Straight Talk: Leadership on Reg Reform

U.S. Rep. Jeb Hensarling (R-Texas) has shown real leadership by proposing regulatory reform legislation for the banking industry. The chair of the House Financial Services Committee introduced the Financial CHOICE Act with a speech on June 7..Among other things, the bill gives banks with more than 10 percent capital and a CAMELS rating of 1 or 2 the option to opt out of most of the Dodd-Frank and Basel III regulatory regime..Other key features: It directs large, complex banks to liquidate within the bankruptcy code in the event of failure; it reforms the CFPB by changing leadership from a single director to a five-person board, and it requires cost-benefit analysis of all proposed banking regulations..Reaction to the proposal has been predictable, with most in the banking industry, as well as Republicans, supporting it, and supporters of Dodd-Frank, including most Democrats, criticizing it. President Obama has already said he supports the Dodd-Frank Act; he is not likely to sign legislation that substantially changes it..But that doesn't mean that Hensarling is wasting anyone's time. Putting this proposal on the table now energizes the reg reform discussion in the middle of the presidential campaign. The more people understand about the consequences of reg burden, the better chances are Congress will act..Opponents of reform say growing levels of regulatory oversight are necessary to assure a safe financial system. I lament the elected official who is quick to trade freedom for security. Individual Americans should be allowed to assess the appropriate balance between security and freedom for themselves. This requires transparency far more than oversight..One of the big problems with the post-Dodd-Frank regulatory environment is its lack of transparency. The CFPB enforces violations against "abusive" practices but refuses to define "abusive." FSOC gets to declare companies systemically important but it won't say what "systemically important" means. The Dodd-Frank Act says it ends too-big-to-fail but it hasn't built in enough concrete assurances to convince many serious industry experts. .The Financial CHOICE Act sets up an industry/consumer win-win. Banks can choose whether they want to maintain more risk-mitigating capital or deal with the existing regulatory system. And consumers, who can vote with their feet, get to choose which kind of bank they use.