Repealing and Replacing Dodd-Frank

While the world focused in horror on New York and Washington during the 2008 financial crisis, the greatest cost was borne by cities like Atlanta. Rapidly expanding for decades, the sudden scarcity of capital tanked home prices and forced over 100 community banks in Georgia to close their doors– more than any other state.

While massive, politically-connected banks in New York received a bailout, no such windfall came for Georgia’s community banks. The subsequent Dodd-Frank financial reform meant to prevent another crisis hit community banks harder still, raising compliance costs for regulations lobbied and shaped by those banks bailed out with taxpayer dollars. Despite promises to end too-big-to-fail financial institutions, these crony capitalist banks are ever bigger than they were before the crisis, the opposite of Dodd-Frank’s stated purpose.

Six years after it was passed, unaccountable DC bureaucrats are still drafting thousands of pages of Dodd-Frank regulations. Thankfully, the House Financial Services Committee, which includes Georgia Representatives Lynn Westmoreland and David Scott, has drafted legislation to repeal the Dodd-Frank abomination.

Rep. Jeb Hensearling’s (R-TX) Financial CHOICE Act would create an opt-in system to avoid burdensome Dodd-Frank regulations in exchange for maintaining a 10% capital reserve. If bankers are good stewards of the money in their care, they will be free of the highly regulated public risk and private reward utility model (“capitalism on the way up and socialism on the way down”) that Dodd-Frank cemented.

More importantly for taxpayers, it would end financial bailouts. Hensarling’s plan replaces Dodd-Frank’s Orderly Liquidation Authority, which allows FDIC regulators to favor some creditors of overs and potentially borrow billions in public funds to manage a financial collapse, with a new subchapter in the bankruptcy code specifically designed for financial institutions.

Georgians in particular will benefit from the repeal of the Durbin Amendment, a limit on the fees charged to retailers by debit card processing companies. This last-minute addition to the Dodd-Frank bill is a major impediment to the financial technology (“FinTech”) industry that employs over 30,000 in Georgia alone. Like any regulation or price control, the cost of the Durbin Amendment is passed on, in this instance towards increased compliance costs for community banks and small businesses who no longer have the option to accept flexible market rates and now must pay the same capped rate as retail’s biggest corporations.

Finally, the bill will strengthen penalties for financial fraud and increase enforcement transparency, a bipartisan objective since the financial crisis “with little to show for.” An animating grievance of both the Tea Party and Occupy Wall Street, this provision encapsulates the conservative approach to financial regulation– let the market reward financial actors who succeed and do not use government to protect those who lie, fail, or steal.

By removing thousands of pages of corrupted, inchoate regulation, the Financial CHOICE Act will allow Georgia’s community banks to prosper and new businesses to grow. Government will no longer shield big banks from competition or use taxpayer money at the behest of the politically powerful. We can all enjoy the benefits of a free and fair market.