By Catherine Chen
On Thursday, June 8th 2017, the House of Representatives passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act, a bill that would repeal many of the regulations under the Dodd-Frank Act.
Dodd-Frank, short for the Dodd-Frank Wall Street Reform and Consumer Protection Act, was passed by former President Obama after the 2008 financial crisis that caused a loss of $19.2 trillion and 8.8 million jobs. The act was signed into law in 2010 in order to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
Since its passage, Republicans have hoped to dismantle the act, arguing that the law stifles business growth, and entails excessive regulations that hurt firms and banks that did not cause the crisis.
President Trump had also repeatedly vowed to roll back the legislation, stating that Dodd-Frank is a “disaster” because “Friends of mine, who have nice businesses, who can’t borrow money. They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank.”
If passed through the Senate (which is unlikely) and signed by Trump, the Choice Act would limit the oversight of several federal agencies, most notably, the Consumer Financial Protection Bureau (CFPB), which Republicans deem its scope too large and accountability too low. Under the new reform, the CFPB would lose control of its budget, its authority to restrain abusive practices, and its director would be appointed by the president.
The bill would also repeal the Volcker Rule, which prevents banks from making certain speculative investments that do not align with consumer interests. Other changes include decreasing bank regulatory requirements, reducing stress tests, and eradicating orderly liquidation authority (a process in which the government takes over and liquidates a close-to-failing bank).
Opponents criticize that the Choice Act has gone too far in the other direction and fears that the changes will put the economy at risk to another crisis.
Federal Reserve Board Chairwoman Janet Yellen concurs, believing that although there is room for improvements, the bulk of the law should remain intact.
In her speech on Friday, August 25th in Wyoming, Yellen defended the Dodd-Frank Act, asking lawmakers to make only “modest” changes and contending that the act is essential in protecting the economy and preventing future crises.
“We can never be sure that new crises will not occur, but if we keep this lesson fresh in our memories — along with the painful cost that was exacted by the recent crisis — and act accordingly, we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly” Yellen stated.
Without Dodd-Frank to hold firms accountable, it remains uncertain whether or not the financial sector will go back to pre-recession practices.