Senate Banking and Finance in the Next Congress (December 7)

Update 317: Incumbent Ranking Members in the Next Congress
Sens. Brown of Banking and Wyden of Finance

Last week, we looked at the agenda for the House Financial Services Committee under new Chair, Maxine Waters. The midterms were less kind to Democrats in the Senate, as Republicans narrowly increased their majority. Gavels on Senate Banking and Senate Finance therefore stay with the GOP. But ranking members will play a critical role in fashioning legislation and holding regulators accountable for overreach in the 116th Congress.

This morning, Donald Trump signed the continuing resolution presented by Congress that now funds the government through December 21. On that date or prior, Congress must act or a government shutdown will begin.

Happy weekends all,

Dana

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Senate Banking Committee

In the next Congress, Sen. Crapo will continue to serve as Banking Committee chair. Sen. Brown, a critical center of gravity for progressive banking policy on Capitol Hill, will remain Ranking Member. Sens. Donnelly and Heitkamp, both moderate members of the Committee, lost their seats in the midterm election and therefore, the Committee. Their defeats change the complexion and reduce the number of moderate members on the Committee.

Senator-elect Kyrsten Sinema is the most frequently mentioned candidate to join as a new member on the Committee, but the full makeup and ratios are yet to be decided. Sinema, with experience serving on the House Financial Services Committee, would have a distinctly moderate voice among the Committee Democrats.

Sen. Crapo will continue to conduct oversight of the regulatory implementation of S. 2155 next year. Sens. Crapo and Brown have a good working relationship, which bodes well for potential areas of bipartisanship, such as GSE reform. Prior to the passage of S. 2155, Crapo launched a joint effort with Brown and publicly solicited for ideas to craft a bipartisan bill. Negotiations eventually broke down, but it shows a commitment by Crapo to work with Brown on this area going forward. Also watch for a new dynamic between the House and Senate, as Crapo’s agenda may conflict with Rep. Waters’ as Chair of House Financial Services.

Housing: Wait Till Next Year Again?

Outside of the contentious issues surrounding big bank deregulation, the following areas are where we see possible legislative agreement between Chair Crapo and Ranking Member Brown:

• Housing reform: A bipartisan housing finance reform bill was crafted this past January by Sens. Corker and Warner, but Sen. Reed and Ranking Member Brown felt that the bill didn’t do enough to address affordable housing. This area becomes more promising now that Democrats control the House, as Chair Waters has put affordable housing high on her priorities list in HFSC. Sen. Brown wants a GSE reform package that addresses affordable housing, but that doesn’t preclude the House from looking at it separately and working in tandem with the Senate on workable proposals. 
• Big data and privacy reform: Sen. Crapo has publicly stated his intention to push for major legislation to tackle big data and privacy issues heading into 2019. Proposals in this area would likely garner Democrat support and might be similar to the recent General Data Protection Regulation privacy protections that went into effect in the European Union earlier this year. 
• BSA/AML reform: Changes to the Bank Secrecy Act to combat illicit financial transactions and reforms to anti-money laundering laws are also areas for both parties to come to the table. Sen. Brown has called this issue an important topic, reflecting his priorities of protecting consumers and holding big banks accountable.

Other areas of potential bipartisanship include flood insurance reform and issues surrounding proxy advisors and their duties to Main Street investors. The Export-Import Bank has allies on both sides of the aisle, as many on the committee see the agency as a job creator and a deficit reducer. Financial technology (or Fintech) is also ripe for bipartisanship as Congress continues to grapple with how to regulate this nascent sector.

JOBS 3.0 Redux

Rep. Hensarling, departing Chair of HFSC, has been pushing for a Senate vote during the lame-duck session on the JOBS 3.0 package that passed through the House in July. Despite his insistence, action before the end of the year is looking increasingly unlikely. The full package (see here) contains some dubious regulatory relief bills and would require reintroduction by another member of Congress should it not be voted through before 2019. It is possible that some of the bills in the package could be re-worked, including improving the Accredited Investor standard, to make the package more palatable in the 116th Congress.

Senate Finance Committee

Sen. Wyden remains Ranking Member of Senate Finance in the next Congress. He has been a healthcare champion in the past, pushing through critical expansions in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) earlier this year. The horizon on tax reform in Congress is limited, though Ranking Member Wyden has a history of advocating for more progressive and fair tax policy. He will continue to be a vocal counterweight to Sen. Grassley’s agenda.

Sen. Grassley will replace Sen. Hatch as chair of Senate Finance, marking his return to the committee after serving as Chair from 2003 to 2006. Like Hatch, Grassley is a traditional, party-line, GOP voice. He is a staunch opponent to financial regulation and reasonable tax rates, and has voted in the past for generous exemptions for large corporations.

Legislative Agenda

Grassley can be expected to pursue technical fixes to the Tax Cuts and Jobs Act (TCJA) — the GOPs signature tax reform bill passed last year. Senate Finance Republicans met with Treasury Secretary Mnuchin this week to discuss potential revisions to the law. Though current House Ways and Means Chair Brady has tried to get a floor vote on corrections to the TCJA during this lame-duck session, action on the legislative front looks unlikely before the next Congress.

We can also expect to see oversight — but not in the way Democrats will like. Sen. Grassley has said he plans to prioritize “diligent oversight” of government bureaucracy, particularly with regards to healthcare, blaming “excessive regulation” for a dysfunctioning government.

Area of Agreement?

• Opportunity zones (OZs): OZs provide various tax incentives to businesses in economically distressed areas. Championed by Republican Sen. Tim Scott and originally supported by Sen. Cory Booker, opportunity zones offer temporary tax deferrals, tax liability reductions, and tax exemptions on capital gains.

Despite this initial glimmer of bipartisan hope, Sen. Wyden and other Democrats have vocalized concerns for the program, citing the potential for conflicts of interests by elected officials in the use of zoning for political or financial gain. Other concerns include potential gentrification and tax benefits going to parties who would have invested in OZs without the legislation. Another concern is larger established businesses crowding out local upstarts, the intended beneficiaries of the bill — a point exemplified by the recent decision from Amazon to locate its new headquarters in an opportunity zone in Long Island City.

Leading in Minority

Senate Democrats may not hold the gavels on these committees, but they will still be able to pursue positive agendas with the Democrat-controlled House on a limited and selective basis.