Regular Disorder & Policymaking (June 22)

Update 281: Regular Disorder & Policymaking; Appropriations Panel Weighs Rough Riders

FY 2019 is turning into yet another novel year for the budget as the Republican majority continues with its fiscal ineptitude.  The 2018 Bipartisan Budget Act increased all discretionary spending caps, allowing appropriators to begin to draft spending bills without a formal budget resolution. In spite of this, Congress has, as expected, already blown through its June 15 deadline to complete all reconciliation action on legislation and it appears unlikely that they will meet their June 30 deadline to complete action on all annual appropriation bills.

On top of that, House appropriators are considering a welter of policy riders.   We focus on those today they threaten to attach to the FY 19 financial services spending bill.  

Good weekends all (ping me if you are on the Vineyard)…

Best,

Dana

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The House and Senate Appropriations Financial Services and General Government (FSGG) subcommittees introduced and voted on their respective FY 2019 funding bills during the last two weeks. The Senate developed a rider-free compromise bill while the House released a bill with over 30 controversial deregulation riders. Poisonous riders often appear in House funding bills only to be removed in conference, but their outcome is not certain until the ink is dry on the final bill.

Last week, the House Appropriations FSGG subcommittee voted 28-20 to advance its rider-heavy bill. This week, the Senate Appropriations FSGG subcommittee referred its rider-free bill to the full committee with unanimous subcommittee support. Subcommittee Ranking Member Coons praised the work done by his colleagues to keep poison pill riders out of the bill. The full Senate Appropriations committee followed suit to unanimously approve the FSGG bill.  More below.

House/Senate Bill Toplines

Below are the fiscal and financial policy-related appropriation toplines in the House and Senate bills.

House:

  • Internal Revenue Service (IRS): $11.6 billion for IRS funding, including $77 million towards helping the agency implement the Tax Cuts and Jobs Act.
  • Securities and Exchange Commission (SEC): $1.7 billion for the SEC.
  • Small Business Administration (SBA): $737 million for the SBA. This includes full funding to support $30 billion in 7(a) and $7.5 billion in 504 small business loans.

Senate:

  • IRS: $11.3 billion for the IRS. This includes $77 million towards implementation of the Tax Cuts and Jobs Act.
  • SEC: $1.7 billion in funding to the SEC.
  • SBA: $699.3 million to the SBA, including $159.2 million for small business loans.
  • Commodity Futures Trading Commission (CFTC): $281.5 million for the CFTC, equal to the FY19 budget request.

House Poison Pill Riders

The House bill includes many policy riders that would damage key post financial crisis regulation. Key systemic risk policy riders include:

  • Financial Institutions Examination Fairness and Reform Act, which allows banks to appeal a supervisory standard issued by any bank regulatory agency.
  • Financial Stability Oversight Council Improvement Act, which lengthens and complicates the FSOC process for designating large non-banks for increased oversight.
  • Volcker Rule Regulatory Harmonization Act, which gives sole rulemaking authority on the Volcker Rule to the Federal Reserve and exempts banks under $10 billion from proprietary trading restrictions.
  • Financial Institution Living Will Improvement Act, which reduces the frequency of required resolution planning submissions to once every two years.
  • Stress Test Relief for Nonbanks, which forbids the Fed from stress testing a nonbank financial company that has not been designated as systemically important by the Financial Stability Oversight Council (FSOC). Additionally, the measure eliminates the company-run stress testing requirement for non-banks with more than $10 billion in assets.

Conference Tensions

The Senate appropriations bill does not include any of the riders featured in the House bill, and conference negotiators will have to resolve these differences. Sens. Leahy and Schumer have successfully weeded out damaging policy riders before. While the Senate typically enjoys the upper hand in these negotiations, there is no guarantee that such success will be replicated this time around. Systemic risk advocates hope that Senators will not allow a single House financial policy rider to emerge in the final funding product.

House and Senate leaders hope to pass their appropriations bills in the next few weeks so that a conference report can be enacted by September 30th, the next potential government shutdown date.

Will Mods Keep Their Commitment?

President Trump signed S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, into law in May after 16 Senate Democrats and one Independent pushed it over the filibuster-proof 60 vote threshold. The measure increased the threshold for the automatic application of enhanced prudential standards from $50 billion to $250 billion. This has ushered in an era of tailoring in which the Fed has discretion to make decisions on what banks undergo stress testing, living wills, and the liquidity coverage ratio.

The moderate Democrats who supported the bill assured critics they would go no further in rolling back Dodd-Frank Act rules. Accepting any riders would mean abandoning their commitment. Vocal opposition to these riders would reassure progressives and would hold big banks to account. The threat posed by the de-regulatory riders in the appropriations bills give these Democrats their first chance to keep their word.

Is There an Endgame?

While the House Budget Committee has approved a Budget Resolution, the Senate has not yet. Vital funding for Energy, the Legislative branch and the VA have been rolled into a single minibus bill waiting amendments, while all other appropriations bill continue to move forward individually. As in many years past, there is no real likelihood of enacting all twelve appropriation bills before FY 2019 begins on October 1.  While another government shutdown is possible, we are more likely to see another year of continuing resolution can-kicking.

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