What Banks Should Watch for in Congress' Lame-Duck Session

WASHINGTON - Lawmakers could address several key bills for the financial industry this fall during what is anticipated to be a brisk lame-duck session.

Overall, the final legislative period of the year is expected to live up to its name (with an emphasis on lame), with just the most crucial measures likely to be addressed by Congress following the Republican wave on election night.

The GOP will take control of the Senate in January and operate with an even stronger majority in the House - the first time in eight years the party will lead both chambers. With new leadership on the way in, it's unlikely lawmakers on either side of the aisle will have an appetite for protracted legislative battles in the coming weeks.

Still, some observers are hopeful there could be activity on several time-sensitive banking measures ahead of next year.

"We do hope that since banking matters have been put on sidelines that they will be addressed in the lame-duck session, and that we'll have a good head start for more positive action in the new Congress," said James Ballentine, executive vice president of congressional relations and political affairs for the American Bankers Association.

Senate Democrats are expected to focus much of their energies on the confirmation process for pending nominees, including a number of judges awaiting final approval.

Congress will also have to pass another stopgap measure to fund the government by mid-December, and will likely tackle a major package of so-called tax "extenders," including an extension of the Mortgage Forgiveness Debt Relief Act, which exempts homeowners from paying taxes on gains from loan modifications and short sales, and a provision allowing private mortgage insurance premiums to be deducted.

But two key measures remain up in the air for the banking industry, including a clarification to a Dodd-Frank Act amendment on capital standards for insurers and the reauthorization of the Terrorism Risk Insurance Act, which expires at the end of the year. It's still not entirely clear whether lawmakers will address those issues outright or try to punt them into the next Congress.

The Senate approved a bill to affirm that the Federal Reserve can apply insurance-based capital standards to systemically important insurers in June without objection. But the House version of the bill, which passed in July, came with several additional tweaks to Dodd-Frank: exemptions for collateralized loan obligations under the Volcker Rule and for end-users from margin requirements under swaps rules, along with a measure altering the calculation for certain "points and fees" under the Consumer Financial Protection Bureau's qualified mortgage rule.

The bill passed the House by a vote of 327 to 97, including support from 100 Democrats. Banking trade groups have been supportive of the more comprehensive legislation, arguing that the added measures previously passed the House with strong bipartisan support.

Ballentine added that his group would also continue to push for Senate passage of several other widely supported House measures, including a bill to eliminate annual privacy disclosures and legislation to raise the small bank holding company threshold.

Still, several analysts said they expected the "clean" version of the Collins amendment fix to ultimately pass this fall - without the House amendments. But the experiment may shed some light on where the debate over changes to Dodd-Frank could start next year under the Republican-led Congress.

"In retrospect, it feels like the House Republicans added non-controversial measures to the bill as a test balloon, knowing full well that Democrats would call their bluff," said Isaac Boltansky, an analyst at Compass Point Research & Trading. "It gives us a sense of the contours of the debate in 2015. We've now seen who can support such measures on the Democratic side in the House."

The other potential fight brewing for the financial services industry is over how far the reauthorization of TRIA should go in putting the private sector on the hook for losses incurred from a terrorist attack.

The Senate overwhelmingly passed a bill in July renewing the law for seven years with some minor tweaks, while a more conservative Financial Services Committee proposal has yet to make it to the House floor. That legislation, introduced by Rep. Randy Neugebauer, R-Texas, and backed by Chairman Jeb Hensarling, R-Texas, would extend the program for five years but make more significant changes to its structure, including raising the trigger for when the guarantee would kick in and bifurcating certain kinds of terrorist events. The measure is opposed by Democrats as well as some Republicans who represent large metropolitan areas.

It's not yet known whether House leaders will opt for a short-term extension and give the Neugebauer bill a chance to come to the floor, or whether they'll push for quick passage of legislation closer to the Senate version just to get the issue off their plates before next year.

If supporters of the House bill can whip enough votes, it's probable Speaker John Boehner and others would opt to support that effort.

"If they can get close to achieving a majority, leadership would likely be willing to pass a short-term extension and continue to negotiate with the Senate," said Brandon Barford, a partner at Beacon Policy Advisors.

But Barford cautioned that it's doubtful leadership would be willing to go out on a limb for the bill.

"Boehner has indicated publicly that he wants to reduce the federal role in the program over time to protect taxpayers, but I do not see him getting far ahead of the conference if there is not enough support for that position - eventually leadership will want to clear this issue off the agenda in order to close out the legislative calendar," he said.

Boehner said this week he was supportive of Hensarling's reforms, but that a short-term extension could also happen.

"I support Chairman Hensarling's goal of enacting a long-term TRIA extension with reforms that protect taxpayers," Boehner said in a statement to Politico. "Without action on such a measure, a short-term extension may be necessary."

Part of the calculation on both the Collins amendment fix and TRIA may ultimately come down to messaging. After big wins at the ballot box, Republicans are likely to be eager to show that they can actually get legislation approved.

"A lot of Republicans want to reassure the business community that Congress is not just a bunch of bomb throwers interested in dramatic fights over the debt ceiling - that they can accomplish things that facilitate a better business environment," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.

Meanwhile, the Senate Banking Committee is also planning to hold several hearings in the coming weeks, including a Nov. 13 nominations hearing for an assistant secretary at the Department of Housing and Urban Development and an administrator at the Department of Transportation.

Sen. Sherrod Brown, D-Ohio, will also hold a financial institutions and consumer credit subcommittee hearing on regulatory "capture" at the banking agencies on Nov. 21.

Brown is a top contender to serve as the top Democrat on the full committee next year, alongside Sen. Richard Shelby, R-Ala., who is poised to take retake the gavel. Sen. Tim Johnson, D-S.D., the current chairman, will retire at the end of the term.

Analysts will be closely watching for any indications about where Shelby and Brown will focus their energies next year.

"It will be interesting to see if there are any other Banking Committee hearings as a capstone for Johnson. One question would be the topics that he would choose. Another is the tenor of Brown and Shelby," said Barford.