Tags: Hensarling | Repeal | Dodd | Frank

Hensarling: Repeal ‘Confusing, Complex and Harmful’ Dodd-Frank Act

Thursday, 26 July 2012 12:45 PM

Rep. Jeb Hensarling, R-Texas, who was a conference committee member for the Dodd-Frank financial-reform measure and who fought against the bill, says Congress should repeal the Dodd-Frank bill because it harms businesses and consumers by creating uncertainty in the economy.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created, among other things, new agencies, such as the Financial Stability and Oversight Council, the Office of Financial Research and the Consumer Financial Protection Bureau, all endowed with sweeping regulatory and enforcement power over financial institutions. The law also gave regulators new powers to pursue fraud and conflict of interest.

The law covers a vast array of financial institutions from small banks and thrifts to the insurance industry and giant Wall Street traders.

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Two years after the bill was signed into law, Hensarling wrote in The Wall Street Journal, the economy is in the worst shape it has been in during the postwar era, “too big to fail” is actually written into law and the regulations stemming from the bill, some 400 regulations, are "confusing, complex and harmful" to capital markets.

“Dodd-Frank was based largely on the premise that regulators lacked the authority to prevent Wall Street from taking outsize risks,” he noted. “But that was the wrong diagnosis — and it led, inevitably, to a prescription for the wrong remedy.”

While regulatory mistakes and incompetence flourished before the financial crisis, Hensarling explained, almost no examples of a lack of regulatory authority exist.

“As long as companies have enough capital to cover their risks and absorb potential losses, we don’t need federal regulators micromanaging credit allocation,” he wrote.

“Federal regulations were not the solution to the crisis but its principal cause,” he continued. “Federal policy pushed financial institutions to lend money to people for home purchases they couldn’t afford.”

This lending dramatically eroded historically prudent underwriting standards, Hensarling explained.

“Of the subprime and Alt-A mortgages that led to the 2008 financial crisis, more than 70 percent were backed by the federal government through government-sponsored enterprises (GSEs, such as Fannie Mae and Freddie Mac), the Federal Housing Administration and other programs,” he said. “An accommodative monetary policy, in turn, allowed an inflated housing bubble that finally burst.”

Hensarling laid out some framework to follow in repealing the law.

“For starters, the president should work with Congress to phase out the GSEs and transition them to the private market,” Hensarling wrote. “Other industrialized nations enjoy comparable or higher rates of homeownership without government dominance in their mortgage markets.”

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Then, the bailout authority that was granted in the bill should be repealed.

“The way to address the risks posed by financial institutions would be more transparent balance sheets and a meaningful application of capital and liquidity standards,” Hensarling noted.

Republican presidential candidate Mitt Romney has vowed to repeal the Dodd-Frank Act if voted into office. In addition, the Republican-controlled House Financial Services Committee has been working on taking apart the Dodd-Frank financial-reform law.

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Thursday, 26 July 2012 12:45 PM
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