The Congressional Budget Office has released is “scoring” of the Financial CHOICE Act, a comprehensive repeal and replace of financial regulations, many of them contained in the Dodd-Frank Act.
The CBO estimates that enacting the legislation would reduce federal deficits by $24.1 billion over the 2017-2027 period.
Direct spending would be reduced by $30.1 billion, and revenues would be reduced by $5.9 billion, the report says. Most of the budgetary savings would come from eliminating the OLF and changing how the Consumer Financial Protection Bureau is funded.
The Financial CHOICE Act proposes re-establishing the CFPB as a civil enforcement agency focused totally on consumer protection. Renamed the Consumer Law Enforcement Agency, the agency would be accountable to Congress and the President by bringing it onto the regular appropriations process, similar to other agencies that are responsible for consumer and investor protection.
Under current law, the CFPB is funded by transfers from the Federal Reserve and the agency’s spending is recorded as direct spending. Title VII of the bill would amend current law to make spending for the CFPB subject to annual appropriations.
The bill would authorize the appropriation of $485 million for fiscal year 2018, an amount equal to the amount transferred from the Federal Reserve to the CFPB in 2015.
The CBO estimates that enacting this provision would reduce direct spending by $6.9 billion over the 2018-2027 period and cost $485 million over the 2018-2022 period, subject to appropriation of the authorized amounts.
The Financial CHOICE Act, beyond its CFPB changes, seeks to amend numerous provisions of the Dodd-Frank Act and other laws governing regulation of the financial industry. The bill, for example, would repeal the Federal Deposit Insurance Corporation’s authority to use the Orderly Liquidation Fund and allow financial institutions, under certain circumstances, to be exempt from a variety of regulations.
The CBO estimates that ending that authority would reduce deficits by $14.5 billion over the 2018-2027 period. That change reflects estimated reductions in both direct spending and revenues of $18.8 billion and $4.3 billion, respectively.
The overall reduction incorporates an estimated increase in net costs to the FDIC’s Deposit Insurance Fund of $1 billion to address failures of federally insured depositary institutions that would result from eliminating the OLF.
The Government may not want to start counting that money just yet (assuming the bill manages to defy the current odds and eventually become legislation).
“Those estimates are subject to considerable uncertainty, in part because they depend on the probability in any year that a systemically important firm will fail,” the CBO wrote. “That probability is small under both current law and under the legislation, but it is hard to predict.”
Another warning: a big bank failure could lead to increased payouts from the FDIC’s Deposit Insurance Fund.
“Repealing the FDIC’s orderly liquidation authority could change how large, systemically important firms that fail would be resolved in the future and who would bear the costs,” the report says. “CBO expects that if a systemically important financial firm failed, some federally insured depository institutions would be among its creditors, increasing the probability of losses to the DIF.”
The bill provides for capital elections that would permit some banks to maintain a 10 percent leverage ratio and then be subject to reduced regulatory oversight. The CBO analysis said that the eight banks holding more than half of total U.S. bank assets would be unlikely to meet the bill’s capital threshold and “would be unlikely to choose the alternative regulatory regime authorized by the bill.”
Other legislative matters noted in the report:
Title IV would authorize the SEC to refund the overpayment of certain fees by lowering future collections by the corresponding amount. CBO estimates that implementing the provision would increase direct spending by $8 million over the 2018-2027 period.
Title I would authorize the appropriation of $4 million each year for the operations of the Financial Stability Oversight Council. CBO estimates that implementing the provision would cost $39 million over the 2018-2027 period, subject to the availability of appropriated funds.
The Volcker rule, section 619 of the Dodd-Frank Act, restricts FDIC-insured institutions from engaging in certain proprietary trading of securities, derivatives, commodity futures, and options on those instruments. With certain exceptions, the rule also prohibits banks from owning, sponsoring, or having certain relationships with hedge funds and private equity funds. By eliminating the rule and the corresponding penalties for noncompliance, The Financial Choice Act would reduce revenues by an estimated $70 million over the 2018-2027 period,” the budget analysis says.