WASHINGTON — With the recent focus by House lawmakers on bills to help small businesses build capital, they appear to be putting aside their angst over the Dodd-Frank Act, at least temporarily.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has been preparing a package of bipartisan bills aimed at reforming securities rules to aid investors, mergers and acquisitions and other types of capital formation.
But the legislative effort, which includes combining some bills that have already passed the House, is also symbolic.
The measures represent the follow-up reforms that Hensarling said he expects Congress to consider after the House agreed to pass the recent Senate bank deregulatory bill — making targeted changes to Dodd-Frank — despite the House GOP's desire to more dramatically curtail the post-crisis regulatory regime.
Yet the capital-formation bills, which largely stay clear of bank regulatory issues, suggest a shift in focus.
“The whole 'We are replacing and repealing Dodd-Frank’ is clearly over," said Karen Shaw Petrou, managing partner at Federal Financial Analytics. "It was rhetorical at best but it’s over for now.”
Hensarling, who is retiring from Congress, has called the package an update to the Jumpstart Our Business Startups Act, a law focused on small-business funding passed during the Obama administration. The "JOBS Act 3.0" package deals with everything from how firms access the capital markets to changes in investor disclosures.
It includes bills that have passed the full House or the Financial Services Committee with broad Democratic support, including eight bipartisan bills that the committee marked up this past week. A series of amendments to the JOBS Act were scheduled for House floor time this Tuesday.
They include some provisions dealing specifically with financial services firms, such as a bill setting a two-year schedule for large banks to submit living wills as required under Dodd-Frank. Banks have generally had to submit the resolution plans annually. The bill previously passed the House 414-0. Credit union advocates, meanwhile, have hailed the inclusion of a two-year delay in the National Credit Union Administration's risk-based capital rule.
But the package is more generally focused on non-bank regulatory issues.
“It’s more of a shift toward small-ball capital formation bills at this point and not banking deregulation,” said Ian Katz, a director at Capital Alpha Partners.
Capital formation for small businesses is less politically fraught than making further changes to Dodd-Frank beyond the Senate reg relief bill authored by Banking Committee Chairman Mike Crapo, R-Idaho.
Hensarling's dramatic Dodd-Frank rollback proposal in his Financial Choice Act failed to garner enough Democratic support, but many of the securities-related bills that have already been part of the reg relief discussion in the last couple of years do not stir as much as controversy.
“Outside of the Crapo bill and what the House did as part of Chairman Hensarling’s Financial Choice Act, there’s also been bills geared toward the capital markets and capital formation,” said Brian Gardner, director of Washington research at KBW. “Those bills are now on the front burner of" financial services legislation.
A pivot away from Dodd-Frank reforms was echoed in remarks by Rep. Patrick McHenry, R-N.C., published in a Bloomberg News interview this past week. His comments were significant since he is a front-runner to succeed Hensarling as the Financial Services Committee's chairman, if the Republicans hold the House in November.
“We need to get out of this Dodd-Frank morass we’ve been in,” McHenry was quoted as saying. “The next crisis will look different from the previous crisis, so we need to be forward-looking when it comes to legislating.”
Rep. Maxine Waters, D-Calif., the committee's ranking member and likely chair if the Democrats gain control in November, announced her support for bipartisan bills that have already passed the House. They included a bill she helped sponsor for the SEC to look at ways to improve investment research for small issuers, and other securities-related measures. She had been a sharp critic of rolling back Dodd-Frank.
Lawmakers could still decide to refocus on bank deregulation, particularly if the GOP holds on to both chambers. Whether Congress returns to debating Dodd-Frank reforms could also depend on which lawmakers chair the two banking committees next year.
But observers said lawmakers' shift to capital formation coincides with the banking industry’s focus on seeking reforms from the bank regulatory agencies at the implementation level, rather than Congress. The regulators not only are tasked with implementing provisions of the Crapo bill, known as S 2155, but are also weighing changes to other Dodd-Frank-mandated rules.
"They are looking to make some potentially significant changes to how Dodd-Frank was implemented,” said Justin Schardin, a fellow at the Bipartisan Policy Center. “So I think that’s where banks are focusing now — you’re talking Volcker Rule, stress testing, capital rules.”
Hensarling signaled the change in emphasis this past spring, even as he insisted that the Crapo bill would not be the end of financial policy bills voted on by the full Congress.
“Now it’s important that we unleash capital through our financial circulatory system,” Hensarling said at a briefing with reporters in March. “And so, bills that are in vein of the JOBS Act.”
But despite bipartisan support for many of the JOBS Act 3.0 measures in the House, it is still not clear that the package can move through Congress before attention shifts even more to the midterm elections later this year.
“I’m still skeptical that there are going to be Senate Democrats who are going to go along with this before the election,” Katz said. “It’s a tall ask.”
While Republicans and Democrats have expressed concern with the decline in companies going public, there are still disagreements on which issues facing those companies need to be addressed.
“I think there’s bipartisan support for getting more capital to small businesses and entrepreneurs,” said Schardin. “I think there’s some disagreement on what to focus on. Should it be IPOs? Should it be decreasing regulations on securities offerings? …There’s a lack of consensus on why there’s been fewer startups over the last few decades.”
Meanwhile, other higher-profile fights are still on the Senate docket, including the effort to confirm Judge Brett Kavanaugh to fill a vacancy on the Supreme Court. A number of administrative appointees also still need to be confirmed by the Senate this Congress, including Richard Clarida and Michelle Bowman to seats on the Federal Reserve Board.
"How [Senate Majority Leader Mitch McConnell] prioritizes these things, I don’t think this is a high priority,” Gardner said.
