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Financial CHOICE Act Released for Public Review, Nobel Prize Winning Economists and Former Treasury Secretaries Announce Support for Reforms
Washington, Jun 23 -
WASHINGTON – House Financial Services Committee Chairman Jeb Hensarling (R-TX) today publicly released a discussion draft of the Financial CHOICE Act, the Republican plan to replace the failed Dodd-Frank Act and promote economic growth. CHOICE stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
“We want the American people to see our proposal because it will result in economic growth for all and bank bailouts for none,” said Chairman Hensarling. “Dodd-Frank has failed. It has contributed to the slowest, smallest, weakest and worst economic recovery of our lifetimes. We must instead offer all Americans greater opportunities to raise their standards of living and achieve financial independence by replacing Dodd-Frank with real reforms that work.”
The Committee also publicly released an extensive description of each section of the proposal and how its reforms will work. Both can be found at the Committee’s website: republicans-financialservices.house.gov/choice.
In addition to releasing the legislative text, a group of Nobel Prize winning economists, former Treasury secretaries and former senior economic policy officials also announced their support for the Financial CHOICE Act today.
“We support the reform principles that underlie the proposed Financial CHOICE Act which promote higher economic growth without bailouts, reduced risk of crises, and simplification of the regulatory process by emphasizing market mechanisms operating through the rule of law,” the group of renowned economic and financial experts said in a statement of support.
“The Act would encourage banks to rely on much more capital by offering them relief from complex, costly and loan-impeding regulations in return. The more banks are financed by capital, the less dangerous they are to the financial system and to the taxpayer, and so need less regulation.”
The entire statement appears below:
Statement on the Financial CHOICE Act
We support the reform principles that underlie the proposed Financial CHOICE Act (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) which promote higher economic growth without bailouts, reduced risk of crises, and simplification of the regulatory process by emphasizing market mechanisms operating through the rule of law.
The Act would encourage banks to rely on much more capital by offering them relief from complex, costly and loan-impeding regulations in return. The more banks are financed by capital, the less dangerous they are to the financial system and to the taxpayer, and so need less regulation.
The Act offers increased penalties for financial fraud, and also strengthens due process rights. As too many people have gotten away with fraudulent behavior, too many institutions have been shaken down for large settlements by overzealous regulators.
The Act would incorporate a new “bankruptcy not bailout” chapter into the bankruptcy code so that a large financial institution that takes on unsustainable risks could fail without disrupting the financial system. By relying on the rule of law rather than discretion it creates more certainty about how stakeholders will be treated and avoids the chaotic ad hoc bailout policies which can bring about financial crises. This reform has already passed the House of Representatives as the Financial Institution Bankruptcy Act.
The Act would require sensible cost-benefit tests of new regulations. In recent years Congress and the Court have allowed Congress’s power to legislate, as specified in Article 1 of the Constitution, effectively to be transferred to the executive branch in areas relating to regulation.
The Act would help to reverse that trend by requiring that all major financial regulations be approved by Congress before they can take effect. The Act would make financial regulatory and supervision activities at the Federal Reserve—including the Consumer Financial Protection Bureau (CFPB)—subject to the normal congressional appropriations process, while preserving monetary policy independence by continuing to allow monetary policy activities to be funded through Federal Reserve earnings.
To further increase accountability, the Act would convert financial regulatory agencies now headed by single directors—including the CFPB, the Office of Comptroller of the Currency, and the Federal Housing Finance Agency—into bipartisan commissions.
The Act would require that the Fed “describe the strategy or rule of the Federal Open Market Committee for the systematic quantitative adjustment” of its policy instruments. This reform, which would lead to more predictable rules-based monetary policy, is based on evidence and experience that monetary policy works best when it follows a clear, predictable rule or strategy. The Fed would choose the strategy and how to describe it. The Fed could change its strategy or deviate from it if circumstances warranted a change, in which case the Fed would have to explain why. This reform has already passed the House as Requirements for Policy Rules of the Federal Open Market Committee, Section 2 of the Fed Oversight Reform and Modernization Act, which would be incorporated into the Financial CHOICE Act.
Lars Peter Hansen – University of Chicago, Nobel Laureate
Robert Lucas – University of Chicago, Nobel Laureate
Edward Prescott – Arizona State University, Nobel Laureate
George Schultz – Hoover Institution, former Secretary of State, Treasury, and Labor, and former OMB Director
John Snow – former Secretary of the Treasury
Robert Heller – Former Federal Reserve Governor
Jerry Jordan – Former Cleveland FRB President and former member of the President’s Council of Economic Advisers
Michael Bordo – Rutgers University and visiting scholar at St. Louis and Cleveland FRBs
Michael Boskin – Hoover Institution, Stanford University, former Chairman of the President’s Council of Economic Advisers
Charles Calomiris – Hoover Institution, Columbia University, former consultant Federal Reserve Board of Governors
John Cochrane – Hoover Institution and University of Chicago Booth School of Business
John Cogan – Hoover Institution and former Deputy OMB Director
Steven Davis – University of Chicago and visiting scholar at Chicago and Atlanta FRBs
Marvin Goodfriend – Carnegie Mellon and former Research Director for FRB Richmond
Peter Ireland – Boston College and former visiting scholar Federal Reserve Board of Governors
Allan Meltzer – Hoover Institution, Carnegie Mellon, and former acting member of the President’s Council of Economic Advisers
Bennett McCallum – Carnegie Mellon and former consultant to Richmond FRB
Lee Ohanian – Hoover Institution, UCLA, advisor to Minneapolis FRB
Athanasios Orphanides – MIT and former Governor of the Central Bank of Cyprus and member of the Governing Council of the European Central Bank
William Poole – University of Delaware, former President of the St. Louis FRB, and former member of the President’s Council of Economic Advisors
Thomas Saving – Director, Private Enterprise Research Center at Texas A&M University
John Taylor – Hoover Institution, Stanford University, and former Undersecretary of Treasury and member of the President’s Council of Economic Advisers
Daniel Thornton – Former Vice President and Economic Adviser, St. Louis FRB
Peter Wallison – Co-Director of the American Enterprise Institute’s financial policy studies, former general counsel of the U.S. Treasury Department, former White House counsel