GOP unveils Dodd-Frank alternative

A leading House Republican has unveiled the GOP plan to regulate Wall Street and replace the Dodd-Frank financial reform law.

A new bill introduced by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) would fundamentally remake the financial regulation landscape, and eradicate major pieces of President Obama’s Wall Street reform law.

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Congressional Republicans have considered dozens of smaller bills tweaking the sweeping 2010 law. But Hensarling’s latest proposal marks the broadest, most ambitious effort yet by the GOP to change how Wall Street and Washington interact. Hensarling will detail the bill in remarks delivered to the Economic Club of New York Tuesday morning.

“Simply put, Dodd-Frank has failed. It’s time for a new legislative paradigm in banking and capital markets,” he will say, according to prepared remarks.

Such a plan is a political longshot this Congress, as the White House has repeatedly threatened to veto any changes to Dodd-Frank, and congressional Democrats have shown little interest in revisiting it. But Hensarling’s plan could serve as a blueprint for Republicans after the presidential election, particularly if the party’s nominee, Donald TrumpDonald TrumpPriebus: Syria, China moves part of 'Trump Doctrine' Poll: Most millennials disapprove of Trump Trudeau calls premiers to talk US trade MORE, wins the White House.

But in his speech, Hensarling laid the blame for a lackluster economic recovery squarely at the feet of the new financial rules, which he argued has hamstrung the economy.

“Ending and replacing the mistake of Dodd-Frank is the necessary start if we ever hope to restore real economic growth in America,” he will say.

But President Obama made clear in earlier remarks he is not interested in restarting the conversation on regulating Wall Street, mocking the idea of deregulation during remarks in Indiana.

"How it is that somebody could propose that we weaken regulations on Wall Street?  Have we really forgotten what just happened eight years ago?" he said June 1. "Less oversight on Wall Street would only make another crisis more likely."

The White House doubled down on that message after the bill was unveiled, with Press Secretary Josh Earnest blasting the bill.

"There should be no more confusion about which party is on the side of big banks and large financial interests on Wall Street and the Democratic party that is fighting for middle class families," he told reporters.

The new plan would place heightened restrictions on financial regulators trying to write new rules, and give large financial institutions a way to ease their regulatory burden.  It also includes provisions aimed at making it easier for community banks to operate, while including language previously pushed by Wall Street and opposed by financial regulators.

Under Hensarling’s plan, large financial institutions could effectively opt out of some government oversight if they agree to hold on to larger amounts of capital. The thinking goes that if banks are willing to hold on to more capital as a buffer against potential downturns, they should not have to adhere to a host of strict rules aimed at making banks safer.

According to Hensarling, some of the nation’s biggest banks would need to hold “hundreds of billions” more to quality for this relief, while small banks may not need to boost capital at all.

Hensarling argued this approach lets banks chart their own course: work with regulators on particular rules, or simply raise capital across the board to avoid them.

Huge portions of Dodd-Frank would also be eliminated under the new bill. Entire sections of the law dictating how regulators would step in and unwind failing banks — so-called “orderly liquidation authority” — would be repealed and replaced with a modified bankruptcy process for banks.

It would also repeal a provision allowing financial regulators to identify which large institutions merit closer oversight as “systemically important financial institutions.” And the “Volcker Rule,” which bars banks from engaging in profit-seeking activity known as proprietary trading, would also be repealed.

The Office of Financial Research, created by Dodd-Frank as a way for the government to boost its data-gathering for the financial sector, would also be eliminated.

Beyond changing rules for banks, Hensarling’s bill would also dramatically alter the landscape for federal regulators. The Consumer Financial Protection Bureau, created by Dodd-Frank, has long been a GOP target, as Republicans argue it has too much power and too little oversight.

The new bill would allow Congress to set the CFPB’s budget, and replace its single director with a bipartisan commission. Republicans have tried for years to make those changes to the agency, while Democrats resisted arguing it would weaken the agency.

The CFPB would also undergo a name change. Under Hensarling’s plan, the bureau would become the “Consumer Financial Opportunity Commission,” and be given a dual mission of protecting consumers and “competitive markets,” according to a bill summary.

The regulator would also see some of its major powers curbed. Among those are the CFPB’s ability to bar any financial product in deems to be “abusive,” and its ability to gather consumer financial data.

Every other financial regulator would also be led by a bipartisan commission and have their budgets set by appropriators under the bill, although many of them already operate under those conditions.

Many of the bill’s provisions were originally part of smaller, stand-alone pieces of legislation. The House has steadily produced dozens of bills tweaking or chipping away at Dodd-Frank. However, nearly none of them have gained traction in the Senate, and the White House has regularly threatened to veto any and all changes to the 2010 law.

Hensarling’s bill also reaches far beyond Dodd-Frank. The measure includes a variety of other GOP priorities. The bill includes an “Audit the Fed” provision that would allow outside review of the Federal Reserve’s monetary policy decisions, among other changes at the central bank.

And the bill would also include language that would block the Labor Department from enforcing new rules establishing a “fiduciary duty” for retirement investment advisors, a rulemaking project finalized in April that had been fiercely contested by Wall Street.

But not every provision in the bill will delight everyone on Wall Street. Hensarling’s bill also would take steps to boost the government’s ability to go after and punish illegal activity on Wall Street. For example, the Securities and Exchange Commission would be able to triple its fines in certain cases, and also increase fines for insider trading and other corrupt activities.

This post updated at 12:26 pm and 4:36 pm.