Finance Year in Review: Chipping Away at Dodd-Frank

Republicans were in charge of both chambers of Congress this year for the first time since 2006. For the previous four years, the Democrat-controlled Senate was effectively shuttered to serious legislating because Democrats refused to let Republicans turn every debate into a referendum on the Affordable Care Act. As such, no amendments were allowed and debate was squelched. Everyone was frustrated. 

When Sen. Mitch McConnell (R-Ky.) became majority leader of the Senate last year, he and then House Speaker John Boehner (R-Ohio) pledged a new and different Congress of lawmakers dedicated to hard-core legislating.

Now, at the end if the year, Morning Consult looks back at the accomplishments, or lack thereof, of the GOP-controlled Congress in health, energy, finance, tech, and the GOP leadership. 

Republicans entered the 114^th Congress finally getting a chance to play offense against the Obama’s regulatory agenda, which they view as antithetical to economic growth and free enterprise.

Republicans promised to provide an alternative vision of governance. In the realm of financial services, that meant rolling back major parts of the 2010 Dodd-Frank financial law and relieving burdens on community banks.

There has been no lack of GOP proposals to dismantle the landmark financial reform law. But Democratic filibuster threats in the Senate, coupled with an administration eager to protect its legislative accomplishments, make large-scale changes impossible for the time being. Senate Republicans have been reluctant to even try. There have been no up or down votes on any Dodd-Frank changes during this Congress.

The two main architects of the Republican financial services attack plan — Senate Banking Committee Chairman Richard Shelby and House Financial Services Committee Chairman Jeb Hensarling — have taken different paths this year. Shelby continues to push a major overhaul that stands little chance of winning any Democratic support, while Hensarling has been methodically pushing a more incremental campaign against the administration’s regulatory regime.

House Republicans could do more, but they are trying to adapt to the pace of action in the Senate, where Democrats can gum up the works. “We’re looking for ways to get the Senate engaged. We do a lot of work over here on the House side and we send it over to the Senate where it doesn’t get any action,” said Rep. Randy Neugebauer (R-Texas), chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, in a recent interview. “So you look for places where the Senate will have to take some action.”

At this point of the year, those “places” are found in the annual appropriations process. Republicans have plowed forward with their plans to place many of their financial services priorities on an omnibus spending bill, despite the steady drumbeat of refusals to cooperate from Senate Democrats.

Their agenda items are diverse and occasionally parochial, such as one provision supported by many members from rural areas to preserve access to affordable manufactured housing, i.e., mobile homes. Other riders would involve tectonic shifts in the U.S. financial regulatory regime, such as the Dodd-Frank rollback proposed by Shelby.

Shelby’s bill, which passed the Banking Committee along party lines, does not stand a chance of reaching the Senate floor as a stand-alone measure, and it stands little chance of surviving as an omnibus rider. Its contents include numerous bridges too far for Democrats, even those willing to consider modest changes to financial regulations.

Shelby’s legislation would raise the asset threshold for systemically important financial institutions to $500 billion from $50 billion, give non-bank financial institutions a chance to appeal their designation as systemically important, and lower the compliance burden for small community banks. That last piece, ironically, is something Democrats could support.

Top Democrats say that Shelby, by attaching his entire bill as an appropriations rider, missed an opportunity to negotiate a bipartisan compromise with Democrats on his committee. “The way to do this is through the Banking Committee,” ranking member Sherrod Brown (D-Ohio) told Morning Consult. “We had a bill that did most of the things community banks wanted that every Democrat voted for. But Republicans wanted to begin the wholesale change of Dodd-Frank.”

In May, shortly before the markup of Shelby’s bill, Brown and other senior Democrats proposed a countermeasure that focused on regulatory relief for community banks. All 10 Democrats on the Banking Committee endorsed the legislation, but no Republicans did, leading to a partisan standoff that has yet to be resolved.

Amid that polarized environment, Senate Democrats have decided to hang together in the hopes of eventually negotiating a compromise — or at least to blocking any consideration of Shelby’s bill.

“There are provisions that Democrats and Republicans, in the Banking Committee regular process, came to an agreement on with respect to community banks. I don’t believe those are part of the Shelby bill,” said Sen. Chris Coons (D-Del.), the top Democrat on the Senate Appropriations Financial Services Subcommittee, in an interview. “What I have told Senator Brown is that the only way a provision related to banking ends up in an appropriations bill is if it has been fully discussed, vetted, and embraced by the members of the committee.”

Despite Democratic vows to block Shelby’s appropriations attempt, the senior senator from Alabama was not ready to concede defeat when recently asked about post-omnibus next steps. “Don’t give up yet. Just wait and see,” he said in a short interview.

There are signs, though, that House Republicans are tiring of Shelby’s go-big approach. They appear to prefer to chip away at Dodd-Frank with a restrained but steady flow of legislation.

Republicans on the House Financial Services Committee have won some Democratic support for legislation, similar to provisions in the Shelby bill, that pertain to systemically important financial institutions. Earlier this month, one-third of committee Democrats voted in favor of a bill that would revise the criteria for designating banks as SIFIs. Half of them voted to allow non-bank financial institutions more opportunity to challenge their SIFI designations.

Chairman Jeb Hensarling (R-Texas) made it clear that those bills were incremental in nature and did not reflect his big-picture goals for regulatory reform. They were, nonetheless, steps in the right direction. “I don’t like the SIFI architecture at all. But where possible, we’ll try to work on a bipartisan basis,” he said at legislative markups in early November.

Meanwhile, some House Democrats appear to be chafing under their party’s treatment of Dodd-Frank as inviolable. Financial Services Committee Ranking Member Maxine Waters (D-Calif.) has tried to keep her members in line with the Obama administration’s priorities, but some are frustrated with her view that any change to Dodd-Frank would start the committee down the slippery slope of deregulation. At that same markup session, Rep. John Delaney (D-Md.) vented his frustration with that uncompromising position.

“I understand those slippery slope arguments, but at some point Congress needs to do something,” he said. Delaney is a main co-sponsor of the legislation that would allow non-bank financial firms to appeal their SIFI designation and mandate more transparency in the designation process.

Hensarling has managed to push through bipartisan legislation that nibbles around the edges of Dodd-Frank. At the same time, he has established himself as a conservative darling for a broader agenda to shrink the size of government and eliminate what many conservatives view as government-sponsored “crony capitalism.”

His most notable victory this year was his refusal to reauthorize the Export-Import Bank’s charter, even though an overwhelming majority of both the House and Senate supported renewing the bank. The bank used to draw little attention or controversy and was typically reauthorized with nearly unanimous support.

Hensarling successfully convinced enough of his conservative colleagues, including a majority of the Republicans on the Financial Services Committee, to oppose reauthorization. (He did not have as much luck with the House GOP conference, where a majority of them supported re-opening the bank.)

Supporters of the Export-Import Bank had to take the extraordinary step of a discharge petition in the House to ultimately get a floor vote. The bank will likely be officially reauthorized as part of a long-term highway bill as soon as December 4. But Hensarling saw the multi-month shutdown as a major achievement in spotlighting what he views as corporate welfare.

“I think a lot of members on the Republican side have now taken a second look and asked, ‘Do we want to support free enterprise interest? Do we want to support corporate welfare?’ I’m hopeful that, versus past practice, that more Republicans will let their voice be known,” Hensarling said in an interview following the House vote that set the bank up for reauthorization.

Hensarling and Shelby share the same desire to dramatically roll back Dodd-Frank. The most significant financial reform in decades has changed how the financial services industry operates in ways that Shelby, Hensarling and most other Republicans find unacceptable.

But with Democrats united in the Senate and a White House that protects Dodd-Frank like a mother bear protects its cub, the incremental progress in the House Financial Services Committee may stand more of a chance for action than something broader, like Shelby’s bill. Otherwise, Republicans will have to pray for large-scale Democratic defections and the election of a president who shares their worldview.

Correction: This article has been updated to reflect the correct subcommittee chaired by Rep. Randy Neugebauer (R-Texas.)