WASHINGTON A bill to clarify the Federal Reserve's authority around new capital rules is winding its way through Congress, paving the way for what could be a broader push for changes to the Dodd-Frank Act next year.
The bipartisan legislation, which would allow the Fed to differentiate its capital standards for banks from those for systemically important insurers, sailed through the Senate earlier this month, and has won praise from House lawmakers on both sides of the aisle. The bill is arguably less controversial than other changes to the reform law would likely be, but observers are suggesting that there could be more talk of regulatory relief ahead.
"It's unquestionably a one-off for the 113th Congress. But there is going to be room to make more substantive changes to Dodd-Frank in the new Congress," said Isaac Boltansky, an analyst at Compass Point Research & Trading.
With the House with a new majority leader and embroiled in a fight over the reauthorization of the Export-Import Bank, it's unclear exactly when the relatively obscure capital standards fix could make it through the chamber to be signed into law.
But top lawmakers on the House Financial Services Committee recently indicated their interest in moving the legislation quickly, in a rare show of bipartisanship.
"We enthusiastically support the Collins amendment fix," said Rep. Jeb Hensarling, R-Texas, chairman of the banking panel, at a markup for a bill extending the terrorism risk insurance program earlier this month. "We will look for a very timely and appropriate vehicle on which to act upon this legislation and hopefully get it to the president's desk as soon as is practical."
Rep. Maxine Waters, D-Calif., the ranking member, echoed those comments, while underscoring her ongoing support of Dodd-Frank.
"This bill represents that kind of concern that we're all addressing and that we are able to work together on," she said. "It is a narrow and necessary fix to the law, and I don't want anybody to see this as a signal that I'm willing to begin dismantling financial reforms we have fought for."
Analysts predicted that additional changes to the banking reform law are likely to be harder fought, in part because of the unique circumstances around the Collins amendment fix.
"It's almost impossible to justify saying that bank capital rules should be imposed on an insurance company," said Jaret Seiberg, an analyst at Guggenheim Securities. "It's one of those commonsense things even if you don't understand what a tier one common ratio is, you know that a bank and an insurer are vastly different creatures. The hurdle of explaining the details is far less."
The effort is also helped by the fact that Fed officials have indicated they need the clarification language to tailor the capital standards, even though some observers contend the agency already has the authority it needs.
"The measure is beneficial in that it talks about what the Fed can do it's not limiting what the Fed will do," Boltansky said. "If the Fed chose to come out with bank-like capital standards, it still could it's just a technical change to say they don't have to. So lawmakers are able to keep themselves away from anything contentious here."
That said, the measure, if successful, could ultimately set the tone for other tweaks to the law.
"Progress on the Collins provision shows that when there's broad agreement on both sides there may be a willingness to start acting," said Aaron Klein, director of the financial regulatory reform initiative at the Bipartisan Policy Center. "If it makes it all the way through to becoming law, that increases the probability that this is a workable model broad bipartisan agreement can lead to legislative action that improves the quality of regulation."
And while the capital standards fix made it through the Senate via unanimous consent fairly suddenly, observers noted that the speed obscures the longer dialogue that took place around the issue.
"The roadmap the insurers followed might still apply to other issues. You've got to lay the groundwork, have conversations, turn it into something very bipartisan and develop growing support, particularly with committee members in both chambers," said a financial services lobbyist. "You've got to build momentum for it, so that it's so bipartisan, it's hard not to do. That roadmap might apply to other areas."
Still, the exact roadmap will be difficult to chart until after the November elections. The biggest question mark remains which party will control the Senate, and who will lead the Banking Committee. Chairman Tim Johnson, D-S.D., has defined much of his legacy around protecting Dodd-Frank, but is planning to retire at the end of the year.
"I still think that Sen. Johnson's primary achievement has been putting a moat around the Dodd-Frank Act," said Boltansky. "Other chairs aren't going to look at their time with the gavel in the same light."
Control of the chamber arguably cuts both ways for the odds of more legislative action around Dodd-Frank. If Republicans win a majority, there is the potential for greater consensus for changes across the two chambers, though any rollbacks of the law would still need to be signed into law by a Democratic White House. If Democrats hold on to a slim majority, any further changes to the law are likely to be more minimal, and would be more likely to be palatable to President Obama.
Analysts predicted that regulatory relief, particularly for smaller and mid-sized banks, is likely to be the big focus for changes over the next couple of years.
"There is a desire to help smaller banks to justify a harsh position on the larger banks," said Seiberg. "If you favor changes that help community and regional banks and that don't necessarily benefit the megabanks, you can maintain populist support and support from the business community, so it's win-win bill for Democrats and Republicans."
Still, the question of whether regulatory relief items, a variety of which are already pending in Congress, can garner enough attention to be signed into law remains to be seen.
"It's hard to find that many people who disagree with regulatory relief bills. But can the issue get to the top of the priority list in the next Congress?" said Boltansky.