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Home Community Banking

How the 2016 Elections Will Impact Banking

November 9, 2016
Reading Time: 6 mins read

Analysis from the government relations team at the American Bankers Association

Presidential election years often bring excitement to the electoral process. The 2016 elections did not disappoint. In what some have described as the most exhausting election in modern history, the American people have chosen to retain Republican control in the U.S. Senate, only marginally shrink the Republican majority in the House of Representatives and elect businessman Donald Trump as the 45th president of the United States.

Although the banking industry was not prominently featured in the Presidential election campaign, in a handful of congressional races banking played a prominent role. As in previous elections, voters expressed greatest concerns about the economy, terrorism, immigration, trade foreign policy and health care. With control of Congress now firmly in the hands of the GOP and a Republican dance partner at the other end of Pennsylvania Avenue, new life may be breathed into efforts to enact some meaningful banking regulatory relief in the 115th Congress (2017-18).

Comprehensive regulatory relief—promoted by the current chairmen of both the House Financial Services and Senate Banking Committees—failed to gain passage despite Republican majorities in the past Congress, but will likely be revived early in the legislative session. The looming court case around the constitutionality of the Consumer Financial Protection Bureau and an adequate majority will now give Republican leaders the confidence to move forward on restructuring the bureau and to pursue other changes to Dodd-Frank Act rules, the majority of which have already been finalized.

While the overall results of the 2016 election show Republicans maintaining control of both bodies, the results of individual U.S. House and Senate campaigns indicate that there is continuing strong partisanship, with a shrinking and now nearly invisible number of centrists in Congress. The failure to obtain a Senate supermajority (60 seats) to move major legislation could result in continuing gridlock on both major and minor issues, including issues important to the banking industry. It is important to note that in the 2015-16 cycle, Senate Republicans held a 54-46 advantage and still had difficulty moving legislation. However, we are cautiously optimistic that strong leadership will help guide much-needed legislative proposals through Congress this year. Our optimism is built on the hope that members of Congress heard the voices of their constituents who expressed frustration with the dysfunctional nature of Capitol Hill. Bankers—who are constituents, employers and community leaders—have also grown frustrated at Congress’ inability to move commonsense regulatory fixes through the legislative process.

The U.S. Senate

While much was made of the Senate possibly moving towards Democrats, the tally in the Senate shows Republicans maintaining a narrow majority. Current results show Republicans holding a 51-48 advantage with one seat from Louisiana (Democrat Foster Campbell and GOP state Treasurer John Kennedy in Dec. 10 runoff) still to be decided.

With Republicans maintaining control, Senate leadership and committee chairmen will remain largely intact. Mitch McConnell (R-Ky.) has stated his desire to continue as majority leader and at this time his position is safe. Chuck Schumer (D-N.Y.), currently the Democratic Policy Committee chairman, is expected to take over as minority leader in the Senate.

With current Senate Banking Committee Chairman Richard Shelby (R-Ala.) term-limited and unable to continue as chairman, the committee will likely be led by Mike Crapo (R-Idaho). Crapo, who easily won re-election, has served in the Senate for 18 years and is currently the second-ranking Republican on the committee. Crapo also served as the lead Republican on the committee in the 113th Congress. The senator will bring a different perspective to the leadership of the banking panel, as he has been known to work in a bipartisan manner on many issues. We expect him to take that approach in his new role. While Crapo has been reluctant to outline his priorities prior to the election, we expect the incoming chairman to maintain his focus on passing meaningful regulatory relief; pursue CFPB and Dodd-Frank reforms, particularly in the areas of the Volcker rule, swaps and derivatives; and to focus on data breach and consumer privacy. In addition, he has shown a particular interest in the Economic Growth and Regulatory Paperwork Reduction Act process. While the senator has worked in the past with a bipartisan group of colleagues on GSE reform, it is uncertain whether he will dedicate the committee’s time on this issue in the upcoming Congress.

The committee’s partisan membership ratio will likely stay the same with 12 Republican and 10 Democratic seats. The political dynamics could also stay the same with Democratic members, particularly the more progressive members of the committee, pushing back on any efforts to make major reforms. Sen. Crapo will be challenged on these efforts, but may find some willing moderate Democrats on the committee willing to assist him as three of the moderates (Heidi Heitkamp of North Dakota, Joe Donnelly of Indiana and Jon Tester of Montana) will be up for re-election in 2018 in traditionally Republican states.

Sherrod Brown (D-Ohio), who is the current lead Democrat on the committee, will likely maintain his position. He is best described as a liberal/progressive member with a very strong tilt toward consumer protection. We expect Brown to stay focused on consumer protection as well as capital standards, with a focus on Wall Street activities and a strong defense of the Dodd-Frank Act.

The U.S. House of Representatives

On election night, there were 246 Republicans, 186 Democrats and 3 vacancies in the House. With a small number of seats still being considered, it appears the Republican majority will only be diminished by a couple of handfuls. Current results have the House makeup as 236 Republicans and 191 Democrats, with eight races outstanding. The Republican majority is enough to ensure passage of most legislation, but it is not enough to advance major/more controversial proposals (appropriations bills, budget, tax reform) that often require some bipartisanship to move through the House. While a Republican presidential victory is a needed boost to the Republican majority in the House, the presidential election illuminated fractures within the Republican caucus, and efforts will now have to be made to determine which direction the party will go.

House Speaker Paul Ryan of Wisconsin, who has stated his intentions to seek the speaker’s chair again, may be challenged for his position when party elections take place. If Ryan retains his position we expect him to continue his “Better Way” agenda, which House Republicans launched in mid-2016. This comprehensive agenda contains six different areas of focus—poverty, national security, the economy, the Constitution, health care and tax reform. If Ryan were removed as speaker, it is uncertain who would assume his seat and what agenda would be put forth. With potential fractures in the Republican caucus, Minority Leader Nancy Pelosi of California may gain some negotiating leverage on must-pass proposals.

The current leadership of the House Financial Services Committee will remain intact, with Chairman Jeb Hensarling and Ranking Member Maxine Waters staying in place. Subcommittee chairmen will change with the retirement of active Financial Institutions Subcommittee Chairman Randy Neugebauer of Texas. This subcommittee, important to the industry, will need a leader that is equally active and knowledgeable like Neugebauer. The leading candidate for the chairmanship is Blaine Leutkemeyer (R-Mo.), a former community banker and banking regulator and the current chairman of the Housing and Insurance Subcommittee. There will also be movement on the Capital Markets and Government Sponsored Enterprises Subcommittee as current Chairman Scott Garrett (R-N.J.) was defeated for re-election.

The committee ratios will likely remain unchanged. The committee, however, will see several new members as a result of retirements and defeats among committee members. The committee could see up to eight new members.

Hensarling is entering his last Congress as committee chairman due to GOP caucus term limits. While the chairman has successfully moved some bipartisan measures through the committee, many of the measures have moved with little Democratic support. With growing tensions around the constitutionality of the CFPB and the impact that Dodd-Frank has had on the banking industry, particularly community banks, it is unlikely that the ideological themes that have been on display the past four years will change. We are optimistic that, as more new members come onto the committee who are not wed to long-held views, the desire to move legislation will increase.

We expect Hensarling to continue to pursue in whole or in part his Financial CHOICE Act proposal, which the committee passed on a party-line vote in July 2016. We also expect the committee to resume consideration of housing/GSE reform and to consider flood insurance reforms. The committee will likely conduct additional oversight on the actions of the financial regulators to ensure they are closely monitoring the activities of large institutions.

The New Administration

Immediately gauging how the Trump administration will react to the banking industry is not easily discerned, as his banking priorities were not revealed during the campaign. For every idea that was shared about the need to repeal the Dodd-Frank Act, an alternative idea was put forward to reinstate Glass-Steagall. Clear banking proposals put forward by Trump have been difficult to come by. We expect the Trump administration will take cues from Hensarling and Crapo on banking priorities. Based on the Trump campaign’s positions shared during the campaign, the new administration’s views on banking could include:

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  • Take power away from the Federal Reserve and allow Congress to audit its decision-making
  • Repeal or greatly alter the Dodd-Frank Act
  • Abolish the CFPB
  • End “too big to fail” and eliminate bailouts
  • Temporarily freeze all agency rules

While not directly citing proposals on regulatory relief for smaller institutions, Trump has mentioned that small banks are being harmed.

In addition to legislative issues, the Trump administration will have the task of appointing new heads of the Office of the Comptroller of the Currency (Comptroller Thomas Curry’s term expires in March 2017), Federal Deposit Insurance Corporation (Chairman Martin Gruenberg’s term expires in November 2017), Federal Reserve Board of Governors (Chairman Janet Yellen’s term in the chair expires in February 2018) and CFPB (Director Richard Cordray’s term expires in July 2018).

Tags: AdvocacyDodd-FrankGSEsRegulatory burden
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