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Financial Services

During the four previous years of Hensarling’s chairmanship, most of the committee’s major bills died quietly in the Senate, such as efforts to repeal much of Dodd-Frank (the CHOICE Act), impose substantial reforms upon the Fed, restructure the CFPB and strip the FSOC of various powers. That may change now that the House, Senate and White House will operate with greater coordination, though the threat of the Senate filibuster limits what Republicans can achieve. Hensarling notably has enjoyed a longtime friendship with Vice President-elect Mike Pence, which will give him a powerful ally in the White House as the new administration plots its strategy for financial regulation and nominates key appointees for the regulatory agencies. Hensarling agrees with Senators Crapo and Brown on the importance of capital for big banks, but he wants to reward banks with relief from much of Dodd-Frank’s supervisory regime if they agree to a higher leverage ratio. Hensarling can be expected to reintroduce his CHOICE Act and Rep. Bill Huizenga’s (R-MI) package of Fed reforms (the FORM Act), and to renew the panel’s aggressive oversight of the CFPB, the FSOC and other bodies established by Dodd-Frank. Republicans have also been critical of moves by global regulatory bodies to set capital and liquidity rules for “systemically important” banks and insurance companies.

Wells Fargo Scandal. Lawmakers in both the House and Senate are certain to resume their investigations of Wells Fargo in the wake of revelations that the bank’s employees created as many as 2 million accounts without customers’ consent. Hensarling and other Republicans want to use the scandal to raise questions about the performance of the CFPB and the Office of the Comptroller of the Currency (OCC), while Ranking Member Waters has vowed to offer a bill breaking up Wells Fargo into smaller companies. On the Senate side, Ranking Member Brown has used the scandal to focus on mandatory arbitration provisions in financial contracts, and will likely propose legislation prohibiting such clauses, though Sen. Crapo is unlikely to support him. In an editorial piece in October, Camden Fine, president of the Independent Community Bankers of America (ICBA), wrote that he “fully expected” that Wells Fargo’s new policy of notifying customers whenever a new account is created in their name, along with “far more stringent policies, will ultimately become mandatory as policymakers respond to the scandal with additional regulatory burdens on banks of all sizes.”

Oversight of Regulators. As they have in previous years, the banking committees in 2017 will devote considerable time to overseeing rules issued by financial regulators. These will include the still-unfinished interagency rules for clawing back incentive compensation drafted by the SEC, the Fed, the FDIC and other agencies; the CFPB’s controversial new rules for prepaid cards, payday lenders and mandatory arbitration clauses; the global Financial Stability Board’s forthcoming regulations for capital held by large insurers; and the international Basel Committee’s rules for bank capital, which are expected to be issued by the end of this year. The Banking Committee must also schedule hearings for high-level Treasury nominees, as well as nominees for key vacancies at the SEC, CFTC, the Federal Reserve and the Ex-Im Bank, which were never filled in the current Congress because of lingering disputes with the Obama administration.

Two Deadlines to Watch: 1) the largest banks resubmit their “living will” resolution plans in May 2017, always a source of contention for critics of “too big to fail”; 2) the Terrorism Risk Insurance Act (TRIA) expires at the end of 2017, forcing yet another ideological dispute over whether the federal backstop program should be renewed.

EY | 22 | Election 2016

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