WASHINGTON — The packed congressional agenda this December on major must-pass items such as the budget and transportation bills could prove make-or-break for the industry on several financial services bills.
Lawmakers this session have struggled to pass banking bills on a standalone basis, such as Senate Banking Committee Chairman Richard Shelby's comprehensive regulatory relief package. But legislation affecting the industry could still get through to President Obama's desk as a rider on bigger bills that are more likely to get enacted.
Congress is brushing up against deadlines this year to fund the nation's highways, pass a budget agreement to prevent a government shutdown and address several mortgage tax breaks. Attaching banking legislation to those initiatives could be lawmakers' last chance to pass meaningful industry reforms before the presidential elections heat up in earnest next year.
"Lawmakers are going to work in a short burst over December to address the most pressing deadlines, at which point, the 114th Congress is going to slink off silently into the night as everyone begins to focus almost entirely on the 2016 elections," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading.
Below we offer details on some of the major fights ahead and what it means for bankers.
The first priority for lawmakers this week will be resolving Senate and House bills to fund the country's highways system. Congress passed a three-month extension for the transportation program over the summer and approved another two-week delay earlier this month, with the deadline for an agreement now set for Dec. 4. The two chambers appointed a conference committee to debate differences in the proposals in mid-November.
The multiyear transportation measure became a top issue for bankers over the summer, when the Senate approved cutting the Federal Reserve's dividend payments to help pay for the program. For Fed member banks with more than $1 billion in assets, the measure would slash the dividend — from 6% down to 1.5% — on the Fed stock they are required to hold.
But the financial services industry pushed back hard and the House version of the bill included an alternative proposal. Rather than the cut the dividend, the House plan would instead borrow funds from the Fed's capital surplus account to help pay for the transportation program. The two different approaches set up a potentially sticky situation in the conference committee.
The House transportation bill also includes a host of banking regulatory relief provisions, including measures to streamline annual privacy notices and extend the length of exam cycles for healthy community banks. The alternative funding amendment and the regulatory relief items were introduced by Rep. Jeb Hensarling, R-Texas, chairman of the Financial Services Committee.
Both proposed funding measures have their critics, and it remains unclear where lawmakers will land.
It's "a coin toss on how this will end up," said one banking lobbyist right before the Thanksgiving holiday.
Still, strong support in the House for the alternative Fed plan could prove to be a boon for bankers — at least for now. The chamber first voted 354 to 72 to remove the language cutting the Fed dividend, and then voted 363 to 64 to pass the legislation with the alternative funding proposal.
"The House vote is a very strong statement and senators would be hard pressed to overturn that," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.
But even if a final bill omits the Fed dividend cut, that dividend could pop again in future funding battles like other revenue streams Congress regularly considers. It could be similar, for example, to proposals to raise the fees Fannie Mae and Freddie Mac charge to guarantee loans, which lawmakers have considered on several occasions as a funding mechanism.
Perhaps the biggest unknown for the banking industry remains the fate of Shelby's regulatory reform bill.
The Alabama Republican passed his sweeping legislative package — which among other things would reduce the amount of "systemically important" banks getting heightened supervision — out of the Banking Committee in May. But the measure was not considered on the Senate floor.
Shelby then attached his entire bill to financial services appropriations legislation in July. In addition to the regulatory relief package, the appropriations bill also contained measures that would require a commission — rather than just a single director — to oversee the Consumer Financial Protection Bureau, and also subject the consumer bureau to the congressional appropriations process.
The financial services appropriations package will now likely be part of an omnibus budget package that lawmakers must consider to avoid a government shutdown. A key question will be what financial services-related measures, if any, remain in a final budget deal. The CFPB provisions are almost certainly nonstarters for the White House, which has veto power over the omnibus appropriations package. But industry advocates are hopeful about at least some of Shelby's regulatory relief measures being included as riders.
"Much of it will be in the final package for the simple reason that Sen. Shelby is an old-school legislator that knows how to get things done," said Dan Crowley, a partner at K&L Gates.
President Obama signed a two-year budget deal with Congress in early November, but lawmakers must still allocate top-line spending figures across various federal agencies. The deadline for an appropriations package is Dec. 11, though it is always possible lawmakers could pass a very short extension to provide more time to finalize details.
Meanwhile, the House more recently passed several financial services bills just ahead of the final budget showdown. They include measures to provide a safe harbor for banks from the CFPB's "qualified mortgage" rule for any loans held in portfolio, rescind CFPB guidance meant to reduce pricing discrimination by indirect auto lenders and mandate that the Fed use a mathematical formula for setting interest rates in addition to other forms of central bank oversight. Yet those bills may not get as much attention as Shelby's proposal this time around, due to opposition from Senate Democrats and the White House.
Senate Democrats hold some cards. At least a handful of them are needed to pass a final package, and the party's left flank has been wary of Shelby's relief proposals. It is also still unclear how willing the Obama administration is to support measures that alleviate the industry's regulatory burden. Treasury Secretary Jacob Lew recently warned again that he would recommend a veto on any provisions designed to roll back banking industry reforms.
Some Democrats are already on the defensive about attaching financial services riders after what happened with last year's spending package. The deal last year — ultimately approved by the White House — contained controversial and industry-supported changes to a provision in the Dodd-Frank Act dealing with swaps.
Sen. Chris Coons, D-Del., the ranking member on the appropriations subcommittee that deals with financial services, told the media earlier this month that he would only back policy riders supported by all members of the Banking Committee. That presumably includes progressives like Sen. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, ranking member on the panel, who have been sharply critical of significant pieces of Shelby's legislation.
Still, Shelby's bill does contain some bipartisan measures, including proposals to extend exam cycles for small banks and create an ombudsman's office to help resolve disputes over the bank examination process. There could also be common ground on other relief for the smallest banks. For example, if the Federal Housing Finance Agency doesn't amend a controversial Federal Home Loan Bank membership rule by the end of the year, lawmakers could include a provision to scrap the rule until the Government Accountability Office studies the issue, as proposed in Shelby's bill.
"We've been looking at items that are bipartisan and bicameral — if they've been considered in both chambers and have bipartisan support, they're highly likely to be enacted," said Crowley.
But it is also possible that Shelby could slow down passage of less controversial measures if he wants them to serve as sweeteners for more divisive proposals.
"If the door is open for some of the pieces going into the budget bill, does he go along with that to advance some of the pieces or does he try to hold them back to advance the broader bill? That's a decision [Shelby and his staff] may have to make," said Gardner.
His bill's most-discussed feature is raising, from $50 billion to $500 billion, the asset cutoff line at which a bank is considered "systemically important." The bill would give regulators the power to designate banks below the new threshold on a case-by-case basis.
A bipartisan group of lawmakers has been meeting for months to see if there's a compromise to be had on raising the $50 billion line, but it's still unclear whether that will come together in time for the omnibus package.
But lawmakers could also ignore the banking industry's wishes altogether in a final budget bill, and focus on policy riders in other areas, such as energy or immigration.
"When I look at where Republican leadership wants to fight its battles, I'm fairly confident that financial services is low on the priority list," Gardner said.
Discussion is also just heating up over a host of bills to extend tax benefits relevant to banking that expire at the end of the year. They include the mortgage insurance premium deduction and a provision that shields mortgage debt forgiven via a short sale or foreclosure from tax liability. The Senate Finance Committee passed a tax extenders bill in July that would extend both provisions retroactively through 2015 and 2016, and talks are said to be intensifying in both chambers with just weeks left in the legislative calendar.
The measures, which were enacted ahead of the financial crisis, have a good shot at being extended once again, though when that happens remains unclear. They could be included in an omnibus package at the last minute, or be delayed until next year as long as lawmakers pass the measures ahead of the April 15 tax deadline.