Tipton: Financial CHOICE Act would remedy the consequences of Dodd-Frank
Did you know the Dodd-Frank Act of 2010 includes more regulations than all other laws signed by President Barack Obama combined?
You may be wondering, the Dodd-Who Act? The Dodd-Frank Act was the Obama administration’s response to the financial crisis of 2007, when the housing market crashed after federal policies encouraged banks to issue mortgages to people who couldn’t afford them.
Banks were bundling these bad mortgages together and selling them like they were strong investments, but they weren’t. When people stopped paying their mortgages, the whole market crashed. The federal government bailed out the banks, and taxpayers had to foot the $700 billion bill.
Since the great recession of 2008, the United States has seen the lowest economic recovery in 70 years — partly due to the heavy-handed regulations included in Dodd-Frank. And instead of fixing the problems that led to the financial crisis in the first place, regulations from the Dodd-Frank Act have made big banks bigger, put Americans at risk for a future bailout of banks deemed “too-big-to-fail,” forced community banks and credit unions to shut their doors, and limited the access families and small businesses have to important financial services.
The Financial CHOICE Act, which recently passed the House, will help us reverse these troubling trends, grow jobs and accelerate overall economic growth.
Since Dodd-Frank was signed into law, more than 1,900 community financial institutions have shut their doors. The ones that are still standing have had to scale back their services. This is bad for the American people for three reasons: 1) Without competition from community banks, the big banks have grown bigger; 2) Community banks and credit unions are typically the institutions that help job creators — small businesses — access the credit or capital they need to expand; and 3) When community banks must focus more resources on complying with federal regulations, they cannot fully serve the families and businesses in their communities.
The Financial CHOICE Act addresses each of these problems.
The CHOICE Act sets a high loss-absorbing private capital threshold that a financial institution would need to meet in order to seek relief from regulations. Not only will this make banks stronger, it will also protect taxpayers from having to fund another government bailout.
A 2017 report from S&P Global shows that the seven largest U.S. banks would have to collectively raise hundreds of billions of dollars in new equity to meet the new capital requirements and receive regulatory relief. Alternatively, community banks and credit unions typically hold higher capital reserves and would be well within reach of the new threshold.
The CHOICE Act also includes my bill, the Taking Account of Institutions with Low Operation Risk Act, which would require financial regulatory agencies to tailor regulations to fit the business model and risk profile of the financial institution, rather than regulate a community bank like a big bank on Wall Street.
Placing community banks and credit unions under a workable, common-sense regulatory structure will allow them to keep their doors open, prevent the nation’s capital from being concentrated in a small number of large banks and allow smaller financial institutions to fully serve their communities.
When community banks have to spend resources complying with federal regulations that were never meant to apply to them in the first place, families lose out on important services, such as free checking accounts. Before Dodd-Frank, 75 percent of banks offered free checking accounts. By 2016, the number had dropped to 38 percent.
We have also seen minimum balance requirements to qualify for free checking increase almost fourfold, and average monthly account fees have more than tripled. The result? The number of American households that are unbanked or underbanked was up by more than 3 million, as of 2015. The updated regulatory structure included in CHOICE will increase access to banking services and give more households the ability to achieve financial security.
It is well past time that Congress takes action to remedy the consequences of Dodd-Frank. The Financial CHOICE Act sets us up to say goodbye to the regulatory environment that has held our country back for the past seven years. I implore the Senate to act quickly on this important piece of legislation.
Congressman Scott R. Tipton represents Colorado’s 3rd District. Contact him through his website, tipton.house.gov.