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House Speaker John Boehner's surprising announcement reduces the odds of an imminent government shutdown, but raises fresh questions about several key banking priorities.
September 25 -
A measure that would substantially cut the Federal Reserve's dividend payment to member banks is likely to prove difficult to remove from a Senate highway funding bill even though it has few public backers and many critics.
September 1
WASHINGTON — As if there were not enough unanswered questions about efforts to pass regulatory relief legislation, the sudden turmoil in the Republican House leadership this week adds another fresh layer of uncertainty.
GOP leaders appeared to be scrambling Thursday after Majority Leader Kevin McCarthy, R-Calif., unexpectedly announced that he would not run to succeed John Boehner as speaker, and no one emerged to run in his place. The sudden leadership vacuum is heightening concern over whether Congress can unite various factions — including within the Republican ranks — to reach a yearend spending deal and pass several crucial pieces of legislation, including a comprehensive plan to ease the regulatory burden on the nation's banks.
With Sen. Richard Shelby, R-Ala., still not able to gain enough Democratic support for his sweeping regulatory relief legislation as a standalone bill, attention has focused on moving all or parts of it through the budget process. Meanwhile, an inability to pass general fiscal measures, such as raising the debt limit, could spook financial markets. Whoever takes over as House speaker would help determine how those negotiations play out and whether any banking measures get in a final deal.
"There aren't many similarities between Washington and Wall Street but uncertainty is bad for both," Isaac Boltansky, an analyst at Compass Point Research & Trading, said in a research note Friday morning. "With Majority Leader McCarthy's announcement that he would not seek the speakership, the future of GOP House leadership as well as the broader strategy for dealing with forthcoming fiscal cliffs is unclear."
Unfortunately for the financial industry, the unrest may also solidify a Senate plan to cut the Federal Reserve dividend payment to banks in order to help fund the highway transportation bill. Bankers pushed back over the summer when lawmakers introduced the measure — which would slash the dividend the central bank pays to member banks to 1.5% from 6% for institutions with more than $1 billion of assets — but a viable alternative funding mechanism has yet to surface.
"What happened yesterday probably has reaffirmed the direction that Congress is heading" on the legislation, said Brian Gardner, an analyst with Keefe, Bruyette & Woods. "The House is less likely to come up with some alternative to the Senate plan — there's just too much uncertainty and chaos."
Still, some measures supported by bankers may ultimately pass. Gardner cautioned that a key decision on lifting the country's debt limit is still likely to go through in early November, despite the turmoil.
"Yes, there's chaos and it's unclear who the next speaker is going to be," he said. "But at the same time, the debt ceiling has to be raised by Nov. 5 and I don't think anything yesterday changed the dynamics of what the political situation is in the House. A group of Republicans are going to vote 'no' no matter what, and you're still going to have the current speaker working to get a debt ceiling deal finished."
The House Republican caucus has been plagued by questions about its direction for several weeks after Speaker John Boehner abruptly announced late last month that he would resign from Congress at the end of October. Boehner will now stay on until a new speaker is elected after McCarthy stunned his colleagues by declaring on Thursday that he would not run for the top position just minutes before a vote was expected to take place. He had been the clear frontrunner for the position.
All eyes are now on Rep. Paul Ryan, R-Wis., whom McCarthy and others have backed to take over as speaker. Many have suggested that Ryan may represent the best hope for uniting the various GOP factions, but it is unclear at this point that he wants the job or will agree it to take it.
Rep. Jeb Hensarling, R-Texas, chairman of the financial services committee, has frequently been named as a possible contender for leadership in the past, but he declined to throw his name in the hat when Boehner announced his departure last month and is so far supporting Ryan after McCarthy took his name out of the running.
"Chairman Hensarling thinks Chairman Ryan would make an excellent speaker," a spokeswoman said in a statement Friday.
As late as Friday afternoon there was no other clear alternative after Ryan.
"There's no white knight for Republicans," Gardner said. "Every candidate that is going to be looked at is a flawed candidate — no one is perfect."
