GOP Appropriator's Gambit (Jul. 6)

Update 189/GOP Appropriators’ Gambit DFA Death by a Thousand Policy Riders

Just before adjourning for the July 4 recess, the House Appropriations Subcommittee on Financial Services and General Government approved the FY 2018 financial services appropriation bill.

The bill would reduce some agency budgets from last year, but keeps SEC at roughly the same level, a pleasant surprise.  But it also incorporates many provisions in the House-passed Choice Act, which effectively dismantles the foundations of the Dodd-Frank Act (DFA).

How alarming is the prospect?  It’s hard to say because this president could well sign an appropriations bill that Obama would have vetoed. Or not. We examine the possibilities and the critical role of the Senate Democrats below.

Best,

Dana

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Riders of Note

The bill provides that

•  living wills submissions by the biggest banks would be required every two years, rather than annually
•  restrictions on banks’ capital planning based on stress test results and a requirement that the Fed Vice Chair provide written certification that the models used by the Fed are more accurate than the models used by the given bank
•  the FDIC, FHFA, NCUA, and the OCC would be subject to the regular appropriations process for funding

CFPB — The bill would subject the CFPB to annual congressional appropriations, ending the Bureau’s funding via the Federal Reserve. It includes a restructuring of CFPB governance.  The president would be empowered to remove any CFPB board member for “inefficiency, neglect of duty, or malfeasance in office.”

Volcker Rule — The Rule is fully repealed at the end of the appropriations bill under Section 933.  The GOP has been anxious to rollback the restriction on proprietary investing that puts customers in harm’s way.

OFR — Other provisions require the critical offices of Financial Stability and Office of Financial Research to submit regular reports on their activities justifying their obligations and initiatives.  OFR specifically must provide for public notice of at least 90 days before issuing any report, rule, or regulation.

FSOC — The legislation subjects FSOC to greater scrutiny.  Section 626 specifies that “none of the funds made available by this or any other Act” may be used by FSOC to make determinations on a nonbank financial company unless several new conditions are met.

OLA — Despite a report the House GOP might roll back the Orderly Liquidation Authority, the chief mechanism in DFA to combat systemic risk and meltdowns a la 2008, but OLA appears to be spared, so far. Such a rider could be added at any stage — Committee mark-up, floor action, or conference.

Riders in Recent History

In the last few years, Republicans on the House Financial Services and General Government (FSGG) subcommittee have jammed several DFA rollback riders into legislation. When the bill reached the floor, GOP members have added more such riders.

Sen. Richard Shelby attached much of his comprehensive DFA rollback package onto the equivalent appropriations bill when he chaired Senate Banking. Democrats took a hardline in opposing all rider and succeeding in seeing them removed.  Then Sens. McConnell, Boozman, and Capito instructed Appropriations Committee and Financial Services Subcommittee members not to include DFA rollback policy riders in the final appropriations package.  Now the GOP controls both the executive and legislative branch.

State of Play and Outlook

The FSGG Subcommittee’s mark-up of the bill is expected sometime in September.  The full Committee will not likely vote on the bill until October or November.  Floor action might come in the pre-Christmas rush.  Subcommittee Chair Capito and/or Appropriations Chair Boozman may have instructions on policy riders for their members once again at some point along the way.

OLA and the Legislative End Game

Republicans on Senate Banking and the administration have kept quiet on what they intend to do with OLA.  Wait until October, when the Treasury is slated to do the big reveal of its plans, after completing a six-month study of OLA.

Proposing to repeal OLA (as the Choice Act does) would almost certainly invite the opposition of the entire Senate Democratic caucus — certainly enough of it to sustain a filibuster and doom this must-pass appropriations package.  And it would expose the GOP to the charge of giving Wall Street and abusive lenders an unasked-for gift, holding no hearing, and circumventing the Banking Committee in a legislative shell game.