Six years after the passing of the Dodd-Frank Act, newly proposed legislation aimed at diminishing the famous piece of regulation is gaining momentum.

This summer, the House Financial Services Committee led by Chairman Jeb Hensarling (R-TX) proposed an act that would modify several aspects of Dodd-Frank, repeal others completely and institute some sweeping changes to the broader regulatory regime for financial services. Hensarling has stated that the Dodd-Frank Act has hurt, not helped the US economy as working Americans are suffering from stagnant wages and declining savings. From several reports and Hensarling’s own accounts, the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act proposed by the committee has several goals, including:

Provide an exemption from some regulatory requirements for appropriate firms that maintain leverage ratios above a specific threshold and have a strong composite CAMELS (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity) ratings

Consolidate the various federal banking agencies under Congress’ control and appropriations process

Restrain the power of financial regulators to regulate banks and financial institutions.

Those who support the Dodd-Frank Act see Hensarling’s Financial CHOICE Act as a regression to the regulations that were responsible for the 2008 recession. Ratifying this act would have significant implications for the financial industry and the asset-backed securities market in particular.

Although the Financial Choice Act covers everything from exam cycles for small credit unions to the monetary authority of the Fed and the compensation of Consumer Financial Protections Bureau (CFPB) commissioners, the main focus of the legislation is counteracting Dodd-Frank. Hensarling says the Financial Choice Act would accomplish its goals, such as the reduction of regulatory rules for banking organizations, by creating a sort of “off ramp” from regulations such as Basel III and various rules under Dodd-Frank. The Choice Act would enable banks to elect to be exempt from the Basel III capital requirements and regulatory requirements by maintaining a leveraged capital ratio of 10% instead of risk-weighted capital requirements. In addition to this leveraged ratio of capital, banks who want to be exempt from the regulatory rules of Dodd-Frank will also have to maintain a CAMELS rating of a 1 or 2 in order to apply for exemption.

Additionally, the Choice Act aims to repeal risk retention rules for all asset-backed securities other than residential mortgages. This could be great news for those within the CMBS market as the annulment of risk retention for commercial real estate mortgages would enable financial entities and individuals to buy pieces of CMBS deals that are currently unavailable, namely B-pieces. This would also mean that banks would not have to retain a 5% credit risk of any CMBS deal it issues. To boot, the fact that the Choice Act also aims to repeal the Franken Amendment could encourage investors to perform their own research and not rely on SEC-sanctioned credit ratings.

Another goal of the act is to reform the way in which Federal Reserve regulators go about conducting stress tests on large financial institutions. If the act were to pass, any new financial regulation will have to be approved by Congress before going into effect and the evaluation criteria of the big banks would have to be made public and open for comment. This means that the institutions that elect to be exempt from regulatory requirements would be kept in check by regulators who would have to tell them what they are checking for, giving these institutions greatly deregulated guidelines and almost no sort of strict management or protective measures.

One of the chief criticisms of the Choice Act is that it would essentially return the economy to conditions that preceded the Great Recession. Hensarling and some Republicans disagree and claim that the Choice act would still keep Wall Street in check by ending bailouts for failing financial institutions. Specifically, the Choice act would put a plan in place that would ultimately repeal Title II’s “Orderly Liquidation Authority”. The Orderly Liquidation Authority is an alternative to bankruptcy where the Federal Deposit Insurance Corporation (FDIC) becomes the receiver of a firm that is filing for bankruptcy and oversees the liquidation process. It would be replaced with a new federal bankruptcy code chapter made specifically for large financial institutions.

Overall, the House Financial Services Committee and Hensarling assert that the Financial Choice Act will bring about the recovery that the Dodd-Frank Act promised and failed to deliver by deregulating requirements and standards for the largest financial institutions and simplifying tests that regulators conduct on these institutions. The Financial Choice Act could directly and indirectly affect CMBS by enabling B-piece buyers to acquire more pieces of CMBS deals due to reduced regulations and increasing congressional oversight of financial regulations made by the CFPB and Federal Reserve that could lead to delays in the promulgation of new financial regulations. While these changes could affect the CMBS market for better or worse, don’t expect to see any of these changes take place until next year or longer depending on the outcome of the November Presidential and Congressional elections.