Financial Services Committee to Consider Legislation Today to Weaken Financial Reform
The House Financial Services Committee will today consider legislation which would eliminate an entire title of the 2010 Wall Street Reform and Consumer Protection Act and also hobble the Consumer Financial Protection Bureau.
The legislative language crafted by Committee Republicans lays out recommendations for deep budget cuts in areas under the Committee’s jurisdiction. The House Republican leadership had requested that the Financial Services Committee find $29.8 billion in savings over a 10-year time window.
One section of the legislation under consideration today completely eliminates Title II of the financial reform law which deals with “Orderly Liquidation Authority.” OLA would make it possible, in the case of a future failure of a large financial institution, for the government to manage a structured liquidation of the company, effectively insulating the wider economy from serious damage. Language in the financial reform law specifically prohibits the bailout of a large financial institution and it forbids that taxpayers be forced to shoulder the costs. Instead, the law requires that costs be recouped from large financial institutions. Nevertheless, Republicans have repeatedly insisted that the law forces future bailouts.
Committee Republicans claim that striking the OLA language in the Wall Street Reform and Consumer Protect Act will save $22 billion over a ten-year time window. Although the estimate is based on a CBO projection of costs associated with implementation of the OLA provision, the claim that there are savings associated with elimination of OLA is false because it considers only a limited time window. The financial reform law requires that the FDIC borrow money from Treasury in order to assist an orderly resolution – and it requires that the funds be repaid by large financial institutions. However, Committee Republicans rely on projections that are based on a limited time frame and hence include only the costs of OLA but not the repayment. For this reason, the Republican claim that the legislation considered today saves $22 billion by eliminating OLA is thought by independent observers to be highly questionable.
The second important provision of the legislation to be considered today requires that funding for the Consumer Financial Protection Bureau be subject to annual appropriations. Currently, the CFPB derives its operating budget from the Federal Reserve. The effect of this provision would be to politicize the process of CFPB funding and likely would significantly restrict funds to the new agency, thus hobbling the Bureau and hampering efforts to protect consumers from predatory practices like those which helped cause the financial crisis.
Today’s markup of the budget reconciliation bill will likely spark heated debate. The markup begins at 10:00 am and will be carried on House Channel 33 and will also stream on the web at http://democrats.financialservices.house.gov/ .
Committee Members will consider two other provisions today – one on the Home Affordable Modification Program (HAMP) and another on Flood Insurance – which are likely to be less controversial.