Count the Wall Street Journal editorial board among the supporters of the Republican-crafted plan to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Republican plan, championed by House Financial Services Committee Chairman Rep. Jeb Hensarling, R-TX, would see Dodd-Frank replaced by the Financial CHOICE Act, which will “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.”
In an editorial published on Sunday, the Wall Street Journal editorial board calls Hensarling’s plan a “promising idea” that would “promote economic growth and protect taxpayers.”
From the Wall Street Journal:
Don’t believe the shrieks that this is about “rolling back” financial reform to let the banks run wild. The financial system was heavily regulated before the 2008 panic; regulators failed to do their job (see Citigroup) and missed signals from the housing market, among other mistakes. The Dodd-Frank Act of 2010 doubled down on the same approach: Give even more power to regulators with the promise they’ll be smarter the next time.
History tells us that is a fantasy. Regulators will focus on solving the previous problem, while they miss where the excesses are really building. As Charles Kindleberger taught, the essence of a credit mania is that everyone follows everyone else and thinks it will never end. Regulators are no better than bankers.
The WSJ editorial states that Hensarling has a “better idea,” which involves opt out of some regulations in exchange for holding larger capital reserve.
Again, from the WSJ:
The Texas Congressman wants a simpler system in which private investors with money at risk decide which assets are safe. Under the Hensarling plan, banks can opt out of today’s complicated rules if they have capital equal to 10% of their assets. Their tally of assets has to include off-balance-sheet exposures. No more hiding toxic paper in conduits or structured-investment vehicles as Mr. Geithner allowed Citi to do before the financial crisis. And no more pretending that a financial instrument has no risk because a regulator says so.