President Trump has set expectations high for undoing former President Barack Obama’s financial reform law, saying that he would do “a big number” on it and boasted this week that he would give it a “very major haircut.”
Yet in Congress, lawmakers are setting their ambitions for changing the 2010 Dodd-Frank law lower, acknowledging that even the unified Republican government will not allow for wholesale changes.
“I am growing skeptical of the ability of Congress to act on Dodd-Frank,” said Brian Gardner, managing director of Keefe, Bruyette & Woods, an investment bank that specializes in financial services. “The door’s not closed, but it’s narrowing a little bit.”
Recently, the two lawmakers responsible for shepherding financial regulation through Congress have downplayed the possibility of sweeping Republican legislation to ease Dodd-Frank rules on banks.
Last week, Senate Banking Committee Chairman Mike Crapo told an audience of bankers visiting Washington that his plan for banking legislation was to seek bipartisan agreement, not to try to ram through Republican-only deregulatory measures.
The reality facing Republicans is that, under normal rules, they need 60 votes in the Senate to send bills to Trump’s desk, but they only have 52 Republicans, meaning they would have to pick up support from eight Democrats.
Rep. Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee, acknowledged last month that the sweeping Dodd-Frank replacement legislation he is drafting would struggle in the Senate. A more likely prospect, he said, would be smaller “rifle-shot” measures aimed at individual components of the law that could gain support in the Senate.
Before Trump took office, lobbyists thought there might be an opportunity to sway red-state Democratic senators up for re-election in 2018 to support deregulatory legislation. At the top of the agenda: Curbing the new powers given to regulators, raising the cutoff at which banks are subjected to added oversight, reforming the Consumer Financial Protection Bureau, and more.
In the early months of Trump’s administration, however, they have seen that those Democrats face little pressure to go along with the White House, thanks to Trump’s sinking popularity and some of the more polarizing policies he has pursued.
One lobbyist cited the vote on the nomination of Neil Gorsuch to the Supreme Court Friday as a measure of general Democratic antipathy toward Trump. While Supreme Court nominees usually enjoy bipartisan support, only three Democrats voted for Gorsuch: Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia.
At the same time, the liberal wing of the party, led by Sen. Elizabeth Warren of Massachusetts, has grown more hostile to the banking industry and its priorities in Washington.
So while Crapo might be able to get 55 or 56 votes, finding 60 to ease bank rules would be difficult.
In an interview with Politico Monday, Rep. Patrick McHenry, R-N.C., the vice chairman of the House Financial Services Committee, said the House will “pass something larger. My expectation would be the Senate will do something. I don’t know if it will be as good as what we pass.”
In the case that a Senate package stalls, Republicans would be left with diminished options.
One is to advance legislation with the budgetary procedure known as reconciliation, which allows bills to pass with only a simple majority in the Senate.
Sen. Pat Toomey of Pennsylvania, a member of the Senate Banking Committee, has advocated that Republicans should forgo trying to reach a deal with Democrats and instead push partisan legislation through reconciliation. “There’s a little bit of good cop, bad cop,” between Crapo and Toomey, said Gardner.
A reconciliation bill would have to pass with the fiscal 2018 budget, which Republicans have said they also hope to include tax reform in.
McHenry suggested two priorities that could be sought through the reconciliation process: Defunding the Consumer Financial Protection Bureau, a creation of the 2010 law that regulates financial products such as mortgages and credit cards, and eliminating the new government authority for taking over failing banks and reorganizing. Republicans have criticized that authority as effectively a guaranteed bailout.
Yet there would be clear downsides to relying on reconciliation for those goals. One is that it would hinge on Republicans passing a budget, which could prove to be a difficult task. Another is that each measure would have to meet the arcane requirements for inclusion in reconciliation.
Republican opposition to the CFPB runs deep, as was on full display this week at an oversight hearing at which Hensarling accused it of “tyranny.”
But Republicans have not decided on how they would like to change the new agency, which they view as overly powerful and unaccountable. While some members, such as Sen. Ted Cruz of Texas, have called for eliminating the bureau altogether, others seek merely to replace its single director with a five-member commission or to bring its funding stream out of the Federal Reserve and under congressional appropriation.
Others, however, have suggested that Trump should simply try to fire the Obama-appointed director, Richard Cordray, and replace him with someone more aligned with the Republican view of regulation. “It’s a moving target at this point, quite frankly,” McHenry said.
