Banking and Finance Law Daily CBO: Financial CHOICE Act may reduce spending by $30B over ten years
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Friday, May 19, 2017

CBO: Financial CHOICE Act may reduce spending by $30B over ten years

By Lisa M. Goolik, J.D.

The Congressional Budget Office estimates that the Financial CHOICE Act may reduce federal deficits by approximately $24 billion from 2017 through 2027. During the 10 year period, direct spending would also be reduced by $30 billion, while revenues would be reduced by almost $6 billion. Most of the budgetary savings would come from eliminating the Orderly Liquidation Fund (OLF) and changing how the Consumer Financial Protection Bureau is funded. Assuming appropriation of the necessary amounts, the CBO estimates it would cost approximately $1.8 billion to implement the bill. The CBO cautioned that its projections are subject to "considerable uncertainty."

Repeal of the OLF. The Financial CHOICE Act would amend the Dodd-Frank Act and other laws governing regulation of the financial industry. Among other changes, the bill would repeal the Federal Deposit Insurance Corporation’s authority to use the OLF to resolve large, systemically important financial firms that become or are in danger of becoming insolvent.

The CBO estimates that ending that authority would reduce deficits by $14.5 billion over the 2018-2027 period. The estimate reflects reductions in both direct spending and revenues of $18.8 billion and $4.3 billion, respectively. The overall reduction incorporates an estimated increase in net costs to the FDIC’s Deposit Insurance Fund of $1 billion to address failures of federally insured depositary institutions that would result from eliminating the OLF.

The CBO conceded that although the probability that the FDIC would have to liquidate a systemically important firm in any year is small, it estimates that the potential use of OLF authorities under current law will increase the deficit by $15.5 billion over the 2018-2027 period, reflecting net direct spending of $19.8 billion—which includes recoveries from the sale of assets—and revenues from fees of $4.3 billion. Thus, the CBO estimates that repealing the authorities would reduce deficits by a corresponding amount.

Funding the CFPB. The Financial CHOICE Act also attempts to make the operating costs and collection of fees of the financial regulators subject to annual appropriations. However, as the CBO noted, in most cases, the changes specified would not become effective until 90 days after the enactment of an appropriation bill that provided the funding specified in the Financial CHOICE Act. Because subsequent legislation would be necessary to make the changes effective, the current funding arrangements for the Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Housing Finance Administration, FDIC, and Federal Reserve would not change. As a result, those changes in funding are not reflected in CBO’s cost estimate for this legislation.

However, the bill would change how the operations of the National Credit Union Administration and CFPB are funded. According to the CBO, the bill would effectively make spending for the CFPB and the collections and spending for the NCUA’s administrative costs subject to annual appropriation. Under current law those expenses are covered by permanent—and mandatory—appropriations. Enacting this provision would reduce direct spending by $6.9 billion over the 2018-2027 period and cost $485 million over the 2018-2022 period, subject to appropriation of the authorized amounts, the CBO estimates. The CBO assumed that appropriations from 2019-2027 will be equal to the amount authorized for 2018—$485 million—and adjusted for anticipated inflation.

Limiting the CFPB’s authority. The bill would also eliminate the bureau’s supervision and examination authority and its authority to enforce consumer financial laws for insured financial institutions with over $10 billion in total assets. Some of those authorities would be transferred to other financial regulators, and on the basis of an analysis of information from the affected agencies, the CBO estimates the provisions would increase the deficit by $230 million over the 2018-2027 period, reflecting an estimated increase in direct spending of $30 million and a decrease in revenues of $200 million over the 2018-2027 period for the Fed, FDIC, OCC, and NCUA to collectively hire approximately 150 additional staff.

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