House passes Choice Act
One of the things that I’ve been struck by in Congress is the amount of time spent debating bills of little significance. In a given week, most of what is voted is in the category of a post-office naming--important to those the office is named after, but not something that will solve the problems facing our country.
This was not one of those weeks. On Thursday, the House passed a bill that, if it went into law, would make significant changes to the way the financial system is regulated by the federal government. It’s called the Financial Choice Act, and it’s intended to address some of the increase in financial regulation we’ve seen coming out of Washington over the last eight years. In the area of banking there have been more than 400 new rules and more than 2,300 pages of new regulations added to the financial system since 2009. Since finance affects nearly every aspect of the economy, the increase in regulation has had broad national effects, and contributed in part to the weakness of the current economic recovery. In fact, it’s been estimated that if we had the same regulations today that we did in 1980, the economy would be 25 percent larger, a cost of about $14,000 for every household our country. Financial regulation is a part of that equation.
I’ve worked on this legislation with my colleagues on the financial services committee for a number of months, and I think what was passed is a reasonable solution to the problem. The way it’s intended to work under Choice is to in essence give the banks two options: they can live under Dodd-Frank, or they can keep a certain amount of high-quality capital on hand to cushion losses. That amount, or ratio, is around 10 percent of their total loans or investments, more than triple what the big banks had on hand pre-financial crisis. In fact, of the banks that did have a 10 percent ratio during the crisis, more than 98 percent survived. Right now most of the big banks are hovering a little above 6 percent, and requiring them to go to ten would cost them billions in foregone profits. If that means that the system as a whole is more durable and banks get out from under Dodd-Frank, then I think that’s a fair tradeoff.