The financial industry is bracing for a House Republican bill to replace President Obama’s financial reform law this month, seeing opportunity in the effort even thought it has no chance of passage this year with Obama in office and the political environment hostile to Wall Street.
Jeb Hensarling, the chairman of the House Financial Services Committee, will introduce the measure on June 7 in an address at the Economic Club of New York.
Industry lobbyists and representatives surveyed by the Washington Examiner suggested that a comprehensive replacement for the 2010 Dodd-Frank financial reform law is worth pursuing because it could yield quick relief from post-crisis bank rules if a Republican president is elected, or, failing that, could advance in smaller, targeted parts helpful to banks.
The bill will be “an agenda-setting document for 2017,” said James Ballentine, the leader of lobbying for the American Bankers Association, adding that “just because you introduce something as a package doesn’t mean it stays that way.”
Rep. Jeb Hensarling, chairman of the House Financial Services Committee writing the bill, has previously laid out the broad contours of the replacement plan, which supporters have said would provide an alternative to the Dodd-Frank solution for the problem of “too big to fail” banks while undoing many specific regulations imposed by the law.
But the “most important feature of our plan, the essential core of our plan,” Hensarling said in a May 12 speech on Capitol Hill, “will be to provide vast regulatory relief from Washington micromanagement in exchange for banks who choose to meet high but simple capital requirements.”
“There’s no shortage of [regulatory] relief recommendations” from the banking sector, said Paul Merski, executive vice president for the Independent Community Bankers of America, a business group representing small banks. He said it’s a “good time to have a more macro effort to look at all of that and do a more comprehensive regulatory relief effort.”
The timing is right, even though anti-bank rhetoric has been running hot. Bernie Sanders, the populist Vermont senator running for the Democratic nomination, has claimed that Wall Street’s business model is a fraud, and the Republican primary also featured criticism of banks. Meanwhile, congressional Democrats have rushed to condemn Republicans for proposing changes to the 2010 Dodd-Frank financial reform law.
Yet House Speaker Paul Ryan requested legislation spelling out the GOP agenda and providing voters an affirmative vision for the country, one that could be contrasted with Democrats’ plans. The committee responded by working on the bill.
The ideological effort is worthwhile to the politically besieged industry, said one lobbyist, because it would allow Congress to move more quickly in 2017 if Republicans capture the White House and keep the Senate.
“I would bet this piece of legislation would move just as fast as it’s physically able in the House,” said the lobbyist, adding that he would “engage aggressively” on the legislation once it’s introduced because it could become law.
The industry will have to try to shape the legislation because of the possibility that it, or parts of it, could move in a future year, said Brandon Barford, partner at Beacon Policy Advisors. When the committee chairman moves legislation, he said, “you have to be a part of it and you have to play ball.”
In the case of Hensarling, the industry sees him as a conservative who will pursue reforms that are pro-market, but not necessarily pro-business, Barford said.
“I do truly think he comes from a philosophical point of view,” said one bank representative.
One particular area of concern is that Hensarling may include in his legislation shuttering and replacing the bailed-out mortgage giants Fannie Mae and Freddie Mac. That bill, which Hensarling shepherded through his committee on a party-line vote in 2013, was viewed as too ideologically conservative by the industry.
More generally, Barford noted, banks will have to avoid bad measures for the industry being included in the legislation. “It never goes away after it’s been introduced, especially if it’s been introduced in a larger legislative ‘ideas’ package.”
One example is that of measures to close the so-called “carried interest” feature of the tax code that allows private equity managers to have their partnership earnings taxed as capital gains rather than at the higher rate on normal income.
Although they have been successful so far in avoiding higher taxes on carried interest, the industry must lobby each year to prevent Congress from closing the “loophole” to pay for something else. It is an idea that has been embraced by Democrats and even typically anti-tax Republicans, such as Donald Trump and, during his presidential run, Jeb Bush.
