The Shifting Political Landscape of Dodd-Frank

The politics of Dodd-Frank have clearly shifted for Democrats in the New Year. Many who once backed tweaks to the law, particularly those that benefit banks, have reversed course as the anti-Wall Street populist movement in their party gains steam.

“There is a new consciousness among House Democrats to defend Dodd-Frank more vigorously,” said Bart Naylor, a financial policy advocate at Public Citizen, in an interview on Feb. 5. He said that this newfound enthusiasm can partly be attributed to the high-profile effort by Democratic legislators such as Sen. Elizabeth Warren (Mass.) and House Minority Leader Nancy Pelosi (Calif.) to oppose a Dodd-Frank rollback provision in the Cromnibus bill.

The political minefield came into focus at the end of last year during debate over a $1.1 trillion spending bill that includes a provision to repeal part of the Dodd-Frank financial regulation law passed in 2010. Warren and Pelosi seized on that piece of the bill to drum up a groundswell of Democratic opposition, calling the measure a “Wall Street giveaway” and a provision that would “put hard-working taxpayers back on the hook for Wall Street’s riskiest behavior.”

It hasn’t gotten easier with the start of the 114^th Congress. Even without the drama of funding the federal government, in January Democrats dropped off a bill from Rep. Michael Fitzpatrick (R-PA) that would delay the hotly-contested Volcker Rule until 2019 and ease reporting requirements for certain firms. Republicans could not muster enough Democratic support to pass the bill under the suspension of the rules, and were forced to bring the bill to the floor under a rule. It passed, but it prompted Republicans to shift their strategy.

Rep. Randy Neugebauer (R-Texas), chairman of the Financial Institutions and Consumer Credit Subcommittee, recently told Bloomberg Business that Democratic opposition to recent regulatory relief measures would drive lawmakers to propose a broad bill with bipartisan support rather than the current piecemeal approach.

After these dust-ups, what else is left? In order to get a sense of what a future regulatory relief effort might look like, we took a glance back at some of the bills Republicans sent to the floor of the House last Congress that were never taken up by a Democratic Senate. Below are some proposals to keep an eye out for in the next several months:

• Audit the Fed: The Federal Reserve Transparency Act of 2014, which would subject the Federal Reserve to an external audit by the Comptroller General, sailed through the House last September with the support of a majority of Democrats. Sen. Rand Paul (R-Ky.) has brought the issue back into the limelight, so expect the Fed to remain at the forefront of lawmakers’ minds in the House. But Warren has vocally opposed Rand’s proposal, which makes for an uncertain future: will House Democrats continue to back Warren’s populist line, or will they vote as they did in 2014?

• Exemptions to SEC Registrations: Bills to exempt certain financial entities and persons from Securities and Exchange Commission registration requirements met with varied levels of bipartisan support last Congress: H.R. 2274, which would exempt certain mergers and acquisitions brokers, received unanimous approval; H.R. 1105, which would exempt private equity funds, passed with less Democratic support—36 House Democrats voted in favor of the bill. Another effort to ease registration requirements for private equity funds, however, might meet greater Democratic opposition in the post-Cromnibus climate.

• Curbing the Consumer Financial Protection Bureau: R. 3193, a bill that would overhaul the current CFPB structure and place the agency in the congressional appropriations process, gained little traction among Democrats even before the Cromnibus was signed into law late last year. But Republicans still have an appetite for exerting more control over the CFPB, as their passage of a recent amendment to cap the entity’s budget (which did garner 9 Democratic votes) demonstrates.

• Requiring Cost-Benefit Analyses from Financial Regulators: Bills such as H.R. 1062, which would require the SEC to conduct additional cost-benefit analyses of any new regulatory rules, passed the Republican-controlled House on party lines last Congress. The House has already passed legislation this year that would increase congressional and judicial oversight of the regulatory rules-writing process with a handful of Democratic votes, so any larger package would likely include similar efforts.