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“Banking Industry Will Find Friends In Coming Congress”

Law360 By Kathryn A. Kronquist

With a change in the leadership of the U.S. Senate comes the hope that regulatory relief will be on the horizon for the banking industry. While the Senate under the current Democratic leadership has remained distant from the rulemaking activities of the Consumer Financial Protection Bureau and other bank regulators, exercising little oversight of regulatory actions, the industry now anticipates that the new incoming Republican leadership will not sit on the sidelines. Rather, pursuant to recent analysis of the 2014 midterm election results released by the American Bankers Association, the industry now anticipates that the new incoming Republican leadership will be more active in their oversight responsibilities, and are likely to consider some regulatory relief bills in the 114th Congress.

As a result of the Republican victory, all Senate committee chairmen will change and changes in committee chairmen on the House side have already been announced. On the Senate side, Sen. Richard Shelby, R-Ala., will head the Senate Banking Committee. Sen. Shelby has previously exhibited his interest in engaging in oversight of Dodd-Frank implementation, with a strong focus on the CFPB, and it is anticipated that he will continue to be active in his desire to advance these causes. Sen. Shelby has not been shy about voicing his concerns over the harsh regulations imposed on banks and has previously presented legislation to ease the burdens on banks.

In the U.S. House of Representatives, Chairman Jeb Hensarling, R-Texas, is returning to his appointment as chairman of the House Financial Services Committee, with the expectation that his committee will take up regulatory relief provisions and continue to push for changes to Dodd-Frank and for the Senate to consider these measures. Another committee in the House having an impact on the banking industry, due to its powerful tax-writing authority, is the Ways and Means Committee, which will now be chaired by Rep. Paul Ryan, R-Wis. With Rep. Ryan as the chairman of the Ways and Means Committee and with a new incoming Republican chairman of the Senate Finance Committee, we can certainly anticipate that there will be new ideas on tax reform.

In addition to tax reform, with the Republicans now in control, it is possible that there may be some Dodd-Frank reform and that some issues surrounding the law can pass both bodies with bipartisan support. The Republicans have been more sympathetic to the concerns expressed by bankers around the country of the regulatory burdens imposed on them that impede their ability to service customers and thus harm a good number of small businesses and business owners.

During 2013, the House passed eight bills that served to roll back provisions of Dodd-Frank, including the most recent bill on derivatives trading, formerly known as the Swaps Regulatory Improvement Act, which was passed in October 2013, with bipartisan support. The Senate Banking Committee, however, was unable to move any legislation through the Senate and therefore none of the bills passed by the House were taken up by the Senate. With the new composition of the Senate, some of these measures may now actually be considered and it is anticipated that Rep. Hensarling will continue his efforts in pushing for changes to Dodd-Frank and for the Senate, with its Republican majority, to consider some of these measures.

While no large, sweeping changes to Dodd-Frank should be expected, some likely developments to anticipate coming out of the Republican-controlled 114th Congress include stricter scrutiny and evaluation by the Senate on proposals from the CFPB and possible changes to the structure of the bureau itself. With Sen. Shelby leading the Senate Banking Committee, it is anticipated he will continue to push for legislation that would require a cost-benefit analysis of rules coming out of the CFPB in order to ease the burdens such rules impose on smaller financial institutions. Most members of Congress on both sides of the aisle seem to recognize that Dodd-Frank has had some unintended consequences on non-Wall Street institutions, and with Sen. Shelby and Rep. Hensarling leading their respective committees, there is hopefulness that some regulatory reform can be enacted in the next Congress and that certain provisions of Dodd-Frank that the House had previously passed bills to repeal will finally be considered by the Senate and rolled back. In addition, the Republicans have never been in favor of the CFPB being controlled by a single director and have voiced their displeasure with having too much control vested in the hands of just one individual. As such, it is possible the Republican-controlled Congress may seek to restructure the CFPB from a single director to a five-member board.

It is also anticipated that Congress may move more expeditiously on data breach legislation in light of the increasing number of breaches that have occurred recently. The banking industry itself, through efforts of the ABA and similar organizations, has advocated for legislation in this arena, especially when it comes to more effective sharing of threat information by law enforcement agencies. Now with a more like-minded congressional majority, there may be more movement in the 114th Congress on these issues as the industry itself tries to raise security levels in response to such breaches.

Lastly, another area of interest high on the priority list for Rep. Hensarling which is in need of some oversight involves government-sponsored enterprises. It seems safe to say that a majority of bankers and lenders would agree that having housing finance monopolized by government entities has proven to be unsound and that the system should be reformed. In 2013, Rep. Hensarling released a discussion draft of a proposal, the Protecting American Taxpayers and Homeowners Act, pursuant to which the federally sponsored housing finance agencies Fannie Mae and Freddie Mac would be wound down and a new housing finance system would be implemented. Many saw his plan as an entry point to get Congress started on a robust debate on housing finance reform. While there does not seem to be any consensus between the House and Senate at this point on how to address the GSEs, it seems likely that Rep. Hensarling will want to continue to advance the discussion and the need for GSE reform.