House GOP plan ditches ‘too big to fail’ label for banks

The House Republican plan to replace sweeping post-recession financial sector regulation would kill the “too big to fail” label for banks, the House Financial Services Committee chairman said Monday.

{mosads}Rep. Jeb Hensarling (R-Texas) told Bloomberg News that his plan to replace the Dodd-Frank Wall Street Reform and Consumer Protection Act would eliminate the “systemically important financial institution” (SIFI) designation. 

That label is applied to banks that could trigger an economic meltdown upon collapse. SIFIs are subject to strict capital requirements and must draw up resolution plans, or “living wills,” that explain how the bank would disassemble without starting a widespread crisis. 

Hensarling, who will unveil the full plan on Tuesday in New York, called SIFI labeling a “self-fulfilling prophecy” manipulated by some banks to grow. His plan would establish new bankruptcy law for big banks.

“I don’t care to paint with a broad brush, but there is a Washington-Wall Street axis,” Hensarling said. “Some want to rely upon the taxpayers in order for there to be a bailout fund.”

The House approved earlier this year a bill that would create bankruptcy law for big banks and eliminate the Orderly Liquidation Authority, a fund to ease a major bank’s meltdown drawn from fees paid by SIFIs.

Hensarling also said his plan would ramp up oversight of the Consumer Financial Protection Bureau (CFPB), which is a frequent target of Republicans, who see it as an unaccountable bureaucracy with overzealous regulations.

“We have a national consumer nanny or dictator,” Hensarling said of the CFPB. 

Hensarling’s plan would likely make the CFPB’s funding subject to congressional approval. The bureau is currently funded from the Federal Reserve’s budget.