With a series of fiscal deadlines looming in the fall, the banking industry and Republican lawmakers are eyeing attaching controversial regulatory relief legislation to a government funding bill, similar to a move in December that raised the specter of a government shutdown.
Late last year, a banking deregulation provision tacked onto a must-pass government funding bill drew sustained outrage from Sen. Elizabeth Warren other critics of Wall Street, who rallied against the bill. This time, however, the potential conflict over such a move could be overshadowed by even more controversial votes.
Such votes could include riders on defunding Planned Parenthood or stopping the president’s Iran deal. Both are possibilities that Republicans have debated in recent weeks and would be likely to overshadow changes to banking rules.
Four major banking trade groups sent a letter this week to the top members of the Senate Banking Committee saying that regulatory relief was “critical” and calling in particular for the passage of a reform package authored by the committee’s chairman, Sen. Richard Shelby.
The Alabama Republican has been successful in passing the bill through the committee, but only on a party-line vote. He also has attached it to an appropriations bill, but its prospects are complicated by the liberal Democratic opposition to almost any changes to the 2010 Dodd-Frank financial reform law and other post-crisis rules.
One possibility is for Shelby to find a compromise with Democrats on changing the bill and move it later this fall or early next year.
But another possibility is for the bill to be attached to a spending bill, forcing Democrats who may be conflicted about the specific measures in the bill to vote against funding the government if they want to stop it.
Doing so, said American Bankers Association Executive Vice President Wayne Abernathy, forces them to decide “are you going to vote for the whole package or not? That makes it a much tougher calculus.”
That is the dynamic that led to the massive showdown in December, when a measure loosening restrictions on banks’ ownership of certain kinds of derivatives was included in a government spending bill.
Warren, the Massachusetts Democratic senator known for her tough stance on regulation of banks, rallied Democrats against the funding bill, against the White House and then-Senate Majority Leader Harry Reid.
Warren, who has signaled that she opposes the Shelby bill, could be the main obstacle to passage this time as well.
“I think Democrats are just worried — where is Elizabeth Warren going to be on all this, how hard is she going to fight to kill the bill? To me, that is the wild card and could determine whether the bill lives or dies,” said Brian Gardner, director of Washington research for investment bank Keefe, Bruyette & Woods Inc. and a former Republican staffer.
Shelby’s bill is broader than the provision in December. It would provide regulatory relief for community and regional banks, lifting the size threshold at which banks are automatically considered threats to the financial system. It would loosen new rules on mortgage safety, alter the workings of the Federal Reserve, and reform the bailed-out mortgage giants Fannie Mae and Freddie Mac.
For that reason, it could prove just as controversial, depending on which provisions are kept and which are dropped in any deal to pass it.
“We’re expecting and preparing for yet another fight,” said Bartlett Naylor, an expert at Public Citizen, a public advocacy group aligned with Warren and other liberals in last year’s showdown.
Naylor acknowledged that outside events may be distracting from regulatory affairs, but he predicted that congressional financial hawks such as Warren and Rep. Maxine Waters, D-Calif., would again be successful in raising alarms over any attempts to roll back banking rules.
The work has already begun, he added, citing a better relationship with the White House. Since December, President Obama and Treasury Secretary Jack Lew have said on multiple occasions that they will oppose any further attempts to undo new financial regulations. Naylor also promised “epistlatory fireworks” from outside groups to wavering Democrats in the weeks ahead.
