WASHINGTON — In a somewhat surprising decision, House Financial Services Committee Chairman Jeb Hensarling announced his retirement from Congress on Tuesday, but speculation immediately grew that he could fill a regulatory post in the Trump administration.
Hensarling, a Texas Republican, said in a letter to supporters that he plans not to seek re-election next year.
“Although service in Congress remains the greatest privilege of my life, I never intended to make it a lifetime commitment, and I have already stayed far longer than I had originally planned,” he said. He added that over the next 14 months he will push for “the causes for which I remain passionate” including housing finance reform and regulatory relief.
Hensarling shepherded the Financial Choice Act — a massive bill to overhaul the Dodd-Frank Act — through the House in June, but the legislation was viewed as too drastic for the Senate, where it would need Democratic support to pass.
More recently, Hensarling has started to pass smaller, more targeted bank regulatory relief measures out of the panel. The Senate Banking Committee is expected to include some of those measures in a deal that Sen. Mike Crapo, R-Idaho, the panel's chairman, and Sherrod Brown, D-Ohio, are currently negotiating.
Hensarling also drafted a housing finance reform bill that passed out of the House in 2015. That bill took a more conservative approach than Senate legislation by proposing to eliminate Fannie Mae and Freddie Mac’s government backstop in an attempt to allow the private sector to play a much bigger role in the secondary mortgage market.
Yet his impact on those initiatives was already going to be in question before Tuesday’s announcement. Due to term limit rules, Hensarling would have had to give up his chairmanship anyway in the next Congress, leaving leadership of the Financial Services Committee open regardless of which party holds the House after the 2018 midterm elections.
However, while Hensarling might not be chairman of the House panel charged with housing finance reform duties, analysts suggested he could end up leading the Federal Housing Finance Agency, which oversees Fannie and Freddie.
“This immediately vaults Hensarling to the top of the list for possible FHFA directors as [FHFA Director] Mel Watt's term expires in January 2019,” Jaret Seiberg, an analyst at Cowen, wrote in a note to clients. “Hensarling has been vocal on housing finance reform and control of FHFA could allow him to shrink the government's footprint while opening the door for the private sector to securitize a larger share of the mortgage market.”
Isaac Boltansky, an analyst at Compass Point Research & Trading, agreed. “Our sense is that Chair Hensarling may not leave public life as the White House could tap him for a financial regulatory post,” he said.
Hensarling is close with Vice President Mike Pence and he was rumored to be a choice for Treasury secretary before Steven Mnuchin was tapped for the job.
Seiberg said Hensarling’s name could also be floated to lead the Consumer Financial Protection Bureau, an agency he proposed to eliminate by defunding it in the Choice Act. However, the analyst added that the CFPB job may not appeal to Hensarling.
“Running the CFPB is likely to be a giant headache for the first Republican director as Democrats have staffed up the agency and established its corporate culture,” wrote Seiberg.
The sweepstakes over who will take over as the head of the House Financial Services Committee will also likely to begin in earnest. It’s uncertain if Republicans will continue to have a majority in the House in 2018, but if they do, Chief Deputy Whip Patrick McHenry, R-N.C., Rep. Blaine Luetkemeyer, R-Mo., and Rep. Ed Royce, R-Calif., are likely to be viewed as early front-runners to become the committee's chairman.
McHenry could have an opportunity to serve in another leadership position, which would open the door for Luetkemeyer or Royce. But if McHenry were to take the gavel, it could have significant implications for the financial technology business.
“McHenry is a thought leader on financial technology issues and he would likely push for a holistic approach to regulating the space, which is meaningful as the jurisdictional battles have caused confusion,” Boltansky said.
Luetkemeyer has also been a thought leader on the financial services panel and most recently sponsored a bill to eliminate Dodd-Frank's $50 billion-asset threshold for systemically important financial institutions and replacing it with an indicator test.
Meanwhile, Dodd-Frank supports immediately interpreted Hensarling’s decision as a potential win.
“As chairman, he made it his mission to dismantle Dodd-Frank regardless of the potential consequences on the economy and financial stability,” said Emily Liner, a senior policy adviser at the think tank Third Way. “While we will still have to fight to protect Dodd-Frank, this could be an opportunity to elevate a member of Congress who shows more interest in working across the aisle.”