Spencer Bachus will likely be the new Barney Frank. While Republicans won’t be able accomplish much in this term, Wall Street will be relieved to finally be left alone.
It’s been a rough couple of years for Wall Street up on Capitol Hill. Wide Democratic majorities slapped credit card issuers with new rules. And then they passed a sweeping financial reform bill that requires banks to spin off their profitable swaps desks, sets up a consumer protection bureau to give borrowers new safeguards, and creates new checks on executive compensation.
If banking interests were beginning to think they couldn’t stand another day of it, they no longer have to. The election yesterday restored Republicans to power in the House. And even though the GOP fell short of retaking the Senate, the financial services sector will likely face a friendlier Democratic chairman of the Senate Banking Committee.
In the House, the odds-on favorite to helm the Financial Services Committee is Spencer Bachus, a nine-term Alabama Republican. As the top-ranking GOPer on the panel for the last four years, Bachus at times has demonstrated a willingness to cooperate with Democrats. He got in hot water with his own leadership, for example, by bargaining away too much during negotiations over the Wall Street bailout in 2008.
But Bachus also maintains a congenial working relationship with the industry, and financial services lobbyists anticipate his chairmanship would mark a night-and-day contrast to the leadership of outgoing chairman and outspoken liberal Barney Frank (D-Mass.), an architect of the Wall Street reform bill.
In the Senate, the Banking Committee will get a new chairman with the retirement of its current leader, veteran Sen. Chris Dodd (D-Conn.). Sen. Tim Johnson (D-S.D.) is in line to replace him — good news for the industry, considering the sizable banking presence in the state, anchored by Citigroup’s C credit card operations. Johnson was the lone Democrat to oppose the credit card reform bill last year — one of only five Senators to line up against it. He suffered a brain hemorrhage in 2006 that sidelined him for months, and Johnson continues to struggle with his recovery, including slurred speech. But panel-watchers say he hasn’t lost much in mental acuity and appears up for the job.
Doing nothing is better than doing something
So the question becomes what the new regime will actually accomplish. And the answer, in short, is not much. Even though Republicans seized a healthy majority in the House, their agenda will face a closely divided Senate and President Obama’s at-the-ready veto pen.
But stalemate alone will mark an improvement over the legislative assault the industry weathered during the last Congress. “These guys are saying, ‘Stop the insanity,’” said one GOP lobbyist who represents banking interests. “Congress is going to slow things down, so the community will know their decisions can get made in a predictable way, where they know what’s getting done and not done.”
The dynamic effectively eliminates the possibility for a wholesale repeal of the Wall Street reform bill — a politically questionable aim anyway with popular anti-industry sentiment so high. But look for Republicans to exercise aggressive oversight of its implementation to tweak it as it takes shape.
One possibility: tightening the reins on the new consumer protection bureau. Peter Wallison, a fellow at the American Enterprise Institute and a member of the Congressional commission examining the financial crisis, said it should be possible to reorganize the bureau “as a commission with substantially the same jurisdiction but a multi-headed bipartisan agency” to add some checks to its authority.
Beyond putting the brakes on the financial regulatory overhaul, Republicans are anxious to start a debate on housing finance reform. Conservatives blame Democratic efforts to encourage homeownership for precipitating the credit crisis. They howled during the Wall Street reform debate that the legislation left mortgage giants Fannie Mae FNMA and Freddie Mac FMCC untouched and point to the fact that their federal bailout has left taxpayers on the hook for about $150 billion so far.
The White House is due out with its own proposal for restructuring the lending system next year, but significant progress on the issue is unlikely in the next Congress. For one thing, Fannie and Freddie continue to play too important a role in propping up the housing market to impose a major overhaul in the short term.
“There isn’t any alternative at the moment to Fannie and Freddie, and none realistically in prospect until the securitization market for mortgages returns,” Wallison says. “The 2012 election will settle the issue. If a Republican is elected, I believe Fannie and Freddie will be gradually eliminated … and replaced by a securitization process, possibly supplemented by a covered bond program.”