US lawmakers are considering a bill to overhaul the financial regulation system in the US and unravel several post-financial crisis measures.

The changes could include limiting the Consumer Financial Protection Bureau and changing the term for so-called stress tests that are meant to ensure banks can withstand a financial shock.



The House Financial Services Committee is holding a second day of hearings on the Financial CHOICE Act, a 589-page bill introduced by Republican Congressman Jeb Hensarling.

Hensarling has said that the bill provides more freedom for Americans and that the Dodd-Frank Act which it would replace is holding back the economy. In fact, Hensarling has tried to pivot the bill as an anti-Wall Street by saying the bill no longer provides "bailouts" for large banks.

Democrats have been critical of the bill. Sen. Elizabeth Warren, a fierce critic of financial institutions, decried the bill as a "handout to Wall Street" and other leading Democrats have voiced similar opposition.

The first day of hearings on Tuesday held little in terms of substance, but allowed members of the committee to make arguments on everything from bank lending to GDP growth.

"We have experienced wasted days – which have usually involved helping friends move – but yesterday's day-long mark-up of the Financial Choice Act (FCA) was a particular form of futile," Issac Boltanksy and Lukas Davaz at political research firm Compass Point wrote in a note to clients.

Boltanksy and Davaz did say there were three key takeaways: there will be bipartisan support for bills involving "capital formation and community bank relief," skepticism among the GOP members around a provision in the CHOICE Act dealing with credit card and debit card fees, and "heated rhetoric" regarding Fannie Mac and Freddie Mac.

From bank stress tests to debit card overage fees, the bill would make large changes to the way the companies that deal with your money are dealt with. Here's a breakdown of some of the biggest elements of the bill:

Weaken the Consumer Financial Protection Bureau: Republicans have long been in favor of weakening the consumer watchdog. The bill would re-make the CFPB and also bring it under the purview of the executive branch, allowing the head of the agency to be removed by the president. Currently, the CFPB is an independent agency. According to a post breaking down the changes by Brian Knight, a senior research fellow at the Mercatus Center, the CHOICE Act would also shrink the purview of the agency and curtail their enforcement abilities.

Republicans have long been in favor of weakening the consumer watchdog. The bill would re-make the CFPB and also bring it under the purview of the executive branch, allowing the head of the agency to be removed by the president. Currently, the CFPB is an independent agency. According to a post breaking down the changes by Brian Knight, a senior Adjust the bank stress testing procedures: The Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) forces the systemically important banks to undergo a test every year to understand how these institutions would handle another significant downturn like the financial crisis. If a bank fails these tests, it could be subject to a number of regulations from capital raises to curtailing of certain overseas operations.



Under the new rules, large banks would only undergo CCAR every two years instead of one, and the banks would not be subject to the qualitative aspects of the test. Fed Chair Janet Yellen called the CCAR testing the " cornerstone of our effort to improve supervision" during testimony to Congress in February.



Edward Mills, policy analyst at FBR & Co., said this would force the Fed to consider how they oversee large banks. "This proposal puts further pressure on the Fed to provide additional tailoring of the stress testing process to impacted banks," Mills said.

The Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) forces the systemically important banks to undergo a test every year to understand how these institutions would handle another significant downturn like the financial crisis. If a bank fails these tests, it could be subject to a number of regulations from capital raises to curtailing of certain overseas operations. Under the new rules, large banks would only undergo CCAR every two years instead of one, and the banks would not be subject to the qualitative aspects of the test. Fed Chair Janet Yellen called the CCAR testing the " Edward Mills, policy analyst at FBR & Co., said this would force the Fed to consider how they oversee large banks. "This proposal puts further pressure on the Fed to provide additional tailoring of the stress testing process to impacted banks," Mills said. Repeal the Orderly Liquidation Authority: This part of Dodd-Frank, in essence, allows the federal government to step in if a bank is near collapse to provide a backstop to ensure that the institution's failure does not spread to the rest of financial system.



Hensarling has said this would eliminate "too big to fail" and prevent bank bail outs, and has said that large banks have come out against this aspect of the bill to try and make the bill appeal to anti-Wall Street factions of his party.



However, critics say that this would allow bank failures to infect the broader system. Former Fed Chair Ben Bernanke said the elimination of the OLA would " imprudently putting the economy and financial system at risk." Additionally, critics of the CHOICE Act point out that other banks in the financial system with interest in saving the failing bank would be on the hook to pay for the "bail out," not taxpayers.

This part of Dodd-Frank, in essence, allows the federal government to step in if a bank is near collapse to provide a backstop to ensure that the institution's failure does not spread to the rest of financial system. Hensarling has said this would eliminate "too big to fail" and prevent bank bail outs, and has said that large banks have come out against this aspect of the bill to try and make the bill appeal to anti-Wall Street factions of his party. However, critics say that this would allow bank failures to infect the broader system. Former Fed Chair Ben Bernanke said the elimination of the OLA would " Changes to debit and credit card fees: As it stands now, the Durbin Amendment to the Dodd-Frank Act caps the amount banks and card agencies can charge retailers for processing debit and credit card transactions. The CHOICE Act would lift that cap, allowing banks to get more money for these swipe fees. A large number of retailers and lobbying organizations have come out against this part of the bill and many Republicans have wavered on the idea. According to Boltanksy and Davaz at Compass Point, "the odds of repeal are 10%."

While the House Financial Services committee is expected to advance the bill to the House floor, most analysts agree that the bill in unlikely to make it to Trump's desk. For one thing, Senate Democrats would be likely to filibuster the legislation and even some Republicans have misgivings on aspects of the bill.

"We expect House passage of FCA 2.0 prior to the August recess, but the Senate will ultimately determine the fate of legislative regulatory reform," Boltanksy and Davaz wrote in a note to clients.

As Sean Tuffy, the head of Regulatory Intelligence at Brown, Brothers, Harriman, put it in November when considering the first iteration of the CHOICE Act, the bill is unlikely to make a lot of headway.

"Overall, it’s probably safe to say that those expecting a bonfire of regulation may want to bring a jacket along with them because they could be a bit chilly."