Big Changes to Banking and Finance Regulation on the Horizon

Major reform of banking and finance regulation could be coming soon to Washington, D.C. Last week President Trump issued a presidential memorandum directing Treasury Secretary Steve Mnuchin to review the process by which companies are designated as systemically important financial institutions (SIFIs), better known as “too big to fail.” My colleague John Berlau commented on the move last week, urging the administration to go even further:

Some firms have embraced this designation [as systemically important], and some have fought it. But this should not matter for public policy, as government in a free market should not target certain firms either for favorable subsidies or for punitive regulation. Secretary Mnuchin should use the Treasury Department’s membership in the Financial Stability Oversight Council (FSOC) to block the designation of any additional firms as SIFIs and pressure FSOC to rescind the designation from the firms currently labeled as SIFIs.

Now CNN Money reports that House Financial Services Chairman Jeb Hensarling (R-TX) is moving forward with a hearing this week and a markup next week of his major reform bill, the Financial CHOICE Act. A previous version of the bill was passed by the Financial Services Committee last September, but never made it to a floor vote. CEI’s Iain Murray commented at the time:

The House Financial Services Committee today approved the Financial CHOICE Act (FCA) 30-26, largely along party lines. The mark-up had been expected to last for days but instead lasted only hours as Democrats refused to offer any amendment to the bill. While not perfect, the FCA is a much-needed replacement for the Dodd-Frank Act, which is impeding the effectiveness of the financial system and restricting access to capital.


The Dodd-Frank Act of 2010 was meant to help solve the financial crisis, but in fact it did nothing to change the situation and made the problem worse. Instead, it doubled down on the bank regulatory regime that failed to prevent the financial crisis. In fact, Dodd-Frank regulates extraneous issues such as debit card interchange fees and accounting for conflict minerals that had nothing to do with the crisis.

But, as John Berlau points out in a new report today, the financial reforms we need must go beyond fixing the misguided provisions of the Dodd-Frank Act and reach back to earlier eras – to the post-Enron world of 2002 and all the way back to the Great Depression legislation of the 1930s:

Congress and the President are reviewing and considering changes to financial laws and regulations that currently harm small banks, ordinary investors, entrepreneurs, and low income and middle class consumers. But to really have an impact, we must tackle the worst offenders first. These include policies that prevent entrepreneurs from raising capital for their own small businesses and reduce opportunities and choices for middle class investors, like people interested in helping start-up companies.

John’s top five financial reforms are:

  1. Eliminate Dodd-Frank’s Durbin Amendment, which imposes price controls on interchange fees charged by credit card companies to merchants, leading to higher bank fees and loss of free checking for many consumers.
  2. Reform the unconstitutional Consumer Financial Protection Bureau (CFPB) by making the director removable by the President and subjecting the bureau to congressional appropriations. This would make the CFPB more accountable to Congress and the President for any abuse of power against financial institutions and short-term lenders. Many poor and middle class consumers depend upon such companies, like community banks, credit unions, and auto and real estate lenders.
  3. Eliminate mandates imposed by the 2002 Sarbanes-Oxley law that impose huge auditing costs on companies and make it prohibitive for companies to grow and attract investors.
  4. Eliminate New Deal-era securities laws that hurt entrepreneurs, small businesses, and middle class investors by shutting them out of wealth-building opportunities associated with investment-based crowdfunding.
  5. Eliminate Dodd-Frank’s conflict mineral disclosure mandates, which caused foreign companies to simply avoid doing business in the Congo and adjoining countries. That has meant fewer economic opportunities for the people in these conflict zones.

Read the rest of the report, “Five Key Financial Regulation Reforms: Reining in Dodd-Frank and Sarbanes-Oxley Will Help Consumers, Entrepreneurs, and Middle Class Investors,” here.