On Wednesday, October 3, the day after the midterm elections, I spoke with Nancy Marshall Genzer of Marketplace Radio. Nancy asked me what impact the new Republican majority in the House of Representatives might have on the financial reform process. Given that only two short quotes of mine appear in the final broadcast, I am using this space to share additional thoughts.
When Nancy asked whether the GOP could repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”), I explained that given the Democratic Senate majority and the Presidential veto power, a repeal was highly unlikely. However, I identified ways some members of the GOP might make mischief and weaken the effectiveness of financial reform. I deemed this the “triple A” problem. Appointments. Appropriations. Annoyances. Some might contend that these actions by the Republicans should not be characterized as mischief making but instead as acting on a “mandate” by the voters. However, given how angry the public (including the tea party activists) have been about the Bush administration bailout of the banks, it is unlikely that the voters are inviting weakening of restraints on banks and shadow banks designed to prevent another meltdown. Moreover, one of the chief architects of the legislation, Rep. Barney Frank (D-MA) was re-elected.
Regarding appointments to critical new bureaus and offices created under Dodd-Frank — (think the Consumer Financial Protection Bureau or the Office of Financial Research) — for which the President must seek the advice and consent of the Senate, the Republicans in the Senate can block or stall. Under Senate rules, by filibustering, a single Senator can prevent debate and voting on candidates unless sixty Senators vote for cloture — to end the filibuster. Getting sixty votes was already difficult after Senator Scott Brown won the special election in Massachusetts in January. Prior to the midterms, there were only 59 Senators who voted with the Democratic caucus and 41 Senate Republicans. However, as a result of the elections, the appointment process will be even more difficult given that Republicans have picked up at least 6 seats in the Senate.
As for appropriations, Congress controls the budgets for those agencies that are not self-funded. Many fear that this will result in further cuts to already strained budgets at those same agencies tasked both with writing the rules to implement the law and for enforcement of its provisions. Such a result could weaken the already moderate reforms contained in Dodd-Frank.
Agencies at risk include, for example the Securities and Exchange Commission (“SEC”) and the Commodities Futures Trading Commission (“CFTC”). The SEC attempted to get self-funding as part of Dodd-Frank, something especially sensible given that the agency collected in 2009 more in fees and assessments than its current budgetary needs. Moreover, other similar federal regulators such as the FDIC are self-funded. However, because the SEC-self-funding proposal did not survive the legislative process, the agency continues to be at the whim of a changing Congress. To make matters worse, under Dodd-Frank, the SEC is given tremendously more responsibilities with a corresponding authorization to have its budget nearly doubled (from $1.3 billion in 2011 to $2.25 billion in 2015). However, this authorization still requires an appropriation which may be in jeopardy.
Finally, there is the annoyance tactic. It is expected that once the Republicans take over the oversight committees, agency heads will be brought to testify at numerous hearings, distracting them from the very labor-intensive process of making the hundreds of rules and performing studies mandated under Dodd-Frank.
To listen to the resulting broadcast, entitled, “What the GOP Has to Do to Enforce Change,” click here. Note that there are two separate audio links. One is at the top and this will play the entire Marketplace program. The other audio link appears just above the transcript and will play the audio for the story.