Financial Regulation: FY2018 Appropriations and the Financial CHOICE Act (H.R. 10)

Background

On September 14, 2017, the House passed H.R. 3354, which included the FY2018 Financial Services and General Government (FSGG) Appropriations bill in Division D. The Senate Appropriations Committee released an FY2018 FSGG chairmen's mark on November 20, 2017, but further action has yet to occur on the bill. Much of the federal government, including agencies covered by FSGG appropriations, has been operating for the first part of FY2018 under successive continuing resolutions (P.L. 115-56, P.L. 115-90, P.L. 115-96, P.L. 115-120, and P.L. 115-123), now effective through March 23, 2018.

Although financial services are a focus of the FSGG bill, the bill does not actually include funding for most of the financial service regulators. Instead, this funding comes through a variety of sources, including fees or assessments on regulated institutions. (See CRS Report R43391, Independence of Federal Financial Regulators: Structure, Funding, and Other Issues.)

Federal regulation of the banking industry is divided among the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB). In addition, credit unions are regulated by the National Credit Union Administration (NCUA), and the housing government-sponsored enterprises are regulated by the Federal Housing Finance Agency (FHFA). None of these agencies receive their primary funding through the appropriations process.

Federal securities regulation is divided between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), both of which are funded through appropriations bills. CFTC funding is appropriated from the general fund, whereas the SEC funding is offset through fees collected by the SEC.

Financial CHOICE Act Provisions

Although funding may not be provided by the FSGG bill, legislative provisions affecting financial regulation in general and some financial regulatory agencies specifically have often been included in FSGG bills.

The provisions in Titles IX and X of H.R. 3354 (Division D) are identical, or nearly identical, to some sections in the Financial CHOICE Act (H.R. 10), which passed the House on June 8, 2017. (For more information, see CRS Report R44839, The Financial CHOICE Act in the 115th Congress: Selected Policy Issues.) Many of these provisions would amend the 2010 Dodd-Frank Act. H.R. 10, however, contained a much broader range of provisions than H.R. 3354. The Senate FSGG mark has few similar provisions, although it would put the CFPB under the regular appropriations process.

Table 1 below contains a listing of the sections from H.R. 3354 and the corresponding sections of H.R. 10. In addition to several provisions providing regulatory relief in banking and securities markets, policy changes in the FSGG bill include the following:

SIFI Designation. Dodd-Frank applied enhanced prudential regulation to nonbank financial firms if they are designated as systemically important financial institutions (SIFIs) by the Financial Stability Oversight Council (FSOC). H.R. 3354 would repeal FSOC's ability to designate nonbank financial firms for enhanced regulation.

OFR. Dodd-Frank created the Office of Financial Research (OFR) to provide research support to FSOC. H.R. 3354 would eliminate OFR.

Appropriations. As mentioned above, aside from the SEC and CFTC, most financial regulators determine their own budgets and assess fees to cover expenditures. H.R. 3354 as passed would bring the remaining financial regulators except for the NCUA—the FDIC, OCC, Fed, CFPB, and FHFA—as well as FSOC into the appropriations process. The Fed's spending related to monetary policy and the FDIC's deposit insurance fund would remain outside of the appropriations process. Fees and assessments that agencies currently collect to fund themselves would typically appear as offsetting collections.

CFPB. In addition to the funding changes, H.R. 3354 would repeal the CFPB's supervisory authority and its authority to regulate small dollar credit (e.g., payday loans); unfair, deceptive, or abusive acts and practices (UDAAP); and arbitration agreements in financial products.

Risk Retention. H.R. 3354 would amend the provision of the Dodd-Frank Act mandating risk retention rules by applying those requirements only to securities that are wholly composed of residential mortgages. Securities backed by assets that are not residential mortgages—such as commercial real estate mortgages, commercial loans, auto loans, or other types of debt—would not be subject to the risk retention rule.

Volcker Rule. The Volcker Rule from Dodd-Frank prohibits banks from proprietary trading of "risky" assets and from "certain relationships" with risky investment funds, including acquiring or retaining "any equity, partnership, or other ownership interest in or sponsor[ing] a hedge fund or a private equity fund." H.R. 3354 would repeal the Volcker Rule.

Bankruptcy for Financial Institutions. H.R. 3354 would add a new subchapter to the Bankruptcy Code designed specifically to handle the failure of certain financial firms.

Table 1. Provisions of the Financial CHOICE Act in H.R. 3354

Topic

H.R. 3354, Division D

H.R. 10

Repeals rules whose authority is eliminated by bill

Section 902

Section 2

Repeals various Financial Stability Act provisions

Section 903

Section 151

Brings financial regulators under appropriations
(except NCUA due to H.Amdt. 443).

Sections 904-907; Section 925

Title III, Subtitle E; Section 712

Disclosures

Section 908

Section 426

Section 31 fees

Section 909

Section 416

Investment fund research

Section 910

Section 421

Government-business forum on capital formation

Section 911

Section 446

Angel investors

Section 912

Sections 451-452

Venture capital funds

Section 913

Section 471

Manufactured housing

Section 914

Sections 501-502

Deposit account termination

Section 915

Section 511

FIRREA amendments

Section 916

Section 512

Loans held in portfolio

Section 917

Section 516

Small bank holding company policy

Section 918

Section 526

Community Institution Mortgage Relief

Section 919

Section 531

Regulations appropriate to business models

Section 920

Section 546

Jobs for loan originators

Section 921

Section 556

Small business loan data

Section 922

Section 561

Depository institution records and disclosure

Section 923

Section 576

Interest rate after loan transfer

Section 924

Section 581

CFBP authority and budget changes

Sections 925-929

Sections 712, 727, 733, 735, 737

Nonresidential risk retention

Section 930

Section 842

Prohibition in single ballot

Section 931

Section 845

Volcker Rule repeal

Section 932

Section 901

Financial institution bankruptcy

Title X

Section 121-123

Source: Congressional Research Service.

Other provisions related to financial regulation include Section 114 of Division A, which would repeal the Department of Labor's 2016 Fiduciary Rule, and H.Amdt. 441, which would prohibit the use of appropriated funds toward enforcing the SEC's conflict minerals rule.