While the prospects for Congressional passage of a financial deregulation bill in 2017 are uncertain, that doesn’t mean bankers can’t look forward to a possible future loosening of the regulatory restrictions they’ve operated under since passage seven years ago of the Dodd-Frank Act.
On June 8, the Republican-controlled House of Representatives passed on a near party-line vote the Financial Choice Act, sponsored by Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. The measure would repeal several key components of Dodd-Frank including restrictions against proprietary trading (known as the Volcker Act), while also drastically altering the structure and authority of the Consumer Financial Protection Agency (CFPB).
But the Financial Choice Act faces much tougher sledding in the Senate, which the Republicans control by just two seats. There, any financial deregulation bill would need 60 votes to pass and many Senate Democrats have voiced strong opposition to any significant unwinding of Dodd-Frank, which was enacted by a Democratic-controlled Congress following the financial crisis. Brian Gardner, a managing director and Washington research analyst at Keefe Bruyette & Woods, expects any relief measure coming out of the Senate to be modest in comparison to the House measure. “I don’t think there will be a bill on the president’s desk this year,” he adds.
But does that mean bankers can’t expect any regulatory relief in Washington where Republicans control both houses of Congress and the White House? Not necessarily, because the Trump Administration has the opportunity to appoint new—and perhaps friendlier—leadership at several key bank regulatory agencies.
The administration has already nominated former banker Joseph Otting to head up the Office of the Comptroller of the Currency, which supervises nationally chartered banks. Otting would replace former Comptroller Thomas Curry, an Obama Administration appointee whose five-year term expired earlier this year. Otting, who was chief executive officer at OneWest Bank from 2010 to 2015, might be expected to take a more sympathetic view of the regulatory burden that banks operate in—much of it related to Dodd-Frank. Curry, by contrast, was a career regulator who had never run a bank.
The Trump Administration also has the opportunity to appoint an entirely new slate of directors to the Federal Deposit Insurance Corp.’s five-member board over the next year and a half, including a replacement for Chairman Martin Gruenberg, whose five-year term as chairman expires in November. President Trump nominated former congressional staffer James Clinger to replace Gruenberg, but Clinger has since withdrawn his name from consideration, citing family concerns. Gruenberg was a Senate staffer and trade association president before coming to the FDIC.
The FDIC board consists of three independent directors appointed by the president, as well as the comptroller of the currency and director of the CFPB. Richard Cordray’s five-year term as CFPB director runs through July 2018. A piñata for Republican criticism in Washington almost from the day he took the job, Cordray most certainly will not be reappointed by Trump, and it has been reported that he may run for governor in his home state of Ohio next year.
There are also three open seats on the Fed’s seven-member board of governors, including someone to serve as the Fed’s point person on financial regulation. Former Fed Governor Daniel Tarullo had played that role during the Obama Administration, and was known for taking a tough regulatory stance on the country’s largest banks, stepped down from the board in April. His place would be taken by Randal Quarles, a former Treasury department official under George Bush who has been nominated to serve as vice chairman for supervision. Quarles said in his prepared remarks before the Senate Banking Committee this week that post-crisis bank rules need some “refinements.”
But the most important regulatory position of all belongs to Fed Chair Janet Yellen, whose term ends in February 2018. Not only is the Fed considered to be first among equals of the regulatory agencies, but Yellen also controls the agenda at the Fed—including what gets talked about at meetings, Gardner says. Yellen was an Obama appointee and has largely been supportive of the past administration’s regulatory philosophy. Gardner says that historically most Fed chairs get two terms, although Trump has been noncommittal about reappointing Yellen. While it would be unusual for Yellen not to be reappointed, Trump has shown that he’s not a slave to convention. Asked what he thinks the president will do, Gardner, laughing, says “I have absolutely no idea.”