The House Financial Services Committee is poised to vote today on yet another wave of bills that would loosen the rules governing the financial sector. The great majority of Americans, regardless of political party, want Wall Street to be held to a higher standard of accountability; nevertheless, too many in Congress remain determined to roll back the controls put in place after the financial crisis, or, in some cases, to make financial regulation even weaker than it was before.
These deregulatory measures are on the committee’s docket only as a result of massive lobbying by large financial institutions seeking a license to continue playing the kinds of heads-they-win-tails-we-lose games that were at heart of the financial crisis. Lawmakers need to decide whether to let the financial industry have its way or stand up for the public interest.
Ten different bills will be marked up today, making a total of over forty bills emerging from the committee over the last six months. Several strike at the heart of the Dodd-Frank Act’s effort to close dangerous gaps in financial regulation. HR 1309, for example, is designed to roll back the improved Federal Reserve oversight of large regional banks. Such institutions, including Countrywide, Washington Mutual, and Wachovia, played a crucial role in the subprime mortgage bubble, and their failure during the 2007-2008 crisis caused serious strain on the financial system. Today just 25 large regional banks collectively hold some $4 trillion in assets. Yet HR 1309 would severely weaken the Federal Reserve’s ability to properly regulate this class of banks, leaving the Federal Reserve with less authority than it had before Dodd-Frank.
Another set of bills – HR 1550, HR 3340, HR 3557, HR 3738, and HR 3857 – would seriously weaken the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR). These entities were created to address the fragmentation of the financial regulatory system and the fact that enormous risks in non-banks such as AIG, or broker-dealer investment banks like Lehman and Bear Stearns, were not understood or addressed by financial regulators. The bills set for markup today would make it enormously more difficult and cumbersome to designate giant non-bank financial institutions for improved regulatory oversight. They would also reduce the independence of the FSOC and OFR and make it more difficult for them to call the public’s attention to possible buildups of financial risk.
Other measures, including HR 3868, would make it easier for financial insiders to take advantage of ordinary investors. HR 3868 weakens long-standing regulatory risk controls on Business Development Companies (BDCs), a high-risk class of investment funds holding over $60 billion in investor and retiree assets.
These pieces of legislation under consideration today would reduce the ability of regulators to respond to financial risks and protect the public, while providing some of the country’s biggest banks with new ways of obstructing and delaying needed action. AFR opposition letters to specific bills are linked below.