He’s Back:  Shelby’s 2016 Plans (Mar. 19)

Mike & Co. –

Now that Senate Banking Chair Richard Shelby has beaten back his primary challenge, there are signs of life on the Committee.   The first nominations to get votes in over a year have cleared and there is talk once again of a Shelby 2.0 financial regulatory package. 

Meanwhile, the House has been active, passing three House Financial Services bills.   Whether these and the ones expected to follow will become this year’s low-hanging fruit, ripe for must-pass legislation as occurred with the Highway bill last year, is explored below.  

Good weekends all,

Dana

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Shelby’s Plan

Speaking at the ABA Summit Wednesday, the Senate Banking Chair called on Democrats and Republicans to come to the table to discuss alleviating small and community banks from burdensome regulations.  Shelby’s Financial Regulatory Reform Act of 2015 has been a dud so far, and much of the blame for that was laid at the feet of Democrats and the administration who “simply said ‘no’ to any changes” to DFA.

Missing from his speech was any mention that the Banking Committee was effectively shut down throughout Shelby’s primary campaign, and only just began to address its regular business last week.

Whether Shelby can build enough support to pass the bill remains to be seen – but given its anemic life so far, that doesn’t seem entirely likely.  The Senator did not make mention of alternatives for passage, nor did he list specific changes which may make the reform package more palatable to Democrats.

Bipartisan Grouping?

Sen. Donnelly, a moderate Democrat on the Committee, spoke Wednesday at the Chamber of Commerce.  He mentioned that the bipartisan group of Senators who worked with Shelby last year on his reform package (including Warner, Heitkampf, Tester, Crapo, Moran, Corker) would “get our group back together again.”

It’s easy to think Sens. Shelby and Donnelly’s comments point toward upcoming negotiations on the issue.  The Banking Committee has been all but moribund over the past months, building up a significant backlog of nominees who need consideration, and the already truncated calendar will work against efforts to reach consensus on divisive or comprehensive issues.

Should Donnelly’s bargaining group fail to materialize, Shelby may proceed with attaching pieces of his legislation to must-pass bills at the end of the year, or use appropriations or other vehicles to force through his reforms.  In fact, Shelby has some recent experience in doing just that.  While speaking on Shelby’s bill, Donnely said that the group made progress on “20 or so different parts of it, most of it aimed at the community bank level,” and some of those parts did in fact end up attached to last year’s Highway bill.

So far, this year looks like it could be a repetition of 2015.  The Shelby bill is being brought up again, but it is unclear if there will be extensive discussions on it or not.

Baskets of Fruit

There are three disparate categories of proposals being discussed by lawmakers, two of them varying heights of low-hanging fruit and the third something very different.

All of the proposals that Donnely discussed at the Chamber of Commerce were in the first – these were small, easy, and inoffensive reforms that could gain broad support.  These proposals were attached to the Highway Bill and make up last year’s low hanging fruit.

Here is this year’s low hanging fruit: the House Financial Services committee recently held a series of hearings on the bills below, all of which have passed through the House at large

To require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes.

This bill would require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, which would allow them to count as up to 40% of HQLA

Financial Institution Customer Protection Act of 2016

Prohibits a federal banking agency from formally or informally suggesting, requesting, or ordering a depository institution to terminate either a specific customer account, or group of customer accounts, or otherwise restrict or discourage it from entering into or maintaining a banking relationship with a specific customer or group of customers, unless: (1) the agency has a material reason to do so, and (2) the reason is not based solely on reputation risk.

Capital Markets Improvement Act of 2016

Directs the Securities and Exchange Commission to revise regulations to require an issuer to furnish investors with additional specified disclosures regarding compensatory benefit plans if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $10 million (currently $5 million), indexed for inflation every five years.

The third category would be calls to repeal, “fixing,” or otherwise instituting broad-based reform of DFA measures.  These are complete non-starters and would not receive Democratic votes, especially in an election year.  These proposals make good news stories, which is probably why Jeb Hensarling’s speech this week got more attention than Shelby’s, despite the latter being more actionable than the former.

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