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What to expect out of Washington in 2018


I hope this note finds you relaxed and recharged, having spent time with your loved ones and away from your inboxes during the holiday season. Here in Washington, the rest over the holidays was very much needed; although 2017 ended with a historic, against-all-odds, once-in-a-generation tax reform bill, 2018 will be marked by flurries of activity in Congress, at the White House, and at the regulatory agencies. Here’s a look at some of the most significant issues that policymakers will face in Washington in 2018, in their likeliest chronological order:


Government Funding

Way, way back on December 20, the House and Senate, entrenched in the final machinations that would ultimately produce comprehensive tax reform, passed a short-term, one-month extension of federal government funding levels to avert a shutdown. That short-term measure, incidentally, followed a two-week extension that Congress passed in early December, which itself was the result of a two-month extension that Congress enacted in September in the absence of an appropriations package. And so, while we are all eating cookies and watching football over the last week, the clock has been ticking: Speaker Ryan (R-WI) and Senate Majority Leader McConnell (R-KY) have just 17 days from today to plot out a path forward on a government funding bill, pass it through both chambers of Congress, and ensure that President Trump will sign it into law.


The multiple short-term funding extensions under which the most powerful government in the world has been operating since September are, of course, functions of more than simply an inability of the House and Senate to consider multiple impactful pieces of legislation simultaneously. Congress has demonstrated an ability to walk and chew gum at the same time throughout history, most recently at the very end of 2010/beginning of 2011, when it sent a repeal of “Don’t Ask, Don’t Tell”, the 9/11 first responders’ health bill, a tax extenders package, and the Food Safety and Modernization Act to President Obama’s desk during a frenzied 12-day period that included both Christmas and New Year’s Day. Instead, the stalemate over a long-term spending bill is a product of a political predicament in which GOP leaders find themselves stuck: Democrats are largely withholding their vote for any appropriations bill that doesn’t provide protection for immigrants who entered the United States illegally as very young children. This demand is a showstopper for the conservative wing of the Republican Party, which is also pressing Speaker Ryan and Leader McConnell to take a harder line on reductions in spending for government programs. Thus far, as a result of the conservative Republicans’ position, Speaker and Leader McConnell have been unable to find sufficient votes even within their own party to pass a year-long spending bill and Democratic leaders have been unwilling to back down on their condition that a “dreamers” fix must be included for their rank-and-file to support an appropriations bill. Speaker Ryan, Leader McConnell, Senate Minority Leader Schumer (D-NY) and House Minority Leader Pelosi (D-CA) head to the White House tomorrow to discuss the path forward with President Trump and to explore whether they can break the impasse.


Dodd-Frank Reform

Death, taxes, and the inability to attract bipartisan support in the Senate for large-scale changes to the Dodd-Frank Act have been widely accepted truths in Washington for quite some time. Though the House has passed a bevy of bills that would significantly alter Dodd-Frank since Republicans took control of the chamber following the 2010 midterm elections, the Senate’s rules requiring that the approval of 60 senators is required to proceed to consideration of most bills has meant, in practice, that Democratic opposition to Republican efforts to amend Dodd-Frank has effectively blocked any significant alterations to the post-crisis regulatory reform bill. This appears to be about to change.

10 Republican senators and 10 Democratic senators, led by Senate Banking Committee Chairman Mike Crapo (R-ID) are cosponsors of legislation that would ease the application of several Dodd-Frank regulatory burdens on most regional banks and on credit unions and community banks, among other provisions. The Senate Banking Committee passed the bill with a bipartisan, 16-7 vote in early December, and Leader McConnell has indicated that he could seek to put the bill up for consideration by the full Senate in early 2018. Presuming passage – which seems likely – the GOP House would almost assuredly quickly provide its assent and send the bill to President Trump for his signature. Beyond the direct implications of the enactment of this specific legislation, enactment of Chairman Crapo’s bill into law could perhaps also herald something of a return to normalcy on Capitol Hill – at least for financial services policy – under which bipartisanship on reasonable, measured alterations to statute is the norm rather than the exception.


The Debt Limit

From the ratification of the Constitution until 1917, Congress authorized every individual debt the United States government issued. Faced with the prospect of the country’s entrance into World War I and the need for the government to significantly ramp up its military readiness for the Great War, the House and Senate included language in the Second Liberty Bond Act of 1917 that changed Congressional oversight over America’s national debt forever: To provide more flexibility for the war effort, instead of approving the issuance of every new debt instrument, Congress would set an aggregate limit, or ceiling, of the total amount of debt that the United States Treasury could issue. It is therefore a quirk of history that we can attribute the creation of the debt limit in the United States directly to the pistol of Gavrilo Princip.

The United States government’s gross debt stands at approximately $20.5 trillion as of this writing, and Treasury’s ability to issue any new debt expired on December 22. Treasury Secretary Mnuchin has advised Congress that he can take “extraordinary measures” such as borrowing funds from federal employee retirement accounts, for example, to cover Treasury’s overdrafts in order to avert default for a few months, but Congressional intervention will be necessary to stave off the first default in United States history sometime before March. Though neither Republican nor Democratic leaders have an interest in seeing the United States default on its debt, in practice, it is likely that Speaker Ryan and Leader McConnell will need at least some Democratic votes to overcome opposition to a debt limit increase or suspension on principle within their rank-and-file. Accordingly, Democratic leaders are going to expect something in exchange. What that could be, and whether they’ll get it, will likely be decided in late February.


The Regulatory Agencies

More change is on the horizon at the federal regulatory agencies. At the CFPB, where Acting Director Mick Mulvaney is firmly in charge, a continued deregulatory bent is to be expected throughout 2018. Already, Mulvaney has signaled that the Bureau’s payday and HMDA rules are likely to be revisited in the new year; other relics of the prior CFPB regime are likely to follow suit. And, while Mulvaney splits his time between the Bureau’s offices and his day job at OMB, the President continues to consider who he will nominate to be the CFPB’s permanent Director. Retiring House Financial Services Committee Chairman Jeb Hensarling (R-TX), academic Todd Zywicki, and former Acting Comptroller Keith Noreika remain on the White House’s shortlist, as does National Credit Union Administration Chairman Mark McWatters, who formerly was a staffer for Chairman Hensarling. Regardless of who the President nominates, look for liberal Democratic senators to seek to block the nominee, particularly as we get closer to the mid-term elections in November.


At the OCC, Comptroller Joseph Otting is now firmly at the wheel of the agency and has started to lay out his priorities for the regulator. Otting notably endorsed the notion of a fintech charter last month, but left open the question of whether he would seek to revisit the regulatory requirements that the OCC would impose upon a fintech company whose application for a banking charter was approved. Traditional banks have argued since former Comptroller Curry first proposed the creation of a fintech charter that chartered fintechs should be required to comply with the same regulatory requirements as nationally chartered traditional banks. Based on his comments to date, Comptroller Otting, a former bank CEO, may be sympathetic to this argument. With at least two submitted applications before the OCC for its consideration, look for the agency to provide more clarity with regard to the new leadership’s views in this space early on in 2018.


Lastly, more personnel changes are coming. Late last year, President Trump finally nominated Jelena McWilliams, a former Senate Banking Committee staffer the current General Counsel at Fifth-Third Bank, to serve as his FDIC Chair. (Current FDIC Chair Gruenberg’s appointment expired in November, but he’s been allowed to continue on until his successor is confirmed by the Senate.) Jelena is deeply respected in the Senate within both parties as a substantive banking policy expert. To the extent that any nominee to head a financial regulatory agency can sail through the Senate in this environment, Jelena’s will. The Senate Banking Committee will hold her nomination hearing early in the new year.

#CFPB #Fintech #Congress #US

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