Rep. Jeb Hensarling Outlines Future Of Financial Reforms Under Dodd-Frank

NPR's Audie Cornish talks to Texas Rep. Jeb Hensarling, chair of the House Financial Services Committee, about the future of banking reforms under Dodd-Frank.

AUDIE CORNISH, HOST:

Republicans see next year as the chance to get rid of financial regulations known as Dodd-Frank passed during the Obama years. Now, one blueprint for unwinding those regulations is the Financial Choice Act. It's a series of reforms that would quite simply put the market in charge. The proposed legislation was spearheaded by Republican Jeb Hensarling. He's head of the House Financial Services Committee.

Earlier today, we spoke about his plan to do that. And in that conversation, he made the argument that Dodd-Frank was affecting economic growth.

JEB HENSARLING: After Dodd-Frank, the big banks were bigger. The small banks are fewer. We're losing a community financial institution a day in America.

CORNISH: Do you - by that, do you mean community banks?

HENSARLING: Community banks and credit unions - we're losing one a day.

CORNISH: But when the FDIC sort of studied that, didn't they find that, say, banks are often acquired by other community banks, right?

HENSARLING: Well, they're usually acquired by larger banks because they cannot handle the weight, the load, the complexity and the expense of the Dodd-Frank regulatory onslaught in our community financial institutions, had little or nothing to do with the financial crisis.

What we're trying to do, again, is to foster economic growth and to minimize financial panics. And the way we do that is to ensure that banks keep more loss-absorbing capital.

CORNISH: And I think it's worth noting that in your version of this legislation, you would actually have banks hold on to more loss-absorbing capital than even is required right now. And if they did that, they'd be able to get out of some Dodd-Frank regulations, right?

HENSARLING: Well, indeed it's kind of a Dodd-Frank off-ramp that's financed with private capital. And that is, if you will raise large amounts that are commensurate with a safe and secure banking system, then you can get out of the micromanagement of the federal government.

That management, remember, helped bring us into the crisis in the first place. Fannie and Freddie, our federal regulators, said that you didn't have to reserve hardly any capital against mortgage-backed securities or sovereign debt. Think Fannie, Freddie and Greek bonds.

So the regulators got it wrong. We would be better served by higher levels of capital than the supposed wisdom of the financial regulators who got it wrong last time. So that's basically the trade-off there.

CORNISH: Now that financial service companies, banks and other institutions have been working this many years to put Dodd-Frank in place, how hard will it be to undo it?

HENSARLING: Well, I am not ignorant of the Senate's cloture rules. The Senate is not a majoritarian institution, so there are clearly hurdles. It's inside baseball. As you know, there's a process called reconciliation that takes 51 votes. Some aspects of what we're trying to do can be done through that process. Other aspects won't be.

CORNISH: So just to clarify, you're willing to use the budget reconciliation - right? - the budget rules that allowed for the pushing through of Obamacare. You're willing to use those here to undo Dodd-Frank.

HENSARLING: Well, it can't - there are only certain aspects of Dodd-Frank that are reconcilable under our budget rules. And frankly it's a fairly small universe of issues that are. So I have an open mind. It's not an empty mind. I always - I'm always ready to negotiate in good faith with others.

But I'm hopeful that after six years, people can tell that the promises of Dodd-Frank unfortunately weren't realized no matter what good intentions there may have been. I would hope that many Democrats - reasonable Democrats - would want to sit down and say, OK, this maybe wasn't chiseled in stone. Maybe Dodd-Frank did not come down from Mount Sinai on tablets.

And so we have passed a bill out of the Financial Services Committee, and I hope early in the next Congress we'll get it passed out of the full House. And I look forward to seeing what the Senate can produce, again, to get jobs growing in America and to give every American the ability to achieve financial independence which I don't think they can do under Dodd-Frank.

CORNISH: Well, Jeb Hensarling, thank you so much for explaining it to us.

HENSARLING: Well, you're welcome, and thanks for the invitation to come on the show.

CORNISH: Texas Congressman Jeb Hensarling is head of the House Financial Services Committee.

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