Bankers say they are happy to see Congress moving on regulatory relief, but they have concerns about Republican plans to demand higher capital and eliminate the new regime for the government to wind down failing banks, according to an American Bankers Association review of the House GOP financial reform bill.
The association, which represents large and small banks, assessed the bill introduced in June by Republicans on the House Financial Services Committee to provide an alternative to the 2010 Dodd-Frank financial reform law in a 21-page staff analysis released Monday.
The bill, which would cut back on a wide range of regulations and offer banks the choice to escape further rules if they maintain 10 percent of capital, is a “a good step forward” for banks, the association says.
But it flags a few policies that could be of concern if the sweeping legislation authored by Rep. Jeb Hensarling, R-Texas, were to move through Congress in future years.
At the top of the list is the new mechanism created by Dodd-Frank to ensure that banks can’t cause a panic by failing in a disorganized fashion. The “resolution authority” granted to the government to take over and wind down failing banks has been characterized by Republicans as, effectively, the promise of bailouts for big banks. Their legislation would eliminate the authority, while adding a new provision to the bankruptcy code specifically for large, complex banks.
The American Bankers Association writes that the lawmakers need to “carefully” think through whether getting rid of the resolution authority “eliminates some necessary tools for managing financial stability.” In other words, they question whether bankruptcy alone is enough to ensure no further catastrophic failures or bailouts.
As for the 10 percent capital requirement, the group declared that the impact of such a requirement, which would be imposed only on banks that chose it, would not be clear. Large banks likely would have to raise capital, they wrote, while community banks might struggle to make the calculations necessary to see how much they would need to raise.
The analysis also flagged other smaller possible concerns. In particular, although the banking industry favors cost-benefit analysis for new regulations, it raised a worry about the GOP plan to require any large new rules to be approved by Congress. That measure could stall deregulatory efforts as well as new rules, they noted.
The group did not raise any major concerns with the Republican plans to overhaul the Federal Reserve and change its monetary policy communications, a step that individual bankers and other industry groups have said could undermine the independence of the central bank.
