WASHINGTON — In the past two weeks, the industry celebrated a rollback of key Dodd-Frank Act provisions, and regulators proposed easing the Volcker Rule. But a continuing question is whether policymakers have the appetite to provide more regulatory relief.

The biggest question mark is in Congress. House Republicans accepted the Senate's targeted Dodd-Frank bill, which just became law, with the understanding that senators will separately consider more extensive relief measures passed by the House.

Passage of more relief faces difficult odds since Democrats who supported the Senate bill said they are maxed out. But some industry representatives hope additional reforms can make it into a must-pass spending bill, and are eyeing a pending Volcker Rule bill in particular.

President Trump signs reg relief bill
Passage of more reg relief faces difficult odds since Democrats who supported the Senate bill said they are maxed out. But some industry representatives hope additional reforms can make it into a must-pass spending bill. Bloomberg News

“It is much easier to bury administrative provisions in an omnibus bill,” said Dan Crowley, a partner at K&L Gates. “That’s the scenario that I think is most likely.”

The Volcker Rule legislation would go beyond the recent proposal from the banking agencies by consolidating regulatory authority for the proprietary trading ban with the Federal Reserve. It was just one of dozens of piecemeal reg relief bills that have passed the House. While none of those bills made into the Senate package, Financial Services Committee Chairman Jeb Hensarling said senators have committed to their being considered.

“The Senate should follow the strong 300-104 bipartisan vote and work with the House to see this bipartisan bill become law,” Hensarling said of the Volcker Rule bill in a recent statement.

Yet with Republicans holding on to an ultra-slim majority in the Senate, any changes would need at least some Democratic support. That is a tall order given moderate Democrats' resistance to further relief measures, and progressives' vocal opposition to the Volcker Rule changes proposed by regulators. Meanwhile, even some Republicans have expressed concerns about granting big banks more relief over their recent gun control positions.

“If you look ... at the Democratic statements about the" regulatory proposal, "they are strongly opposed to the Volcker actions,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics. “I think it’s going to be a challenge.”

As for other de-regulatory provisions that lawmakers might try to attach to appropriations, Petrou said it’s sort of a toss-up.

“It’s so hard to call what might make it in or not,” Petrou said. She said it ultimately becomes a “lobbying exercise.”

Still, even though the moderate Senate Democrats might try to distance themselves from House amendments, observers said they may vote in favor of a broader appropriations bill that includes certain financial reform measures in order to keep the government open.

“From here on out ... any major piece of financial legislation or regulatory rollback has to attach itself onto a must-pass bill, which would most likely be an appropriations bill,” said Ed Mills, a policy analyst at Raymond James.

An appropriations bill with a significant budgetary impact could give Democrats cover for supporting further deregulation.

The time frame for passing appropriations measures is tight, as Congress needs to pass a bill to keep the government open by Sept. 30 or pass a Continuing Resolution to keep the government open until the end of the year. That often leads to a flurry of legislative measures getting attached to a budget package at a rapid pace, with members most focused on keeping the government running.

“Sometimes people don’t really appreciate what’s in there until it gets signed into law,” Mills said. “There’s so much momentum behind it that it’s almost impossible to stop.”

Crowley also said it is possible that Congress could attach de-regulatory measures to other must-pass legislation, such as the Federal Aviation Administration's reauthorization bill or a farm bill, but the most likely situation would be an omnibus spending bill.

“We’re likely to see a big omnibus bill by the end of the year and I expect that it’s going to include two or three dozen bipartisan House Dodd-Frank reform provisions,” Crowley said. “Given the politics of the Senate, the process won’t be public. It’s going to be a quiet, behind-the-scenes maneuver agreed to at the highest level of leadership and I expect that to happen.”

Even though the Volcker Rule bill did not make it into the Senate reg relief package, it did have the support of 78 Democrats in the House. Other House-passed measures with bipartisan backing include a bill moving away from using a numeric asset threshold to define "systemically important financial institutions."

One factor working in favor of the Volcker Rule bill is a sense that it would not have a huge impact since the multiple agencies now charged with implementing the trading ban all support the recent proposal to simplify compliance.

“The legislative effort to vest sole Volcker rulemaking authority in the Federal Reserve warrants watching in the weeks ahead, but our sense is that the associated revamp timeline would only modestly condense if the streamlining provision is enacted,” said Isaac Boltansky, an analyst at Compass Point Research & Trading.

Crowley and Mills both said they think the bill consolidating the Volcker rulemaking authority has a high chance of passing through appropriations. But others are skeptical about the appetite to further ease the regulation.

Outrage among progressive Democrats over the proposal released by the Fed and the Federal Deposit Insurance Corp. could throw cold water on making further changes legislatively.

Sen. Jeff Merkley, D-Ore., described the proposal as a “massive giveaway to the biggest banks.” Sen. Elizabeth Warren, D-Mass., tweeted that it is the “kind of corruption” common in President Trump’s Washington. And Sen. Sherrod Brown, D-Ohio, said it “creates more risk in the financial system.”

Petrou said there will also likely be pushback from the other regulators besides the Fed that now have Volcker jurisdiction: the Office of the Comptroller of the Currency, FDIC, Securities and Exchange Commission, and the Commodity Futures Trading Commission.

“Typically they all oppose losing any jurisdiction,” Petrou said. “The most reluctant to do it would be the CFTC and SEC.”

But Mills said the Trump administration’s regulators may be more receptive to weakening their authority over the Volcker Rule.

“No one ever likes to give up power,” Mills said. “That being said they probably are more inclined to be in favor because of their general de-regulatory agenda.”

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Neil Haggerty

Neil Haggerty is the Congress reporter for American Banker. He previously was a financial regulation reporter at MLex Market Insight.