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Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s full committee hearing focused on the capital requirements in the Financial CHOICE Act, the Republican alternative to the Dodd-Frank Act which will offer economic growth for all and bank bailouts for none:
Regrettably, we remain stuck in the slowest and weakest economic recovery since at least World War II. The economy simply isn’t working for tens of millions of working Americans who cannot get ahead and fear for the future of their families. Their paychecks remain stagnant; their savings have declined. They are losing hope.
Why is this happening? One of the principal reasons is the Dodd-Frank Act, a grave mistake Washington foisted upon the American people nearly 6 years ago. Simply put, Dodd-Frank has hurt the economy, hurt consumers, codified bank bailouts, and made our financial system less stable.
It’s time for a new paradigm in banking, and capital markets. It’s time to offer all Americans opportunities to raise their standards of living and achieve financial independence. In a phrase, we need economic growth for all and bank bailouts for none. There is a better way forward and it’s called the Financial CHOICE Act; an acronym standing for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.
The Financial CHOICE Act rests on the belief that a high level of private bank capital is the most basic element in making a financial system healthy, resilient and reliable for economic growth.
The Financial CHOICE Act will relieve financial institutions from growth strangling regulations that create more economic burden than benefit in exchange for voluntarily meeting higher, yet simpler, capital requirements.
Our reform stops investors from making risky bets with taxpayer money. It once and for all ends taxpayer bailouts. Period. Paragraph. It is quite simply a market-based, equity financed Dodd-Frank off-ramp.
To avail themselves of this exchange, many larger banks will have to raise significant additional equity capital.
Most community banks and credit unions will have to raise little to no additional capital.
Under our plan, banking organizations that maintain a simple leverage ratio of at least 10 percent, at the time of the election, and have a composite CAMELS rating of 1 or 2 may elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards, and a number of other regulatory burdens that pre-date Dodd-Frank. Banking organizations that make a capital election will still be supervised and regulated by the banking agencies, but the presumption will be that such institutions are operating safely and soundly.
Importantly, the CHOICE Act relies upon a leverage ratio approach to measuring capital adequacy rather than the discredited risk-based capital regime advanced by the Basel Committee on Banking Supervision that proved so destructive during the last crisis. Nothing is riskier than one centralized, politicized, globalized view of financial risk.
While maintaining a large capital buffer does not guarantee that a bank will never fail, it should be noted that among all insured depository institutions that entered 2008 with a leverage ratio of at least 10 percent, 98 percent survived the financial crisis. Of those that did fail, none was of a sufficient size or scale to even remotely present any systemic issues.
It also is important to note that a 10% simple leverage ratio will provide a far greater capital buffer than required under either Basel or the Dodd-Frank Act.
Seven-plus years of Obamanomics and six years of Dodd-Frank have delivered nothing to the American people but stagnant paychecks and diminished savings. Freeing well-capitalized, well-managed financial firms from the chokehold of an overly intrusive, heavily politicized regulatory regime will help create a healthier economy for all struggling Americans.
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