7 Things You Need To Know About Dodd-Frank's Potential Replacement

The Financial Select Sector SPDR Fund XLF is up 1.28 percent on Thursday after the House of Representatives unveiled a proposed Dodd-Frank Act replacement bill called the Financial Choice Act. The Dodd-Frank Act was passed in 2010 and intended to increase federal oversight of the U.S. financial sector after its irresponsible behavior resulted in the mortgage crisis in 2008–2009.

The 7 Things To Know

House Financial Services Committee Chairman Jeb Hensarling spearheaded the creation of the Financial Choice Act. Here are seven things investors need to know about the bill.

1. It repeals the “orderly liquidation authority.” The orderly liquidation authority is a provision in Dodd-Frank that prohibits taxpayer-funded bailouts of big banks and allows the government to wind-down big banks in accordance with pre-approved living wills.
2. It provides banks with a number of exemptions from capital requirements and gives banks additional freedom in how they use their capital to reduce operational risks.
3. It repeals the Volcker Rule, a provision prohibiting commercial banks from engaging in certain types of risky proprietary trading.
4. It eliminates the Department of Labor Fiduciary Rule, a rule prohibiting retirement advisors from accepting incentives to recommend certain funds that are not in the best interest of their clients.
5. It significantly reduces the authority of the Consumer Financial Protection Bureau, which was created to help police the financial sector for abuses of power, and makes the agency’s funding subject to congressional appropriations.
6. It raises the caps on Securities and Exchange Commission enforcement penalties.
7. It makes it more difficult for shareholders to influence executive pay without owning at least 1 percent of a company.

Hensarling has set April 26 as a date for the House to “discuss” the bill, which hasn’t formally been introduced. The full 593-page Financial Choice Act can be viewed on the House Financial Services website here.

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