CONGRESS IN TRANSITION | Financial Services Committee

The following email from Dana Chasin is posted here by permission. He called it "Update 315 — Rough Waters Ahead for Banks?"

The subject is the takeover of the  House Financial Services Committee by Rep. Maxine Waters (CA). The contrast between her and retiring Rep. Jeb Hensarling (R-TX) is one of the greatest in policy and style in the 116th Congress.

Clear Waters

Rep. Waters’ bedrock issues have long been housing, consumer protection, and big bank regulation. In the 115th Congress, Waters focused on protecting the Community Reinvestment Act, designed to prevent discriminatory credit practices, and guarantee fair housing protections.

Bills introduced by Waters during the Congress now ending (capping a six-year tenure as Ranking Member of HFSC) indicate her priorities:

• Public Housing Tenant Protection and Reinvestment Act of 2017 — H.R. 3160: The bill reforms the public housing demolition and disposition rules to require one-for-one replacement and tenant protections, and provides public housing agencies with additional resources and flexibility to preserve public housing.
• Comprehensive Consumer Credit Reporting Reform Act of 2017 — H.R. 3755: The bill enhances requirements on consumer reporting agencies, like Equifax, TransUnion, and Experian, to better ensure that the information on credit reports is accurate and complete.
• Megabank Accountability and Consequences Act — H.R.3937: The bill would give authority to federal banking regulators to break up banks that mistreat their customers.
• Consumers First Act —H.R.6972: The bill would reverse the harmful changes to the Consumer Financial Protection Bureau imposed by the Trump Administration and restore the agency’s supervisory and enforcement powers.
• Restoring Fair Housing Protections Eliminated by HUD Act of 2018 — H.R.6220: The bill would restore several fair housing protections that HUD Sec. Ben Carson eliminated.

Crossing the Party Bar

During her tenure as Ranking Member on the Committee, Rep. Waters supported bipartisan legislation, notably the third iteration of the JOBS and Investor Confidence Act. The bill includes provisions aimed at “decreasing the regulatory burden” for some financial institutions, as well as others that aim to increase protections for consumers.

In a similar vein, she partnered with Sen. Sherrod Brown on S. 1491, the Community Lender Regulatory Relief and Consumer Protection Act of 2015. The bill would give banks and credit unions with under $10 billion in assets relief from the Consumer Financial Protection Bureau’s (CFPB) “Qualified Mortgage” rule.

Appealing to Waters’ passion for housing reform, the measure would make permanent expired provisions that protect tenants from eviction when their landlord or property owner has entered foreclosure. When it comes to her bedrock issues, Waters may be more willing to compromise to ensure she reaches her legislative goals.

She has also reached across the aisle to work with Republicans to reauthorize the Export-Import Bank, and used her political savvy to get Republicans on board with a reauthorization of the National Flood Insurance Program. While she will look to make some strides in these areas as Financial Services Chair, she has expressed firm and progressive stances regarding systemic risk and oversight.

Mitigating Systemic Risk

Importantly, Rep. Waters at the helm of the HFSC means two things for systemic risk:

• the “tide” of deregulation of the financial sector is “at an end”
• regulators and agencies should be prepared to will have their feet held to the fire more often

Heading into the next Congress, a key item on Waters’ agenda will be monitoring systemic and other risks in big banks. The financial industry has enjoyed several months of continuous deregulatory activity under an HFSC headed by Rep. Hensarling and a Republican-controlled Congress. Under her leadership, the Committee will be limited in its ability to stall measures at the federal regulator level, but it will be able to increase oversight and change rhetoric to keep a check on agency overreach.

In the words of Waters, “as we saw in the last crisis, it is the average hard-working Americans that will suffer the consequences if Washington deregulates Wall Street megabanks again.”

Oversight

A robust oversight agenda will accompany the legislative priorities of the Committee under Waters. This agenda will likely focus on four distinct areas: firms, rulemaking, agencies, and the presidency.

On the firms, Waters has expressed indignation about the slap-on-the-wrist treatment of Wells Fargo in light of the improper and unfair foreclosures on its customers. Many were erroneously denied loan modifications to lower their mortgage payments.

A Democrat-controlled House cannot do much in the way of affirmative rulemaking, but it will no longer have to play defense against further attempts at deregulation. Much of Waters’ oversight in this area will be over agencies, ensuring that the Trump appointee-controlled CFPB, FSOC, and OFR are operating according to their original statutory purposes and with the resources they need. This will likely take the form of hearings, subpoenas, and investigations.

Waters has been steadfast in her position that investigation into the president’s alleged illegal financial dealings is on her agenda, but it’s not her top priority. In a Bloomberg interview earlier this month, Rep. Waters was clear that she would use her authority to get more information, using subpoenas if necessary, but was far more eager to discuss Wells Fargo and the CFPB.

Summing Up: An Able Veteran

Waters is a skilled and seasoned legislator. Her turn with the gavel at HFSC is very welcome news and signals the end of the tide of deregulation. It also signals an end to a period of free-reign for regulators (or should we say deregulators) dogmatically pursuing an agenda that puts Wall Street megabanks ahead of ordinary Americans. Her agenda will be limited by the Republican-controlled Senate, but it will set the tone and pave the way for future legislation that will curb the rollbacks of Dodd-Frank that have occurred in recent years.

DODD-FRANK | House Bill Takes Aim, by Dana Chasin

Dodd-Frank applied CPR to the 1933 Glass-
Steagall Act, which gave banks deposit insurance
in return for bank and securities regulation.
Hensarling wants a GOP-branded Act...

The following is slightly abbreviated from a summary by Dana Chasin of the new Hensarling bill:

Jeb Hensarling (R, TX-5), Chair of the House Financial Services Committee, has announced a beefed-up Financial Choice Act to eliminate some key Dodd-Frank provisions.

It would reduce Sarbanes-Oxley and JOBS Act regulations.

The bill, Hensarling 2.0 (H2O), proposes major structural changes to the Consumer Financial Protection Board (CFPB) and the SEC. Hensarling has said he would get H2O through his Committee to the House floor by the end of April.

The Major Changes

Major Dodd-Frank-related provisions in Hensarling's H2O bill include:

• weakening of provisions protecting against systemic risk, increasing the threat of “too big to fail” financial institutions, holding up taxpayers for another bailout
• rolling back safeguards protecting ordinary investors and consumers on financial transactions involving everything from derivatives trading to retail banking
• repealing restrictions on the kind of subprime mortgages that caused the 2008 financial crisis.

Jeb Hensaring (R, TX-5).
Chair, Financial Services
Committee.

[Hensarling says on his website that H2O will do what Dodd-Frank failed to accomplish after the 2008 financial crisis. “It would end bank bailouts,” he says. “It would give regulatory relief for community financial institutions, and we would also have the strongest penalties for Wall Street wrongdoers that have ever been on the books.” Though Republicans want to roll back Dodd-Frank, Hensarling says they don't want a repeat of the 2008 financial crisis and so his bill would require banks to hold on to more loss-absorbing capital than is currently required. “We’re not trying to save any individual institution,” says Hensarling. “We’re trying to save the entire financial apparatus and our whole financial system.”]

Hensarling Needs Votes

Hensarling believes that his Financial Choice approach should replace Dodd-Frank entirely. But if Dodd-Frank reforms were passed in present form, they would undermine the 2010 financial regulation law. The skeleton will still exist, and the new bill would act as a disable-and-disregard "remedy" to Dodd-Frank.

With that in mind, the bill will most probably not make it to the floor until the summertime, per Rep. Patrick McHenry, vice chair of House Financial Services. Although passing the Senate would require a Herculean legislative effort to create a bipartisan measure, some Republicans are still looking for ways to roll back Dodd-Frank while avoiding working with Democrats. GOP Senator Pat Toomey suggested last week that the reconciliation process to repeal regulations on a simple majority vote basis is still available.

The Role of Capital Requirements

What is interesting is the Republican interest in capital regimes, which monetize regulations. Another way of looking at these is effectively as a corporate tax. So instead of ducking a regulation by imposing a corporate tax, the GOP could weigh that out during their tax reform efforts as a means to compromise with Democrats.

Hensarling’s new plan also includes reducing the frequency of bank stress tests performed by the Federal Reserve (once every two years as opposed to annually). The plan would also give the president the authority to fire the directors of the CFPB and restrict its oversight, as well as changing the code of conduct between the SEC and private companies.

Republican Strategy vs. Street Sense

Seeking to learn from the health-care-reform failure, the Congressional leadership may be of the view that H2O provides a strongly conservative approach to repealing and replacing Dodd-Frank, bridging the gap in the GOP between the Freedom Caucus and House leadership. It’s hard to see it get through the House without compromise, though. All the while, Dodd-Frank has quietly been picking up support in the last couple of months from the banks and their main news source: the Wall Street Journal, featuring masthead editorials opposing repeal of Dodd-Frank. [Treasury Secretary Steven Mnuchin has expressed interest in restoring aspects of the Banking (Glass-Steagall) Act of 1933.]

With some banks backing key portions of the 2010 law, such as the need to preserve the Financial Stability Oversight Council and the Orderly Liquidation Authority from Titles I and II, the bill's road to the President's desk will not be an easy one. If it passes the House, the Senate will almost certainly reject it.

Related Posts: Economic Hotspots . Banking (Glass-Steagall) Act of 1933 . Dodd-Frank Act .