust,” Dimon said. “We put a lot of power, money, people on to get these things right as we modify our business practices to meet the new rules.”