Returning the power of the purse to Congress
When writing the U.S. Constitution, our Founding Fathers were very deliberate in the balance of power they gave to the branches of our government. One such power granted to Congress is the “power of the purse,” wherein lawmakers have the authority to originate all tax bills and approve any expenditure from the Treasury.
One particular law that failed to reach this constitutional obligation is the Dodd-Frank Wall Street Reform and Consumer Protection Act. In many ways, Dodd-Frank’s failure has resulted in harmful effects across our economy, including job-killing mandates and an explosion in the federal government’s regulatory power.
In 2010, under Dodd-Frank, the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) were created. When I learned they were operating outside the bounds of the power of the purse and that their budget is now five times larger than it was in 2010, I introduced legislation — the FSOC Reform Act — to fix this problem. Unfortunately, the behind-closed-doors budgeting process and exploding budget are not the only problem the FSOC and OFR have.
In fact, in the recent landmark case Metlife v. FSOC, U.S. District Judge Rosemary Collyer found that the FSOC’s methodology to designate nonbank financial firms for heightened federal regulation — also known as systemically important financial institutions, or
SIFIs — is “fatally flawed,” stating that the actual designation for MetLife was “unreasonable.” This decision has sent reverberations across the financial sector and calls into question the incredible expansion of this country’s regulatory state.
Even the authors of Dodd-Frank have expressed their surprise that the FSOC has such sweeping power. Last July, former Rep. Barney Frank (D-Mass.) said he didn’t believe that companies “that just sell insurance” should be designated as SIFIs. Before that, Chris Dodd (D), then a Connecticut senator, in 2010 suggested that he didn’t envision “traditional insurance” to be designated as well. Nonetheless, the FSOC has already designated three insurance companies.
However, the Metlife decision not only calls into question the legality of these designations but the entire basis of them as well.
Many are concerned that the FSOC’s designations have codified the “too-big-to-fail” taxpayer bailout mentality into law. This new alignment sends a clear message: that SIFIs may actually be more likely to receive a taxpayer bailout in the event of another crash. Further complicating matters is that the SIFI designation distorts market forces, thus locking institutions into this status eternally, even if they change their business model.
Also concerning is that the FSOC’s 10 voting members are all appointed by the president. Other federal financial regulators, like the Securities and Exchange Commission, are led by a five-person bipartisan commission. This foundational reorganization of our economy completely removes the constitutional oversight authority of Congress and is done without any accountability to the American people. Even more worrisome, all of this is done by unelected
In response, on April 14, the House of Representatives passed my legislation: the Financial Stability Oversight Council Reform Act. This bill would increase oversight, transparency and accountability by subjecting the FSOC to the congressional appropriations process and would improve coordination and communication between regulators, Congress, financial institutions and consumers.
Restoring the constitutional process will also improve the American people’s trust in their government. When the administration designates nonbank financial companies that had nothing to do with causing the Great Recession — like life insurance companies — it is no wonder people are fearful of the future.
Congress must trust that the FSOC will do the job Congress authorized, but it is imperative that we verify that it actually does it. That is what the American people have hired us to do.