Four Takeaways for Banks from the GOP's Sweeping Election Victory

WASHINGTON — The Republicans scored a big win late Tuesday, gaining seats in the House and reclaiming control of the Senate after eight years.

While that thought may initially cheer the banks and other financial institutions that were rooting for the GOP in this election cycle, hopeful for the chance at regulatory relief, the election results may not be as transformative as they hope.

Here are four things to keep in mind in the wake of the GOP's successes.

1. The Senate remains closely divided

Republicans will now have at least 52 seats in the Senate, with results in Alaska still being tallied on Wednesday and a runoff in Louisiana scheduled for Dec. 6.

Regardless of how those contests turn out, the GOP is poised to fall short of the critical 60-vote threshold needed to make legislation filibuster-proof. That means they'll still have to compromise with Democrats to move important pieces of legislation.

The most controversial banking bills the GOP might want to push through — on issues like changing the Consumer Financial Protection Bureau's structure or subjecting the agency to appropriations — would still need buy-in from Democrats and independents. That's going to be a hard sell.

2. The President still has veto power

Even if Republicans succeed in getting legislation through a closely divided Senate, the president retains veto power, making it highly unlikely any controversial legislation will be signed into law. Republicans would need at least 67 votes in the Senate to override a veto, far more than they would have even if the undecided contests go their way.

Similarly in the House, which is solidly under Republican control, they would need 290 votes for an override, or at least 40 more than they currently control depending on final election results in a few races.

Ultimately, that means not just compromising with Hill Democrats on a bill to restructure the CFPB, but it also couldn't happen unless President Obama wants reform (spoiler alert: he doesn't.) The same dynamic is also true for any significant effort to roll back the Dodd-Frank Act.

In other words, despite the Republican victories, the fundamental politics underlying the situation haven't been altered: the GOP will have to compromise with Democrats and Obama if it wants to enact legislation. And even if Republican leadership wants to make a deal, that could prove difficult.

"GOP leadership may wish to cut deals with Obama to show Republicans know how to govern," said Jaret Seiberg, an analyst with Guggenheim Securities, in a note to clients. "Yet we believe the rank-and-file are more combative. Some are true believers in the conservative message. Others realize that compromising with the president will leave them at risk of tea party challengers in their next primary."

3. Democrats are favored to retake the Senate in 2016

Republicans will be taking a well-earned victory lap in the coming months, but many recognize there's already trouble on the horizon. Even before Election Night, pundits were arguing that Republican control is likely to be short-lived.

The election map looks far more favorable for Democrats to reclaim the chamber in 2016 — a reversal of fortunes from this year's contest. Democrats had to defend 21 of the 36 seats up for grabs on Tuesday, including six that presidential nominee Mitt Romney won in 2012 and two additional swing states.

By comparison, Republicans will have seven seats up in 2016 in states that President Obama won twice, while Democrats won't have to defend any seats in GOP states. Republicans will also have to contend with drastically larger voter turnover for the presidential election, with larger proportions of young and minority voters, who skew Democrat, expected to weigh in.

At the same time, Republicans will be viewed as the incumbents, forced to defend the status quo and wrangle with an electorate likely to remain dissatisfied with the economy and the direction of the country.

The dynamic may well give Democrats the feeling that while they are out of power now, they are likely to be back soon, making them even less willing to compromise on key issues.

4. The Big losers here are the Fed and CFPB

While CFPB Director Richard Cordray can breathe easy that a bill to reshape his agency is unlikely to be enacted, his life is still likely to become significantly harder. House Republicans have been hammering the CFPB since it opened its doors in 2011, questioning everything from its treatment of employees to the costs of renovating its headquarters.

But CFPB oversight in the Senate Banking Committee has been far less hostile. With Sen. Richard Shelby, R-Ala., set to control the gavel, however, that could rapidly change. The Alabama Republican has been vociferous in his arguments that the CFPB holds too much power. He may not be able to move legislation clipping the agency's wings, but he can hold hearing after hearing demanding it account for its actions.

The situation is just as fraught for the Federal Reserve Board. Since the financial crisis, the cries to "audit the Fed," — that is force it to provide more information about its monetary policymaking — have grown steadily louder on both the far right and the far left. Current Senate Banking Committee Chairman Tim Johnson, D-S.D., is a moderate who doesn't share the skepticism of Fed authority. But Shelby is a well-known Fed critic who voted against Chair Janet Yellen's confirmation earlier this year.

It's likely that Shelby will tighten the screws for both the Fed and CFPB over the next year. Even without a legislative threat, the situation for both agencies is likely to be considerably weaker.