The House Financial Services Committee approved two amendments to the Dodd-Frank Act that would (i) bring the CFPB within the ordinary Congressional appropriations process and (ii) eliminate the “orderly liquidation authority.” The vote was partisan with all Republicans voting in favor of the amendments and all Democrats voting against.
The amendments were as follows:
- H.R. 1486, The Taking Account of Bureaucrats’ Spending Act (33-20). The bill would repeal the current independent funding of the CFPB and instead subject it to the annual Congressional appropriations process.
- H.R. 4894, To Repeal Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (34-22). The bill would repeal the Orderly Liquidation Authority (“OLA”) in Title II of the Dodd-Frank Act, which authorizes the resolution of a financial institution the failure of which otherwise would threaten the financial stability of the U.S. economy.
Lofchie Comment: There is no justification for setting the CFPB’s budget outside of congressional processes. As the Republican’s press release notes, the Pentagon and the Justice Department have their budgets approved by Congress. Is the CFPB more important than those agencies? Even if one believes that protecting consumers from banks is more important morally than protecting citizens from enemies, what does that say about the Environmental Protection Agency and the Department of Health and Human Services? Why are they subject to a budget process from which the CFPB is exempt?
Conversely, while there are reasons to disapprove of the Orderly Liquidation Authority, the notion that the Federal Reserve should allow every major financial institution to fail during some future liquidity squeeze is not one of them. During the kind of real-life liquidity squeeze that we’ve endured in the past, it is not merely the “big banks” that collapse; it is also the entire financial system. Had the Federal Reserve Board not supplied liquidity to the system during the last crisis, numerous banks and money market funds would have failed, which in turn would have wiped out the savings of millions of investors.