WASHINGTON — As the Trump administration tussles with congressional Democrats over border wall funding and the threat of a government shutdown looms, the budget battle has all but killed the chance of more financial services reforms before the end of the year.
After passage of the regulatory relief bill known as S 2155 in May, congressional Republicans have attempted to bring additional banking relief measures to the table before the end of the year, potentially by adding policy riders to a must-pass appropriations package.
But as Congress gets closer to its Dec. 21 deadline to keep the government funded, the outlook for more reg relief keeps getting worse. House Financial Services Committee Chairman Jeb Hensarling, who is retiring, has attempted to advance a capital-formation bill, with several banking-related measures mixed in, but the chances of its enactment before 2019 seem remote.
“While there will be some attempts to push financial policy goals through riders to the year-end spending bill, they probably won’t be pushed very aggressively given the recognized difficulty of getting them through in the current environment,” said Quyen Truong, a partner at Stroock & Stroock & Lavan. “The possibility of a government shutdown over financial services policy riders is low.”
President Trump has threatened to let the government close if Democrats do not accept his $5 billion demand for building a wall at the southern border. Democrats, who maintain filibuster power in the Senate, have instead indicated support for just over $1 billion.
“The spending fight is going to be over how much money is there for building a border wall,” said Jaret Seiberg, an analyst at Cowen Washington Research Group. “I’m not sure there’s really an appetite to do much more" bank reg relief. "Everyone just wants to go home.”
The year-end budget approval process is typically viewed as a final opportunity to enact legislative reforms that could not pass on their own. Such policy riders are often uncontroversial, but at times they include substantive reforms. For example, a provision in the 2014 omnibus spending bill signed into law eased Dodd-Frank Act restrictions on companies dealing swaps through an FDIC-insured subsidiary.
Yet unlike past years, when the industry has had to look to the appropriations process for a big win, the industry already notched that win in May with the passage of S 2155.
“What’s most remarkable is how few things really are in play for financials or housing in the year-end spending bill,” Seiberg said. “There’s usually at least 10 to 12 issues that have a chance of getting included. But all the usual suspects were included in the bank deregulatory bill that was enacted in the spring, and so there isn’t a lot of unfinished business to try to jam into a spending bill.”
Instead, much of the industry's focus is ensuring that budget initiatives included in past spending bills, which benefit financial institutions, escape the chopping block.
“We are not really trying to add anything to disrupt the final budget process,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
Merski said community bankers would hope to see the year-end budget include an extension for the National Flood Insurance Program, as well as funding for the community development financial institutions fund.
Although the Trump administration may be considering cutting back on the CDFI fund, “it’s something that Congress will prevail on: keeping that money in the final budget,” Merski said.
It would be a higher hurdle to include the House-passed capital formation package. Hensarling's bill is seen as a a third iteration of the Jumpstart Our Business Startups Act, or JOBS Act 3.0. The bill passed the House by more than 400 votes, including support from Rep. Maxine Waters, D-Calif., who is poised to hold the Financial Services Committee gavel next year. But Hensarling has pushed for the Senate to hold a vote as well.
For months, Hensarling has insisted that Senate Majority Leader Mitch McConnell, R-Ky., had promised to give the bill floor time. But with legislation requiring 60 votes in the Senate, Democrats on the Banking Committee — led by ranking member Sherrod Brown of Ohio — likely have a say.
“Chairman Hensarling clearly would like to see that legislation enacted before he retires, and it is supported by Waters,” said Dan Crowley, a partner at K&L Gates. “The wild card seems to be Sen. Brown, who effectively has a veto.”
While the legislation is mostly focused on enabling companies to go public more easily, it would set a two-year schedule for large banks to submit resolution plans known as "living wills," and require the Federal Reserve and the Federal Deposit Insurance Corp. to provide feedback within six months after a living will submission. It also includes a provision hailed by credit unions to set a two-year delay for the National Credit Union Administration’s risk-based capital rule.
But Seiberg said there still isn’t a clear path forward for JOBS Act 3.0 this year.
“You can’t rule out JOBS 3.0, but it faces an uphill fight,” Seiberg said. “The provisions in JOBS 3.0 represent the issues where you’re most likely to find bipartisanship in the House next year. So Democrats might not want to take those opportunities off the table for next year by putting them in the year-end spending bill.”
Crowley said the fate of that bill will likely be determined by the priorities of congressional leadership.
“Only four of 32 provisions" in JOBS Act 3.0 "were even remotely controversial, so inclusion of all or much of it remains viable,” Crowley said. “The biggest question probably is whether it survives the inevitable end-of-session horse trading, which ultimately is about the priorities of leadership.”
Brandon Barford, a policy analyst at Beacon Policy Advisors, said Senate Appropriations Committee Chairman Richard Shelby, R-Ala., and Vice Chairman Patrick Leahy, D-Vt., have sought to limit the influence of policy riders in the year-end spending debate.
“Shelby and Leahy ... worked very well as kind of a bipartisan appropriator team,” Barford said. “It largely has been the case that the most controversial things on any of the bills have been shoved off. … Most of these bills are fully written with a handshake and they are just waiting to fill the dollar amount for the border security.”
