WASHINGTON — Despite months of intense lobbying, the financial services industry failed to secure a number of key reforms in Congress's must-pass spending package, which was unveiled Tuesday night.
The $1.1 trillion budget deal to fund the government through the end of the fiscal year included just a small handful of financial services measures and no additional regulatory relief under the Dodd-Frank Act.
Sen. Richard Shelby, R-Ala., chairman of the Banking Committee, had been pushing hard for moving his sweeping regulatory reform package in the yearend deal, which would have included numerous changes for small and medium-sized banks, as well as reforms to the Federal Reserve, the Federal Stability Oversight Council and the insurance industry. His bill included a much-discussed measure to raise a $50 billion Dodd-Frank threshold for heightened capital rules and regulations, among other items. Lobbyists also fell short in an effort to delay a controversial Department of Labor rule regarding retirement investment advice.
Shelby vowed in a statement to "continue to champion prudent reforms" for the banking industry going forward, while criticizing Democratic efforts to stop any financial services measures from making it into the bill.
"Unfortunately, Democrats continue to reject any meaningful reforms to reverse the damage done by overregulation," the chairman said. "As a result, excessive regulation will continue to constrain economic growth which means fewer jobs."
The national credit union trade associations weighed in with their views. CUNA said it was "disappointed" Congress "missed an opportunity" to provide regulatory relief.
Jim Nussle, president and CEO of CUNA, issued a statement saying, "While there are provisions in the bill that provide some positive impact for credit unions, we are disappointed Congressional leaders were unable to reach an agreement on the bipartisan issues impacting small financial intuitions that would garner significant regulatory relief for credit unions and our over 100 million members."
Dan Berger, president and CEO of NAFCU, noted the omnibus agreement addressed not just cybersecurity information sharing, but also included a NAFCU-backed provision requiring NCUA to report to Congress on what would be appropriate capital requirements for mortgage servicing assets related to its risk-based capital rule.
"We thank lawmakers for adding provisions to this funding bill that benefit the credit union industry," said Berger. "A special thanks to Senate Banking Chairman Richard Shelby and House Financial Services Chairman Jeb Hensarling for pushing for regulatory relief in this package. These provisions are a step in right direction for credit union regulatory relief but much more needs to be done. We look forward to working with Congress in 2016 to enact more regulatory relief for credit unions."
NAFCU noted NCUA will have to report to Congress within six months on what impact the agency’s final rule will likely have on credit union MSAs and their ability to compete with others in the marketplace. Other banking regulators will conduct a similar study for banks using Basel requirements.
"NAFCU and our members would also like to thank the cybersecurity conferees who made sure to include in this year-end package the NAFCU-backed S. 754, the ‘Cybersecurity Information Sharing Act,’ which would encourage faster sharing of cyber-threat information among the business and government sectors," said Berger. "We look forward to working with Congress to also pass urgently needed national data security and breach notification standards for retailers."
Further policy provisions in the omnibus would require CFPB committees and subcommittee meetings to be open to the public to bring greater transparency to the bureau, NAFCU said. Another provision would help ensure the confidentiality of information shared between federal financial regulators and state regulatory agencies.
The omnibus spending package for fiscal 2016 is projected to be passed by Congress within the next week, and the president is expected to sign the bill, Berger said.
"In any housing finance reform efforts, NAFCU continues to push for equal access to the market for credit unions and fair pricing based on loan quality as opposed to volume," Berger added.
Protesting Additional Provisions
Many Democrats, particularly progressives, are still angry after lawmakers approved the unraveling of a key Dodd-Frank swaps provision in last year's budget package. Several lawmakers, including Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, took to the Senate floor in recent weeks to protest additional provisions this time around. Presidential contender Hillary Clinton also weighed in, pressing Democrats to reject any Wall Street policy riders in a New York Times op-ed earlier this month.
"A partisan approach is usually not successful in the Senate. This year proved no different. Given how many Americans are worried the government is not looking out for their interests, the Democratic leadership and the White House should be commended for rejecting controversial riders to undermine Wall Street reform," Brown said in a statement.
House lawmakers, meanwhile, also had been pushing a number of regulatory relief items for the banking industry — albeit ultimately without success, given the charged political environment.
"One of the things that's been demonstrated not just through these negotiations, but all year long — some of the reg relief, particularly for financial institutions, has become a fairly difficult political lift," said Rep. Randy Neugebauer, R-Texas, in an interview. "And I think I attribute a lot of that to a couple of very vocal senators on the other side of the building and in the other party. Anytime there's a discussion about fixing some unintended consequences, they'll raise the red flag that somehow Republicans are trying to repeal Dodd-Frank."
At the same time, it's possible that the banking measures provided crucial bargaining chips for Republicans to secure unrelated concessions, particularly in a tax extenders bill that was also unveiled Tuesday night.
"Republicans were able to use the push for financial services riders to get other, non-bank items," said Edward Mills, a policy analyst at FBR Capital Markets. "Republicans got more on tax provisions than Democrats would have liked to give up, but in exchange, Democrats held their ground on financial reforms and Dodd-Frank."
Perhaps the most crucial language included in the budget deal for the industry is a provision that ensures the Treasury Department cannot sell its stake in Fannie Mae and Freddie Mac until at least 2018, putting to rest rumors that the White House could pursue a unilateral deal to recapitalize and release the government-sponsored enterprises before the end of its term. The Obama administration has vigorously and repeatedly denied such rumors, but the measure ties the president's hands more formally.
The Jan. 1, 2018 date included in that measure also coincides with a deadline for when the housing behemoths will no longer hold any remaining capital, raising the odds that one or both could need another draw from the government in the event of a bad quarter. Under an agreement with Treasury, the amount of capital the GSEs are allowed to maintain is ratcheting down over time.
"It's a collision path towards 2018 on GSE reform efforts," said Mills.
The bipartisan deal also includes final language regarding the sharing of cybersecurity threat information between the private sector and government. The banking industry and other business interests had been pushing hard for the passage of legislation to encourage more data sharing and provide liability protections for firms when they do so. Lawmakers reportedly agreed on language reconciling earlier House and Senate versions of the bill just ahead of the budget package being finalized on Tuesday.
"This is a strong bill that takes an important first step to address a significant drain on our economy and threat to our national security," Sen. Diane Feinstein, D-Calif., one of the lead authors of the bill, said in a statement Wednesday. "I’m glad we finally reached this agreement after years of work and I look forward to seeing it signed into law soon."
The insurance industry also scored a win with the Policyholder Protection Act, a bill that clarifies that the use of insurance assets to help support a troubled depository institution within a broader company. It also revises provisions regarding the winding down of a complex financial institution with an insurance company under it.
Also included in the final budget language is a request for a report by the Office of Management and Budget detailing the total federal costs related to the implementation of the Dodd-Frank Act through 2018. In addition, lawmakers included language that any executive order from the White House for the rest of fiscal year 2016 must be accompanied by a cost-benefit analysis from the OMB.
NCUA is now required to report to Congress regarding capital requirements for mortgage servicing assets under its risk-based capital rule. And the Consumer Financial Protection Bureau now must comply with the Federal Advisory Committee Act, which sets transparency rules for agency advisory groups.
The related tax extenders legislation provides two-year tax extensions for several key mortgage items, including the mortgage interest deduction and the Mortgage Forgiveness Debt Relief Act, which shields homebuyers going through a foreclosure or mortgage modification from paying taxes on the forgiven debt. The measures will apply retroactively for 2015 and through the end of 2016.
"There's still a lot of people underwater who are working out resolutions, so having the ability to have that not be a taxable event allows those to go through," said Mills. "A lot of people who've done short sales this year that would have a big tax bill."
