The White House, former Obama administration officials, and Sen. Elizabeth Warren are criticizing attempts to weaken the Dodd-Frank financial-reform law in House Republicans’ proposed budget, setting the stage for a policy fight that’s only just beginning.
The budget, released on Tuesday, would put the Consumer Financial Protection Bureau under congressional appropriation, which critics say could result in fewer funds for the bureau, since Republicans in Congress would control how much money it receives.
Warren, a Democrat from Massachusetts who served as an assistant in setting up the Consumer Financial Protection Bureau before she ran for Senate, said the House GOP budget could compromise the agency’s independence.
“The consumer agency has put in place strong rules to protect consumers from tricks and traps in financial products,” Warren said in a statement to National Journal Tuesday night. “The big banks don’t like that—and that’s the number one reason the CFPB should remain free of political influence.”
The White House joined Warren in its criticism, saying that putting the bureau under the appropriation of Congress would limit the agency. The administration also criticized the Republicans budget proposal’s “creative-accounting savings” that shift funding for the agency to appropriations.
“In addition, it risks returning us to the days of ‘too big to fail,’ protecting Wall Street firms from important regulatory safeguards and putting ordinary citizens and the economy at risk,” the White House said in a fact sheet Tuesday evening.
Warren and the White House’s united front against the Republican proposal once again shows the complex relationship the Obama administration has with the senator, a progressive favorite. Obama and Warren are at odds about parts of the proposed Trans-Pacific Partnership, but both were supportive of financial reform on Wall Street.
The House budget also would scrap what’s known as the Orderly Liquidation Authority, a provision that gives the Federal Deposit Insurance Corporation, the independent agency created during the Great Depression meant to maintain stability of the U.S. financial system, the power to assume operational and financial control of a troubled financial institution considered systemically important. In that role, it has the responsibility to merge, sell, and manage the institution’s assets, as well provide money necessary to bring an orderly end to the troubled institution.
Republicans say cutting this provision prevents taxpayers from being on the hook for bailouts of financial institutions behaving badly. But the White House struck back on Tuesday, saying, while Republicans claim the budget does not rely on gimmicks or “creative-accounting tricks,” the savings made by getting rid of the provision would be both.
“[The Orderly Liquidation Authority] was enacted to ensure taxpayer funds are never again used to bail out ‘too big to fail’ financial institutions,” the White House fact sheet said.
Michael Barr, a law professor at the University of Michigan who served as the Treasury Department’s assistant secretary for financial institutions, said removing the Orderly Liquidation Authority would reinforce the concept of too-big-to-fail financial institutions.
“One of the key features is giving the government the ability to wind down a firm like Lehman Brothers if it gets in trouble,” he said, referring to one of the institutions whose collapse was part of the 2008 financial crisis.
Republicans have previously used spending bills and other must-sign legislation to weaken parts of Dodd-Frank, knowing it would be difficult for Democrats to vote against them. But in this case, the White House and progressive Democrats like Warren are drawing lines in the sand, vowing to stop major parts of Dodd-Frank from being weakened or repealed.
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