WASHINGTON - Crucial financial services regulatory matters are riding on today's elections.
The two key questions - who will be President and which party will control the Senate next year - have implications for financial companies because several top agency jobs are vacant or expected to open up soon, and issues such as Community Reinvestment Act reform and defense of national bank preemption hang in the balance.
Presidential nominees will have to meet the approval of the Senate, which could end up being controlled by a different party than the one in the White House.
"The regulatory appointment arena is one of the more significant aspects of the elections," said Edward L. Yingling, the executive vice president of the American Bankers Association.
In addition to naming a successor to Federal Reserve Board Chairman Alan Greenspan, whose term as a governor expires Jan. 31, 2006, and cannot be renewed, the next President will have to name a comptroller of the currency and a director of the Office of Federal Housing Enterprise Oversight.
New leadership at other financial regulatory agencies is likely as well.
"Regardless of who is elected, you are going to see a lot of changes in the regulatory agencies," said Diane Casey-Landry, the president of America's Community Bankers. "If Bush is reelected, there will be some turnover or you might see some of the regulators in different positions."
For example, Federal Deposit Insurance Corp. Chairman Don Powell might be named comptroller or to some other federal post by President Bush, sources have said. He has also pursued jobs outside of government.
Some of the most pressing issues facing regulators, the White House, and Congress are whether to toughen regulation of Fannie Mae and Freddie Mac, limit national bank preemption of state laws, set national standards to combat predatory lending, or widen the use of streamlined community reinvestment exams.
The lawmakers who most influence banking policy are all but certain to be returned to Congress next year by their constituents, but how much power each will wield depends on the outcomes of today's votes.
Democrats are trying hard to pick up at least two seats to win a majority in the Senate. Republicans are expected to retain and perhaps even add to their majority in the House, where they currently control 52% the 435 seats.
Senate Banking Committee Chairman Richard Shelby, R-Ala., is expected to cruise to a fourth Senate term in his race against a little-known Democrat whose top legislative priority is the legalization of marijuana. However, Sen. Shelby would have to give up the committee gavel if the GOP loses control of the chamber.
If that happens, Sen. Paul Sarbanes, D-Md. - who is not up for reelection until 2006 - is in line to become Senate Banking chairman. The cerebral populist and senior Democrat on the committee has long tried to boost community reinvestment requirements for banks and tighten lending, privacy, and other consumer-protection laws.
It is possible Sen. Sarbanes could give up his position as senior Democrat on Senate Banking for the top slot on the Foreign Relations Committee. (Party rules generally prohibit a senator from holding more than one top committee post.)
Should Sen. John Kerry become President and appoint Sen. Joseph Biden of Delaware, the ranking Democrat on Foreign Relations, secretary of state, Sen. Sarbanes would be next in line for head of Foreign Relations. It is unclear if Sen. Sarbanes would seek the Foreign Relations chairmanship if it became available, and his office did not return calls seeking comment.
Sen. Christopher Dodd, D-Conn., who is expected to win reelection, is the No. 2 Democrat on the Banking Committee. Sen. Dodd has been most active on insurance issues. Though he does support some consumer protections banks find burdensome, such as sponsoring a bill targeting credit card practices, most industry officials say they consider him to a moderate and more sympathetic to their interests than Sen. Sarbanes.
The elections are expected to bring only a few modifications to the membership of the committee.
Of the seven Senate Banking members seeking another term, only one, Sen. Jim Bunning, is in a difficult race. The Kentucky Republican, who chairs the economic policy subcommittee, has seen his 17-point lead dwindle because his erratic statements and actions - such as withering insults of his opponent, the use of a TelePrompTer in one debate, and his absence from a second debate without explanation - have raised questions about his mental health.
The other Senate Banking members running for reelection besides Sens. Shelby, Bunning, and Dodd are Robert Bennett, R-Utah; Mike Crapo, R-Idaho; Charles Schumer, D-N.Y.; and Evan Bayh, D-Ind.
The only definite departure from the panel will be Sen. Zell Miller, D-Ga., who did not seek reelection. It is unclear who Democrats will name to succeed him on the committee; one Democrat who has expressed interest in serving on it is Barack Obama of Illinois, who is expected to easily win the seat being vacated by Sen. Peter Fitzgerald, a Republican.
The presidential tally could set a key change in the House Financial Services Committee lineup in motion. Rep. Barney Frank of Massachusetts, the senior Democrat on the panel, has said he would probably run for Sen. Kerry's seat if Mr. Kerry wins the presidency. (Sen. Kerry could keep his seat until 2008 if he loses today.)
Rep. Frank has already started laying the groundwork for a Senate bid with an advertising campaign that displays his trademark wit. "He twisted arms at Bank of America and saved jobs in Boston," says one ad picturing wrestlers in a clinch, according to the Associated Press. It closes with the tongue-in-cheek disclaimer, "I'm Barney Frank and I authorized this message - I can't imagine who else would."
Early polls show Rep. Frank winning his party's nomination. Twenty-nine percent of those surveyed by the University of Massachusetts in September said they would support Rep. Frank in a Democratic primary. Of the other potential candidates, 20% backed Rep. Marty Meehan, 10% were for Edward J. Markey, and 6% for Rep. Stephen Lynch.
None of the leaders of House Financial Services face challenging races, but a handful of lower ranking members do.
In the days before the election, Rep. Christopher Shays, R-Conn., a harsh critic of Fannie and Freddie, had become one of the most endangered veteran incumbents.
Rep. Shays is in his ninth term, but his work with Democrats on campaign finance reform and trying to get the Sept. 11 commission's recommendations into law has turned off some Republicans, according to an Associated Press report. The latest polls said Democrat Diane Farrell had closed to within 7 to 8 points. Sen. Hillary Rodham Clinton has campaigned on behalf of Ms. Farrell.
Others in competitive races include Reps. Jim Matheson, D-Utah; Dennis Moore, D-Kan.; Rep. Darlene Hooley, D-Ore.; and Rep. Rick Renzi, R-Ariz.
The winner of the presidential contest will have a difficult time bringing about change because neither party is expected to gain a large majority in either chamber.
Because of bipartisan consensus that regulation of Fannie and Freddie is in need of overhaul, it is one of the few financial services issues likely to see legislative action regardless of which party controls the Senate and the administration. But whether it will be completed or what it would say remain unclear.
The Bush administration has sought much closer supervision of Fannie and Freddie and has been relatively quiet on national standards and preemption. Its nominees, such as Office of Thrift Supervision Director James Gilleran and Mr. Powell, have sought to raise the asset limit of banks that get the simpler CRA exam.
The Kerry campaign has a strong populist bent. For example, in August it unveiled a plan to crack down on a range of lending practices with pricing restrictions, new disclosures for credit card companies, national standards against predatory lending, and limits on payday lending to soldiers and others. The campaign has also objected to the preemption rules issued by the comptroller this year and the CRA proposals.
Sen. Kerry has said he would work with others on legislation to beef up GSE supervision. He has not given details, however, and is expected to be more protective of Fannie and Freddie than the Bush administration has been.
