Government Strategies Update
We wanted to flag some key preliminary matters that could be of interest to the financial services industry from the election results. With a Republican president and Republican majorities in the House of Representatives and the Senate, we expect 2017 to be a very busy year.
- New Leadership in Congress: Senator Mike Crapo (R-Idaho) will become the chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Senator Sherrod Brown (D-Ohio) will be the ranking Democratic member. Senator Crapo will replace Senator Richard Shelby (R-Alabama), who is term-limited in the post. The chairman and ranking member of the House Committee on Financial Services will keep their posts. Representatives Jeb Hensarling (R-Texas) and Maxine Waters (D-California) will continue to lead their parties on the panel (but it should be noted that there has been some speculation that Chairman Hensarling could be considered for the Treasury Secretary job; should Chairman Hensarling join the Administration, Representative Ed Royce (R-California) and Patrick McHenry (R-North Carolina) would be the favored candidates to replace him). Significantly, the Financial Services Committee will have new leaders atop the two most important legislative subcommittees. The longtime top Republican on the Subcommittee on Capital Markets, Government Sponsored Enterprises and Insurance, Representative Scott Garrett (R-New Jersey), lost his bid for re-election, and the Chairman of the Subcommittee on Financial Institutions and Consumer Credit, Representative Randy Neugebauer (R-Texas), is retiring at the end of this term. The committee chairman will choose their replacements. Leading contenders for the posts are Representatives Blaine Luetkemeyer (R-Missouri), Sean Duffy (R-Wisconsin), Bill Huizinga (R-Michigan) and Frank Lucas (R-Oklahoma).
- New Federal Financial Regulators: President Trump and the Republican Senate will have the opportunity to reshape the leadership at the financial regulatory bodies. Even if the independent chairs served their full terms, every leader’s term expires during the next Congress, as follows: Comptroller of the Currency Thomas Curry—April 2017; Commodity Futures Trading Commission Chairman Timothy Massad—April 2017; Chair of the Federal Reserve Janet Yellen—February 2018; Consumer Financial Protection Bureau (CFPB) Chairman Richard Cordray—July 2018; and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg—December 2018. In addition, Securities and Exchange Commission (SEC) Chair Mary Jo White’s term expires in 2019. President Trump can replace her without cause as the SEC chair and designate a new chair either from the existing commissioners or by filling the two current vacancies and naming a new commissioner as chair. Still, her term as an SEC commissioner lasts until 2019.
- CFPB Reform: Republicans will work to rein in the powers of the CFPB. At a minimum, they will likely pursue legislation to replace the independent director with a five-person commission; mandate that the CFPB consider implications of its regulations on the safety and soundness of the institutions it regulates; and subject its budget to the Congressional appropriations process.
- Small Institution Regulatory Relief and Capital Formation: President-Elect Trump’s website says that reforming the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) will be a priority. Accordingly, the new Congress will prepare legislation to provide regulatory relief for community banks and credit unions. It will also try to repeal certain sections and titles of Dodd-Frank, including the Volcker Rule.
- Housing Finance Reform: Restructuring Fannie Mae and Freddie Mac remains a Republican priority. Chairman Hensarling has introduced legislation to privatize the housing-related Government Sponsored Enterprises. Senator Crapo co-authored a bill in 2014 to eliminate Fannie and Freddie and replace them with a federal mortgage insurer that would guarantee mortgages through a combination of private and public capital. Neither approach gained significant traction, but we expect both chairmen to re-engage on mortgage finance next year.
- Department of Labor Fiduciary Rule: It is unlikely that the Department of Labor’s Fiduciary Duty rule will take effect on April 10, 2017, as currently scheduled. There is now a path for Congress to block the rule. President Trump can also act to freeze it until the Labor Department and SEC can devise a replacement that imposes a less onerous investor protection standard.
- Financial Technology: An “Innovation Initiative” to promote growth in financial technology, online investor pools, mobile payments, crowd funding and angel investment will be a House Republican priority. We expect the Republicans to consider legislation to shield the industry from federal and state regulatory constraints.