Congress at Work. Really!

Yesterday, the House of Representative passed a massive $1.1 trillion spending bill to keep government—most of it, anyhow—operating through the summer of 2015. (The measure is expected to pass the Senate unless someone filibusters.) Senator Warren, the Madame Defarge of the U.S. financial sector, is very upset about one piece of the bill: an amendment to the Dodd-Frank Act that would give certain FDIC-insured banks the ability to keep derivatives contracts on their books (as opposed to the statutorily required “push-out” to subsidiaries). Senator Warren thinks this fix will spell the difference between the Dodd-Frank’s ironclad anti-bailout protections and a future Armageddon at taxpayer expense. That seems very unlikely, inasmuch as Dodd-Frank itself practically screams “bailout.”  The real point of Senator Warren’s contretemps is that no one must ever be permitted to approach Dodd-Frank with a sharp instrument—not a meat ax, not a scalpel, not (as here) a nose hair clipper.

That ship, Senator, has sailed. Also this week, the House approved by unanimous consent the Insurance Capital Standards Clarification Act of 2014. (S. 2270 because it passed the Senate a few months ago, likewise by unanimous consent.) Legislation lacking the words “Fairness,” “Family,” or “Frank” in its title has a non-zero chance of being sensible, and this one is. It’s is a fix to another part of Dodd-Frank: Section 171, often known as the Collins Amendment and entitled “Leverage of Risk-Based Capital Requirements.” Its capital requirements apply principally to banks—but also, under the plain terms of the text, to insurance companies that are subject to oversight by the Fed (for example, because they have been deemed “systemically important).

No one in his right mind thinks this makes any sense. Insurance companies have a very different business model and capital structure (and subjecting them to bank requirements would actually increase their portfolio risk). Besides, they’re subject to state safety-and-soundness requirements and supervision—one of the few pieces of the regulatory structure that actually worked during the financial crisis. But, said the Fed, the law is the law, and so there.

Also, insurance companies will henceforth be required to adopt GAAP accounting so that we regulators can compare insurance apples to bank oranges. Insurers haven’t used GAAP accounting in eons; the switch cost for a single large-ish company would exceed $100 million, for zero gain. A rule to these effects was about to kick in this coming January. Courtesy of the Clarification Act, it won’t.

The upside here is that Dodd-Frank can be fixed by Congress—when no one really opposes it; when the industry demanding the fix is supported by rival (state) regulators; and when legislators can peddle a substantive change in the law as a mere “clarification” of a “drafting error.” (It was no such thing: it was a deliberate extension of federal authority over non-bank institutions which, alas, is carefully preserved in this enactment.) The downside is that the Dodd-Frank home has many mansions, and dismantling them doorjamb by doorjamb will take time.

Never mind, though: a Congress that’s actually legislating. Who woulda thunk.