Health care repeal failure complicates rollback of Dodd-Frank

WASHINGTON — House Republicans’ failure to repeal the Affordable Care Act — an issue that has animated the party caucus since its passage in 2010 — has thrown into question their ability to enact regulatory relief.

It was already an uphill battle given the various issues at play, but observers said the outlook for broad relief is even more pessimistic now.

“The inability of the GOP to unite on health care demonstrates just how fractured the party is when it comes to big issues,” said Jaret Seiberg, an analyst at Cowen Group.

The first 100 days in office for a new administration are generally seen as the most fertile for passing major legislation as it often acts as an unofficial “honeymoon” period. But President Trump’s executive orders on immigration and other hot-button topics immediately alienated Democrats, while Republicans had difficulty transitioning from a largely opposition party to one that controlled the legislative and executive branches of government.

President Donald J. Trump
U.S. President Donald Trump listens during a National Economic Council meeting at the Oval Office in Washington, D.C., U.S., on Friday, March 27, 2017. House Republicans abandoned their efforts to repeal and partially replace Obamacare after Trump and Speaker Paul Ryan concluded they didn't have enough support, marking an embarrassing setback for the GOP agenda. Photographer: Olivier Douliery/Pool via Bloomberg

At issue are the factions within the GOP and the difficulty of bridging the gaps between those sides while at the same time winning the necessary Democratic votes to overcome a potential filibuster.

“The challenge of satisfying the moderate and conservative elements of the Republicans in Congress” while also trying to garner Democratic support “will be a difficult dynamic for all major agenda items, including Dodd-Frank reform,” said Timothy Jenkins, a partner at Nossaman.

While financial reform might not be as politicized as health care reform, it shares some of the same elements as the health care issue that split House Republicans.

“There are conservatives who want to end ‘too big to fail,’ but raise leverage capital requirements and force the biggest banks to restructure or shrink,” Seiberg said. “There are also pro-business Republicans who believe the regulatory crackdown on the biggest banks is impeding lending and hurting the economy. There may not be a middle ground between these forces.”

Ryan Donovan, chief advocacy officer at the Credit Union National Association, noted that both the ACA and the Dodd-Frank Act passed without significant Republican support. While most GOP were united in opposing both laws, however, they still have differences in whether and how to replace them.

Some financial services lobbyists said there is a “glass-half-full” perspective, arguing that because health care reform is now off the agenda, the president’s to-do list just got shorter. That might give policymakers time to address regulatory relief sooner.

“If you looked at the priority items on the agenda, health care and tax reform alone can take up the entirety of a Congress, so the fact that at least one of them is off the table for now — all of the other items get to move up,” said James Ballentine, executive vice president at the American Bankers Association.

Still, tax reform itself is another large and complicated issue, one in which bankers will have a stake in the outcome.

Thaya Brook Knight, associate director of financial regulation studies at the Cato Institute, said that Trump has an advantage when it comes to regulatory relief — he will soon be appointing the heads of several agencies. There are already two spots open on the Federal Reserve Board, including the vice chair for banking supervision, while another is opening next month when Fed Gov. Daniel Tarullo retires. The comptroller of the currency’s term, meanwhile, is also up next week, while the head of the Federal Deposit Insurance Corp.’s term ends this fall.

As a result, Trump will have the ability to make sweeping changes at several agencies within the next six to seven months. That might give him additional leverage, either to enact changes without legislation or boost momentum for regulatory relief in Congress.

“One of the things about Dodd-Frank — it really moved a lot of the powers to the regulators … there is more pressure that the president can put on Congress because of the power he has over the regulators,” Knight said.

However, while the prospects for a major Dodd-Frank reform package may have become more complicated following the health care defeat, the path forward is unchanged.

“The House was going to be the first mover and the Senate was going to narrow the scope of relief,” said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. “This dynamic remains.”

House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Tex., introduced a Dodd-Frank overhaul package called the Financial Choice Act in the last Congress and is expected to reintroduce an updated version sometime soon.

“Part of what Chairman Hensarling might be doing is listening to members and getting a sense to what is possible at the House,” Donovan at the Credit Union National Association said.

The Choice Act may have favorable odds in the House, but it has little chance in the Senate, where it would need Democratic support to overcome a filibuster. Republicans have suggested that they could use the budget reconciliation process to restructure the CFPB, but some of those changes may prove to be too drastic for their own caucus.

“We will end up with a narrow Dodd-Frank bill that focuses mostly on regulatory relief for small banks. It will be the lowest common denominator that can pick up 60 votes,” Seiberg said.

Boltansky also suggested that “a broad regulatory relief package may prove too cumbersome to move through Congress this year” and that the industry will rely on attaching key pieces of legislation to budget bills.

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