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Four starting points for reforming Dodd-Frank

Four starting points for reforming Dodd-Frank
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Republicans will have a chance to make major changes to the Dodd-Frank Wall Street Reform and Consumer Protection act in 2017.

The massive post-recession financial regulation law has been a constant GOP target since its 2010 enactment. With control of the House, Senate and White House, Republicans are poised to reshape the law.

Republicans on the House Financial Services Committee, led by Chairman Jeb HensarlingThomas (Jeb) Jeb HensarlingLawmakers battle over future of Ex-Im Bank House passes Ex-Im Bank reboot bill opposed by White House, McConnell Has Congress lost the ability or the will to pass a unanimous bipartisan small business bill? MORE (Texas), spent 2016 laying the groundwork for a 2017 reform effort.

Hensarling unveiled the Financial CHOICE Act in June, a lengthy compilation of Republican financial regulatory reform priorities.

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With small majorities in both the Senate and the House, Republicans might need to work with Democrats on potential fixes to Dodd-Frank.

Here’s where the GOP will likely start on reforming the law, based on interviews with lawmakers, trade groups and industry sources.

The Consumer Financial Protection Bureau

The CFPB was designed to monitor and crack down on predatory financial practices beyond the scope of existing banking and securities regulators.

The bureau has secured more than $5 billion in penalties and was behind a $185 million fine levied on Wells Fargo for opening more than 2 million accounts without customer approval.

Republicans argue that the CFPB is unaccountable and overreaching, and have long sought to make drastic changes to its structure and mission — if not get rid of it all together.

The CFPB is currently funded by the Federal Reserve and controlled by a single director. Republicans are likely to reintroduce a House-passed measure that would subject the CFPB budget to Congressional control and replace the director with a five-person bipartisan commission to lead the bureau.

Democrats have strongly opposed putting CFPB under Congressional appropriations, arguing that Republicans could effectively close the bureau by not funding it all.

Republicans also passed a bill through the House that subjects the Financial Stability Oversight Council’s (FSOC) budget to Congressional control. The FSOC is a multi-agency panel led by the Treasury secretary designed to monitor excessive risks to the financial system and liquidate teetering big banks before they collapse.

Systemically important financial institutions and “too big to fail”

Title II of Dodd-Frank gives FSOC the ability to take over and dismantle troubled “systemically important financial institutions” often called “too big to fail,” that could cause a global financial crisis if they fail.

Republicans have sought to repeal Title II — which many consider a bailout by another name — and replace it with a bankruptcy process for large failing banks.

If a full Title II repeal doesn’t work, Republicans could aim to adjust how a bank or firm is labeled systemically important. Any bank, bank holding company or financial firm with more than $50 billion in assets is labeled systemically important, which subjects the company to strict Fed and FSOC oversight.

Republicans in December successfully passed a bill through the House that would replace the $50-billion standard with analysis based on the firm's assets and investment activities.

That’s a likely starting point in 2017, too.

The Volcker Rule

Named after former Fed Chaiman Paul Volcker, Dodd-Frank contains a rule barring banks and firms from certain risky trades using the company’s own money. Regulation hawks say these risky “proprietary trades” contributed to the 2008 financial crisis and only yield profits for banks and firms, not their customers.

Regulators adjusted the rule after complaints from the banking sector, and several major banks in August asked for a five-year window to comply with the rule. The Financial CHOICE Act contains a full repeal of the rule, though Republicans could also seek a looser version.

The Fiduciary Rule

The Department of Labor in April released a rule mandating that retirement advisers disclose certain conflicts of interest to prospective clients and maintain a “fiduciary” standard to serve their clients’ well being over their firms.

Republicans claimed the rule was too costly, would limit services for retirees and violated Dodd-Frank’s mandate that the Securities and Exchange Commission — not the Labor Department — issue a financial adviser rule.

The Labor rule, supposed to be phased in by 2018, could be rolled back.