By Dan Freed
NEW YORK (Reuters) - The chair of the House Financial Services Committee has proposed getting rid of much of the regulation put in place after the financial crisis, unveiling a plan on Tuesday that ignited fierce debate in the presidential election but is expected to flame out in Washington.
In a sweeping speech at the Economic Club of New York, Republican Representative Jeb Hensarling, from Texas, laid out his ideas on weakening the 2010 Dodd-Frank Wall Street reform law just as polls opened in six states holding presidential primaries.
Hensarling also met on Tuesday with Donald Trump, the presumptive Republican nominee who has called for dismantling the massive reform law.
Trump's campaign declined to comment on Hensarling's plan. The lawmaker told Fox Business Network on Tuesday he would not describe the "blow-by-blow" of his meeting with Trump but said they had common ground on Dodd-Frank.
Meanwhile, the Democrats' likely nominee, Hillary Clinton, sought to tie the real-estate tycoon to Hensarling's proposal.
Clinton "strongly opposes Chairman Hensarling and Donald Trump’s efforts to gut critical reforms put in place to protect the public after the financial crisis," said her adviser Gary Gensler, who headed the Commodity Futures Trading Commission when Dodd-Frank was passed.
"While Republicans attempt to roll back measures that protect consumers and curb excessive risk-taking on Wall Street, Hillary Clinton will fight to defend Dodd-Frank and go beyond it, with tough new rules, stronger enforcement and more accountability."
Hensarling's plan would allow banks to choose between complying with Dodd-Frank or meeting much tougher capital requirements.
It would also throw out the Volcker Rule that restricts banks from making speculative investments and eliminate the authority of the Financial Stability Oversight Council consisting of regulatory agencies' heads to designate firms as "systemically important," also known as "too big to fail." That label triggers requirements to hold more capital and abide by stricter regulations.
In essence, Hensarling said his plan involved "far more loss-absorbing capital and far less federal control."
It would also maintain the law's section on derivatives and keep the Consumer Financial Protection Bureau created by Dodd-Frank, albeit with a changed structure.
"I'm only replacing 89.7 percent of Dodd-Frank," Hensarling joked.
Few expect the plan, previewed in a video last week, to become law soon. While it could pass the Republican-controlled Congress, it would then have to be signed by President Barack Obama, who also signed Dodd-Frank into law.
On Tuesday White House spokesman Josh Earnest said reforms enacted after the crisis "essentially guarantee that taxpayers will not be on the hook for bailing out big banks if their risky bets go south."
But Obama leaves office in January and those vying to replace him, including Senator Bernie Sanders running as a Democrat, have distinct views on regulation and Wall Street.
"Those on the left who gave us Dodd-Frank believe in the principle that human nature is self-destructive and that people - except themselves, of course - are fundamentally ignorant," Hensarling said, demonstrating the political charge of his ideas.
Senator Sherrod Brown of Ohio, a Democrat mentioned as a possible vice presidential pick, shot back that Republicans seek "to make life easier for mega bankers and tougher for ordinary Americans."
Senator Elizabeth Warren, the Massachusetts Democrat who is a firebrand for stronger regulation, said "while most Republicans in Congress are debating not whether to run away from Trump - but how far and how fast - Congressman Hensarling is sprinting toward Trump Tower."
Trump has given few clues to how he would take apart Dodd-Frank and what he might put in its place.
"Here's something we both agree with, and that is Dodd-Frank is impeding economic growth," Hensarling told Fox Business. "I think he well received the message. I think he was interested in the policy."
Clinton has proposed breaking up large banks that take excessive risk, charging institutions a "risk fee," taxing high-frequency trading, and creating more oversight of "shadow banking."
The most liberal candidate, Sanders has gone further and suggested reinstating the Glass-Steagall law that once separated commercial and investment banking.
James Ballentine, head of congressional relations at American Bankers Association, the industry's lead trade group, said both parties "agree that parts of Dodd-Frank just aren't working."
"Any law that generates more than 24,000 pages of proposed and final rules will inevitably include problems that should be fixed," he said in a statement.
(Writing and additional reporting by Lisa Lambert in Washington; Additional reporting by Emily Stephenson in Washington and Luciana Lopez in New York; Editing by James Dalgleish)