House of Representatives
Speaker John Boehner (R-OH) was reelected as Speaker of the House. A small faction of the Republican Party – 25 Members – did not vote for him. As a result, two of those Members, Florida Congressmen Richard Nugent and Daniel Webster, lost their seats on the influential House Rules Committee. Scott Garrett (R-NJ), who chaired the House Financial Services Capital Markets Subcommittee in the 113th Congress, did not support Boehner’s speakership. We believe this vote was intended to appease Congressman Garrett’s constituents, which is among the most politically moderate districts with Republican representation.
Amendments to Dodd-Frank
Substantively, the House this week considered an 11-bill package that would amend various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). H.R. 37, the Promoting Job Creation and Reducing Small Business Burdens Act under an expedited procedure that requires a 2/3 vote for passage. The bill, which included a proposal to delay the Volcker Rule’s ban on banks selling off collateralized loans obligations (CLOs) until July 2019, failed to pass by six votes. The package would also exempt non-financial companies from margin requirements and allow affiliates of such end-users to trade with swap dealers and remain exempt from clearing requirements.
We expect House Republicans to reconsider the bill again next week under normal legislative procedure (requiring a simple majority), making it easier for the Republican majority to secure passage. That being said, a compilation legislative proposal is more difficult to move through the Senate, even under a Republican majority, because the variety of issues included in it will generate more interest (and opposition). Further, earlier this week, the White House indicated that President Obama will veto H.R. 37 if presented for his signature.
The House passed the Terrorism Risk Insurance Act (TRIA) by a vote of 416-5. H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015, would extend TRIA for six years, while also increasing the amount the private sector would be required to cover as a result of a terrorist attack. The bill also contains a provision amending the Dodd-Frank Act’s application to commercial end-users who rely on derivatives to hedge risk by exempting certain energy and agricultural companies from posting collateral.
Senator Richard Shelby (R-AL) was elected yesterday as Chairman of the Senate Banking Committee. As we have suggested before, we expect the committee under Chairman Shelby’s leadership to conduct vigorous oversight of the federal regulatory agencies within its jurisdiction (particularly federal banking regulators and the Consumer Financial Protection Bureau (CFPB)) and propose reforms to scale back the Dodd-Frank Act. Chairman Shelby will also continue working to ensure large financial institutions are scrutinized and appropriate relief is provided for small community banks. He has stated in the past that the Dodd-Frank Act did not go far enough to end bailouts and has supported higher capital requirements for banks.
The Senate passed TRIA legislation by a 93-4 vote. Senator Elizabeth Warren (D-MA) offered an amendment that would have removed the Dodd-Frank Act end-user provision, but that proposal failed by a 31-66 vote. We expect that Senator Warren and other liberal Democrats, now in the Senate minority, will continue to explore options on how to move legislative proposals, particularly those originating in the House, towards a more moderate political position. The legislation has been sent to President Obama where it is expected he will soon sign the bill into law.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC) announced yesterday that is will consider the first significant set of final derivatives rulemakings at an open meeting scheduled for January 14. Specifically, the SEC will take up final rules on security-based swap reporting, security-based swap data repository registration. The SEC will also issue a proposal for notice and comment related to security-based swap “reporting duties for cleared and platform-executed security-based swap transactions.”
The Obama Administration
Yesterday, President Obama announced the Administration’s plan to lower Federal Housing Administration (FHA) mortgage insurance premiums by 0.5 percentage points. According to the White House, lowering these premium will provide an average annual savings of $900 for new borrowers, assist more than 800,000 homeowners reduce their mortgage payments, and help up to 250,000 new borrowers to purchase a home. House Financial Services Committee Chairman Jeb Hensarling (R-TX) criticized the move and questioned its impact on FHA’s finances. He announced that he will hold a hearing and invite Department of Housing and Urban Development Julian Castro to testify.
President Obama nominated community banker and former Bank of Hawaii CEO Allan Landon to the Board of Governors of the Reserve System. One seat remains open at the Federal Reserve, and legislators are calling for a nominee with supervisory and investigatory experience.
There are more important developments on the horizon, particularly for the financial services industry. These include possible attempts to reform the GSE housing finance system and Commodity Exchange Act reauthorization. Additionally, we anticipate vigorous oversight of the federal regulatory agencies, particularly federal banking regulators, the CFPB, and the Financial Stability Oversight Council (FSOC). There will also likely be consideration of changes to rules governing municipal advisors and rules implementing the Jumpstart Our Businesses Startups Act (JOBS Act), among other items.
The State of the Union will take place on January 20. The President’s budget will be released on February 2. Congress faces a debt ceiling deadline on March 15.
We will continue to monitor pertinent developments in Washington, leveraging our expertise and relationships to make sure you stay one step ahead of the policy debate and regulatory action.