There may be no policy area that will be impacted more by the Republican’s election day landslide than financial services.  After years of frustration with Democrats unwillingness to make any changes to the Dodd-Frank Wall Street Reform Act (Dodd-Frank), which incoming Senate Majority Leader Mitch McConnell (R-KY) has referred to as “Obamacare for banks,” the Republican majority will now have their opportunity. Although repeal is not a possibility, with only 220 of the 398 total required rulemakings having been finalized and 95 of the rulemaking requirements not even proposed yet, the new Congress will have many opportunities to put the brakes on Dodd-Frank implementation.

Incoming Senate Banking Committee Chairman Richard Shelby (R-AL) and returning House Financial Services Committee Chairman Jeb Hensarling (R-TX) have long been vocal critics of the Consumer Financial Protection Bureau (CFPB) and its lack of accountability to Congress. While President Obama would almost certainly veto legislation that would weaken the CFPB, one of the signature tenets of  Dodd-Frank, Republicans may turn to the appropriations process to enact change.  House Republicans have consistently included language in appropriations bills to change the CFPB’s source of funding from transfers from the Federal Reserve System to annual Congressional appropriations in order increase Congressional oversight.  In addition, previous House appropriations bills have also included language that changes the leadership structure of the CFPB from a single director to a 5-person commission. With Democrats in control of Senate, this language was always struck from past bills before being signed into law by the President. However, the new Republican Congress could include these provisions in future appropriations legislation forcing President Obama to choose between accepting the changes to CFPB or a possible government shutdown. 

Led by Senator Rand Paul (R-KY), several Republicans have also been highly critical of the Federal Reserve over its role in “bailouts” during the 2008 financial crisis, its policy of quantitative easing and the Fed’s ongoing role in setting interests rates. The House easily passed legislation (H.R. 24) in September requiring a Government Accountability Office “audit” of the central bank’s monetary policymaking in an effort to increase transparency at the Fed and the House Financial Services Committee has approved (H.R. 5018) to restrict the Fed’s flexibility in setting interest rates.  Support for these measures in the House combined with the new Republican Senate Majority and Senator Paul’s rising national profile and potential presidential candidacy, will at a minimum increase Congressional oversight of the Fed and likely lead to  legislative action restricting the Federal Reserve’s autonomy.

It is worth noting that one area where Congress is likely to still find itself gridlocked is on the subject of housing finance reform. While nearly everyone agrees on the need for an overhaul, the new GOP majority does little to create a consensus about how to reform the housing finance system. There are still likely to be significant disagreements related to the Johnson-Crapo legislation (S. 1217) approved by the Senate Banking Committee earlier this year.  Although the measure did enjoy strong bipartisan support within the Banking Committee, incoming Chairman Shelby opposed the measure because he believed it overexposes the American taxpayer and creates a number of new problems. Additionally, many prominent Senate Democrats remain unhappy with the affordable housing provisions in the legislation. The House Financial Services Committee-approved housing finance reform bill (H.R. 2767) is universally opposed by Democrats and has not been able to garner enough Republican support for it to pass on the House floor. So, while several prominent Democrats and Republicans support overhauling the mortgage market and the new Senate Banking Committee Chairman and House Financial Services Committee share a similar perspective on GSE reform, without a crisis demanding action, lawmakers are unlikely to reach agreement to pass comprehensive reform anytime soon.