Just as they promised when they gained a majority in both the House and Senate in the November elections, Republicans are in talks to chip away at the Dodd-Frank Wall Street Reform and Consumer Protection Act, according to a report [1] from Reuters.
Citing sources familiar with the matter, the report stated that Republicans are seeking to repeal the section of Dodd-Frank that allows for government bailouts of banks that are failing, thus ending the highly controversial "Too Big to Fail" among financial institutions.
Republicans expect they will be able to at least get attempts to reform Dodd-Frank out of the Senate and onto the president's desk, though the president has vowed he will fight any GOP efforts to tear down the landmark legislation that was passed in 2010 in response to the financial crisis. Previous Republican efforts to reform Dodd-Frank were always blocked by a Democrat-controlled Senate.
The section of Dodd-Frank in question is Title II, or the Orderly Liquidation provision. Title II provides institutions with an alternative to bankruptcy in which the Federal Deposit Insurance Corporation (FDIC [2]), as a receiver, carries out the bank's liquidation and wind-up. Republicans claim this provision of Dodd-Frank enables government bailouts instead of ending them as the legislation purports. Title II permits FDIC to access a line of credit from the U.S. Department of Treasury to allow the banks to continue operating until they are sold off or wound down.
According to a report [3] from Cornell University, the government issued $1.7 trillion to rescue several institutions that were allegedly too big to fail, such as Bear Stearns, CitiGroup, Bank of America, Fannie Mae, and Freddie Mac. Despite the government bailouts, more than 250 banks failed from 2008 to 2010.
GOP lawmakers reportedly want to eliminate this provision of Dodd Frank and make bankruptcy the only option for a failing bank. The Republican-controlled House Financial Services Committee issued a report in July entitled "Failing to End 'Too Big to Fail: An Assessment of the Dodd-Frank Act Four Years Later' [4]" which explains the reasons why they believe Dodd-Frank did not end "Too Big to Fail," but instead perpetuates it.
"In no way, shape or form does the Dodd-Frank Act end ‘too big to fail.’ Not even (former Treasury secretary) Timothy Geithner believed his talking points on that," Committee Chairman Jeb Hensarling said last July when the report was issued. "Instead, Dodd-Frank actually enshrines ‘too big to fail’ into law. Today, hardworking taxpayers are at greater risk of being forced to fund yet more Wall Street bailouts. Dodd-Frank officially designates an entire category of Wall Street firms as ‘too big to fail’ and then creates a taxpayer-financed bailout fund for their use."
Democrats such as Senator Elizabeth Warren (D-Massachusetts), one of the chief architects of the controversial Consumer Financial Protection Bureau, and Representative Maxine Waters (D-California) have vowed to protect Dodd-Frank, claiming that the law and its provisions are necessary in order to protect America's financial system and that any changes made to weaken it could potentially result in a repeat of the 2008 financial crisis.
"We put this rule in place after the collapse of the financial system because we wanted to reduce the risk that reckless gambling on Wall Street could ever again threaten jobs and livelihoods on Main Street," Warren said in December [5] in response to Republicans' attempts to repeal Dodd-Frank. "We put this rule in place because people of all political persuasions were disgusted at the prospects of future bailouts. And now, no debate, no discussion, Republicans in the House of Representatives are threatening to shut down the government if they don't get a chance to repeal it."