Cheat Sheet: How Obama's Budget Would Affect Banking

WASHINGTON — President Obama unveiled his fiscal year 2016 budget plan on Monday, proposing additional funding for several financial agencies and defending core tenets of the Dodd-Frank Act.

The nearly $4 trillion plan proposes numerous changes to the tax code for individuals and corporations, as well as improvements to the country's infrastructure and education resources. The Republican-controlled Congress is expected to ignore most, if not all, of the president's proposals, but the budget plan remains a key barometer of the administration's priorities during Obama's final two years in office.

Below are seven takeaways on what the 2,000-page budget blueprint means for the financial services industry.

A line in the sand over Dodd-Frank, CFPB

Critically, Obama used his budget plan to build on his State of the Union threat last month to veto any proposals that would lead to the "unraveling" of the Dodd-Frank Act, reiterating that he will block efforts that undermine the administration's banking reforms.

The White House will "continue to oppose efforts to restrict the funding independence of the other financial regulators, including the Consumer Financial Protection Bureau, and will fight other attempts to roll back Wall Street Reform," the budget proposal says.

Republicans have long wanted to change the Consumer Financial Protection Bureau's funding process to make it subject to congressional appropriations — a move the White House has repeatedly dismissed.

But with the GOP in control of both the House and the Senate, Obama's defense of the CFPB budget is likely a preemptive strike against any new efforts to alter the agency's funding. Congress sets the budgets for the Securities and Exchange Commission and the Commodity Futures Trading Commission, but the banking regulators are independently funded. The CFPB, meanwhile, is funded by the Federal Reserve.

Critics accused Obama of folding too quickly when Republicans included a provision in must-pass spending legislation repealing a key swaps provision in Dodd-Frank, and the president has reemphasized his commitment to the financial reform law in the wake of that fight.

Still focused on cybersecurity

The new budget proposal calls for $14 billion in funding for enhanced cybersecurity protections in the wake of numerous attacks of retailers, banks and others over the past year.

"No foreign nation, no hacker, should be able to shut down our networks, steal our trade secrets, or invade the privacy of American families," the budget says.

The money would support a variety of measures for better detecting and responding to cyberattacks, along with fostering government's ability to share information with the private sector.

Obama also used the budget to put additional pressure on Congress to "finally pass" cybersecurity legislation. The White House rolled out several cybersecurity initiatives ahead of the State of the Union address, including legislative proposals to nationalize consumer notification standards around an attack and to help protect companies sharing data with each other and the government. Lawmakers have debated these and other cybersecurity issues for years, but have failed to pass comprehensive reforms.

A cut in SBA funding, but that may be a good sign

Bankers are normally nervous when the administration suggests reducing funding for the Small Business Administration, one of the few government agencies they genuinely like. For fiscal year 2016, the administration contemplates a $701 million budget for the SBA, less than the $733 million Congress granted it for the current year. (The administration requested $710 million for the SBA in last year's budget.)

But the proposed cuts appear to have more to do with improved loan performance rather than a reduction in programs or services. Indeed, the budget calls for SBA to support $21 billion in loan guarantees for the flagship 7(a) program, the biggest such request in history.

"Given the strong demand we're seeing, that still may not be enough," said Tony Wilkinson, the president of the National Association of Government Guaranteed Lenders. "We are witnessing strong demand from borrowers. Our loan volume is up significantly over last year to date. We anticipate that this will continue to occur."

The proposed budget cuts are due to the health of the 7(a), 504 CDC and 504 loan refinancing programs. During this fiscal year, SBA set aside funds to deal with potential losses in those funds, but those are no longer needed, according to a spokesman for the agency.

Healthy funding boosts for CFTC, SEC

The budget proposes substantial increases for the SEC and the CFTC. The president called for $322 million to fund the CFTC, a 15% increase over the $280 requested in the current fiscal year. The budget also calls for a user fee to be assessed on futures and derivatives in order to provide a dedicated source of funding for the agency, which has been saddled with a substantial expansion of authority since the passage of Dodd-Frank.

The end-of-year spending bill funded the CFTC at $250 million, with $40 million specifically earmarked for technology improvements that may not be used for employee salaries. The CFTC's funding level has been the source of ongoing political conflict between Democrats, who say the agency is ill-equipped to monitor the derivatives markets it is charged with protecting, and Republicans who argue the agency's rules for those markets are too onerous and its power should be limited.

The White House plan also calls for $1.7 billion to fund the SEC, an identical figure to his proposed budget for this fiscal year and slightly higher than the proposed $1.67 billion in the previous budget. SEC was funded at $1.5 billion in last year's spending bill.

FHA sees big increases in wake of premium cut

President Obama has made much of the Federal Housing Administration's reduction in its mortgage insurance premium, which went into effect on Jan. 26, and the budget expects to see big results.

It projects the FHA will insure $134.7 billion worth of loans in fiscal year 2015, which ends Sept. 30, down slightly from $135.1 in the prior fiscal year. Those numbers do not include the impact of the 50 basis point reduction in premiums, an FHA official said.

The impact of that can be seen in fiscal 2016, where the budget expects loan endorsements to jump 29% to $173.6 billion.

The FHA has increased mortgage insurance premiums five times since the financial crisis, increasing to 135 basis points, in order to rebuild its capital reserves. But even with the recent reduction to 85 basis points, "FHA will collect premiums on new mortgages that are well above the estimated costs of guaranteeing those mortgages against default," the budget says.

The president's budget also lists several legislative proposals to strengthen the FHA, all of which Congress has ignored in the past.

One of those plans would charge lenders an administrative fee to update the FHA's information systems. Another proposal would give the FHA the authority to seek indemnification from direct endorsement lenders that originate loans that don't meet FHA standards and go into default.

The FHA expects to pay $17 billion in claims on defaulted loans in fiscal year 2015, down from $20.5 billion in the previous fiscal year.

Little action expected on GSE reform

There's little in the latest budget to suggest that the Obama administration is planning to take up the mantle of housing finance reform again in the near term.

The White House backed Senate Banking Committee efforts to pass bipartisan legislation overhauling Fannie Mae and Freddie Mac last year, but the move fell apart before reaching the chamber floor. Since then, there hasn't been much substantive chatter about another push from the administration with Congress now under GOP control.

The blueprint notes that the administration will "continue to work with Congress to pass comprehensive reform," but whether the two parties can agree on a politically viable plan to unwind the GSEs remains to be seen. It's unlikely that the White House plans to revisit the issue on its own.

The new budget report reiterates the administration position that the government-sponsored enterprises "should be wound down," and called last year's bill by former Sen. Tim Johnson, D-S.D., chairman of the banking panel, and Sen. Mike Crapo, R-Idaho, who served as ranking member, "a meaningful step" toward a new system.

Bank tax (again)

Obama has renewed his call for a tax on the country's largest banks. The proposal to levy a 7-basis-point fee on financial institutions over $50 billion mirrors an earlier White House plan for a "financial crisis responsibility fee," and is also conceptually similar to a provision in a tax reform plan released last year by former Rep. David Camp, R-Mich.

"This fee will complement other administration policies aimed at preventing future financial crises and making the economy more resilient," the budget says. "Even with the end of 'too big to fail,' excessive leverage still creates risks for the broader economy."

The plan, which was also mentioned ahead of Obama's State of the Union address, would reportedly raise $112 billion over 10 years. Banking industry officials have been harshly critical of an industry-specific tax, and congressional Republicans are not expected to take up the measure.

"It's an odd proposal to bring up when you are trying to encourage banks to lend more and create jobs that help the economy," said James Ballentine, the head lobbyist for the American Bankers Association. "Many members have already said that this is not a viable proposal."

Rob Blackwell, Brian Collins and John Heltman contributed to this article