|Last week, House Financial Services (HFSC) reported out some 23 bills ranging from benign to systemically risky. Speaking of systemic risk, in last Friday’s update on the Crapo financial regulation bill, we wrote that the bill “would end the annual Comprehensive Capital Analysis and Review (CCAR), a stress test that has had a measurable impact on regional banks’ health.”
We wanted to clarify that this was, arguably, an overstatement of the impact of Section 401, which we believe would reduce the number of firms subject to CCAR from 34 to 9, the number of stress scenarios tested, and the frequency of tests.
Which among the swarm of HFSC bills could get picked up by Senate Banking, and perhaps be added to the Crapo bill? See below.
Happy Thanksgiving break everyone,
Last Tuesday and Wednesday, the House Financial Services Committee (HFSC) dove into a marathon markup of 23 bills related to housing, banking, capital markets, and small business development.
Ranking Member Waters put up a relentless fight against much of the legislation introduced, especially those that threatened the Dodd-Frank Act. Despite this resistance, all of the bills passed, with 12 out of 23 winning the support of at least five Democrats. Some of these bills could gain some traction. Which might get to the Senate?
Housing and Banking Bills
Out of the 12 feasible, bipartisan bills, five will have important implications for housing and banking regulations. In terms of housing, the Mortgage Choice (H.R. 1153) and the TRID Improvement (H.R. 3978) Acts would harm consumer protections and increase consumer confusion by changing disclosure rules. Democrats, led by Waters, were critical of the bills’ effects on lending practices.
Of the five banking and housing bills earning bipartisan support, Rep. Waters only supported H.R. 4292, the Financial Institution Living Will Improvement Act. Five Democratic committee members supported H.R. 4293 the Stress Test Improvement Act. H.R. 4296, a bill discussing risk capital requirements, fared best of all, winning the support of eight Democrats.
Banking Bills with Senate Implications
Three banking bills warrant particular attention due to their potential viability in the Senate. Briefly summarized, they are as follows:
- H.R. 4292 — The Financial Institution Living Will Improvement Act, introduced by Rep. Zeldin, this bill would change the submission process of bank resolution plans. It would also make them less frequent by ensuring that regulators can only request living will reports every two years. This bill passed unanimously, 60-0.
- H.R. 4296 — (Untitled) This bill would place requirements on operational risk capital requirements for banking organizations established by an appropriate Federal banking agency. The bill, introduced by Rep. Luetkemeyer, would change regulations relating to risk capital requirements by instituting guardrails that would focus these requirements on the “current state” of bank operations. This bill passed 42-18.
- H.R. 4293 — The Stress Test Improvement Act would reduce the frequency of company-run stress tests. Specifically, it would allow certain bank holding companies to run stress tests every two years as opposed to annually. Additionally, the Federal Reserve would be directed to issue clarifications, subject to notice-and-comment, for its Comprehensive Capital Analysis and Review (CCAR) program. This would cost the American people the independent check the Fed presently provides to safeguard the financial system. The bill also ends the Fed’s ability to reject a firm’s capital planning on a qualitative basis. This bill gained a troubling amount of Democrat support and passed 38-21.
Living wills, capital requirements, and stress testing are all regulatory elements which the Senate Banking Committee addressed in last week’s regulatory reform bill (S. 2155, see Update 226). Each of the House bills is likely to garner some interest from lawmakers in the Senate as they move into their December 5th markup.
Banking Bills Likely To Die
Several of the more pernicious bills which passed on party lines are likely unviable going forward. These include:
- H.R. 4247, the Restoring Financial Market Freedom Act, which would repeal Title VIII of the Dodd-Frank Act and effectively eliminate the Financial Stability Oversight Council’s ability to designate financial market utilities as systemically important;
- H.R. 4302, the Congressional Accountability for Emergency Lending Programs Act, which would require both chambers to ratify the Fed’s emergency lending authority;
- H.R. 4278, the Independence from Credit Policy Act; and
- H.R. 4270, the Monetary Policy Transparency and Accountability Act.
These bills attracted no Democratic support on the committee, passed via a partisan vote, and will likely face the same challenges in the Senate. Democrats are simply unwilling to limit the authority and independence of the Federal Reserve. While these four bills are likely to gain support on the House floor, Senate Democrats will perceive them as too deregulatory.
The bills to keep an eye are the Financial Institution Living Will Improvement Act, Rep. Luetkemeyer’s untitled bill on risk capital requirements, and the Stress Test Improvement Act. These three bills address reporting and procedural requirements that may be worked into Senate negotiations. The Stress Test Improvement Act takes a significant and pernicious step by targeting the annual nature of CCAR.
Watch for these three bills to be worked into the Senate Banking legislation, S. 2155, through the amendment process if they pass the House floor by December 5 Senate Banking markup. Watch that especially. There is a chance for the three bills to be considered when the Crapo bill heads to the Senate floor — the best betting is January or February.