Prepare for a Dodd-Frank Repeal Fight

House Financial Services Committee Chairman Jeb Hensarling (R-Texas). image via flickr

The Republican quest to dismantle the 2010 Dodd-Frank financial regulation law during this Congress has been a tale of two chambers. The House focused its energies on incremental, implementable reforms. Senate Republicans laid out a major vision for overhauling financial regulation, with virtually no support from Democrats.

This year will be different. The focus for both chambers will be about honing and touting a broader Republican vision. The target, not surprisingly, is Dodd-Frank.

This year, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) will lean more toward idealistic, big-idea policymaking than incremental change. “I can do bipartisan, I think I have proven that. But I can also do partisan, I think I have proven that as well,” he told reporters at a year-end roundtable. “We attempt to do bipartisan first. But if that doesn’t work it’s still important to show the American people what you believe.”

Congressional leaders and Obama administration officials concede that the flurry of legislative accomplishments that closed out 2015 will likely not receive an encore in 2016. Control of the White House and the Senate is up for grabs in November, and lawmakers will be focusing on that.

In the realm of financial services, that means Republicans will put their efforts toward a big-picture vision of governance rather than the modest bipartisan legislation that passed in 2015.

This will mark a shift for Hensarling. Up until now, he has focused on tweaking Dodd-Frank through small bills that could survive a trip to President Obama’s desk. His committee had success; 22 of its bills were signed into law, including six minor changes to Dodd-Frank.

This year, when Hensarling showcases his idealized vision for financial services laws, it is unlikely to meet with much approval from Democrats. “To answer [House] Speaker [Paul] Ryan’s call, you will see a visionary piece of legislation laying out the Republican vision for banking and capital markets, and as part of that, it will necessarily include repealing large swaths of Dodd-Frank,” Hensarling said.

Ryan urged his colleagues to propose constructive ideas for conservative governance in a December speech at the Library of Congress.

Senate financial services chiefs started down that big-idea path a earlier on, bypassing Hensarling’s small-ball bipartisan approach. Senate Banking Committee Chairman Richard Shelby (R-Ala.) unveiled his sweeping Dodd-Frank overhaul in May 2015 to gripes from Democrats who said they felt excluded from the negotiating process.

The Banking Committee’s vote on Shelby’s bill resulted in a straight party-line 12-10 approval. With no Democrats on board, progress stalled on the legislation for the rest of the year. Shelby’s attempt to attach the entire measure to the omnibus spending package failed because of strong Democratic opposition.

Shelby, ever the patient Southerner, seems unconcerned about the lack of action thus far. “It might be a better chance, maybe at the end of the year, maybe in the lame-duck session. You never know,” he said in a recent interview. “This assault on Dodd-Frank has been going for years, so you’ve got to be patient.”

The lame-duck session, almost a year away, will be Shelby’s last chance to pass significant financial services legislation as chairman of the Banking Committee. He will reach his term limit in that post at the end of this Congress.

Hensarling is less patient. He worked as staffer for former Sen. Phil Gramm (R-Texas), so he says he understands the “mysterious ways” of the Senate. But that hasn’t stopped him from being irritated that the work of his committee has lacked a strong and swift counterpart in the upper chamber.

“You get a little frustrated here, particularly when I have concentrated on getting bipartisan legislation done. We spend a lot of time trying to do that,” Hensarling said. “We don’t always have the same methods or the same tactics. Chairman Shelby decided he wanted to go with more of an omni package. We chose to do it in smaller bites. But I think we’re headed towards similar results.”

Purely in terms of vision, Hensarling and Shelby have a lot in common. Both favor significantly raising, or even eliminating, the asset threshold for determining the systemic importance of financial institutions. They both want congressional oversight of the Federal Reserve and the Financial Stability Oversight Council. They both believe in reducing the power of the Consumer Financial Protection Bureau by changing its operating structure.

There will be some focus on the Fed from both chambers this year. Hensarling is pushing Rep. Bill Huizenga’s (R-Mich.) Fed Oversight Reform and Modernization Act, which would increase congressional oversight of Fed monetary policy and institute a more rigorous auditing system for the central bank.

Senate Majority Leader Mitch McConnell (R-Ky.) said in a year-end press conference that the Senate will vote on an “audit the Fed” measure early in the year.

These are not measures that promise to win much, if any, support from Democrats, which means that lobbyists aren’t too worried about having to cope with major regulatory changes anytime soon. “We know there’s no appetite for regulatory relief on Capitol Hill for large banks,” said a senior executive in the financial services industry who asked not to be identified because of political sensitivities. “Democrats have been scared away from even common sense regulatory reform for community banks, just because of the ‘Wall Street’ buzzword.

But K Street shouldn’t stand down too quickly. The congressional focus on financial services in 2016 will set up an agenda for 2017. If Republicans have control of both chambers of Congress, and possibly the White House, lawmakers will want to turn their vision into a reality.

Democrats, wary of appearing too close to Wall Street in a populist election season, will spend most of their time this year playing defense, blocking changes to Dodd-Frank and hope for Democratic Senate and White House. “The Senate Democrats will not, the president of the United States will not, brook the dismantling of Dodd-Frank, which the Republicans clearly want to do. That’s just a non-starter,” Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, told Morning Consult last month.

Brown is frustrated that Republicans won’t negotiate on financial issues where there is broad agreement. Most policymakers agree, for example, that the impact of Dodd-Frank on community banks should change. Senate Democrats have even drafted legislation to do that. But Republicans want bigger changes. As a result, nothing happens. “They’re still not willing to move forward on a consensus, and there’s a lot of consensus provisions that we can move forward on,” Brown said. “Everything we’ve submitted in our bill had support from Republicans. But when we put it in a package, they all vote ‘no’ because they want to go after Dodd-Frank.”

That dynamic will continue this year, and it will lay the groundwork for future debates about financial regulation. Once the broad contours are laid out, there will be enough time to hash out a 2017 detailed legislative agenda after a raucous presidential race ends and the president who pushed for Dodd-Frank has gone into retirement.


Morning Consult