GOP prepares for battle over Dodd-Frank

Congressional Republicans say they want to change the Dodd-Frank Wall Street reform bill, not tear it apart.

While President-elect Donald Trump campaigned on a promise to “dismantle” the law, Republican lawmakers are setting their sights on a lower target. 

With a Republican in the White House and the party in charge of both chambers of Congress for the first time since 2006, they say they have a chance to make important fixes to the law, despite a desire to scrap more of Dodd-Frank.

Banking interests aren’t interested in completely repealing the law either. 

“We’re not asking for wholesale throwing out Dodd-Frank,” said JPMorgan Chase CEO Jamie Dimon, according to the Wall Street Journal. Dimon will serve on a White House economic advisory board.

Banks “have their own pet issues, but no one is going to ask for a full repeal,” said a senior financial industry source.

Repealing Dodd-Frank could be a public relations nightmare for Republicans and Wall Street, since it would lead to headlines about a GOP Congress repealing Wall Street reform. 

In addition, small and big banks alike have made investments to get in line with the new rules that they don’t want to completely undo. 

But the banks say Congress can make meaningful improvements that would help their bottom lines. And they’re eager to work with the GOP Congress to win those changes. 

Action on Dodd-Frank will likely come in small doses, say House Financial Services Committee Republicans and industry sources. The path forward is to work with Democrats on fixes to the bill’s most burdensome sections that could clear a Senate filibuster.

The natural starting point for Republicans is the Financial CHOICE Act, a massive Dodd-Frank rewrite introduced in June by House Financial Services Committee Chairman Jeb Hensarling (R-Texas).

The bill is a compilation of several Republican regulatory goals, some of which passed the House as standalone bills.

Many changes drastically reshape regulators and rules established by Dodd-Frank. It would let Congress control the Consumer Financial Protection Bureau (CFPB)’s budget and replace its one director with a bipartisan board. 

The CHOICE Act also eliminates the Treasury Department’s Office of Financial Research, and ends the federal government’s ability to take over and dismantle a failing bank before it triggers an economic crisis. 

The bill also nixes a provision subjecting “systemically important financial institutions” to stricter oversight. It also kills the “Volcker Rule,” which bans banks from certain risky trades.

It’s unlikely some of these major reforms will survive legislative battles given the large Democratic minority in the Senate.  

Hensarling argues it will be the starting point for most Dodd-Frank action in 2017. 

“We expect it to come to the floor. I’m not oblivious to the makeup of the Senate. I’m not oblivious to Senate rules, and we’ll see where it goes from there,” Hensarling told The Hill. “We’re going through 2.0 now.”

Financial Services Committee Republicans who generally support major changes to Dodd-Frank agree the full CHOICE Act would be a difficult lift in the Senate. 

“Significant reform to Dodd-Frank has become a partisan issue,” said Rep. Randy Hultgren (R-Ill.), who supports the CHOICE Act. Hultgren also supports “scaled-back, more targeted” efforts that would relieve pressure on community banks and strengthen oversight of the CFPB.

“Any of those pieces of legislation will have the same requirement: How do you get through a 52-Republican-member United States Senate?” said Rep. Frank Lucas (R-Okla.).

Lucas also doubted that major Dodd-Frank reform would happen through budget reconciliation, a legislative maneuver that only requires a simple majority to pass a bill through both chambers, bypassing a Senate filibuster.

Though Republicans will get two chances to do reconciliation in 2017, those will likely be reserved for comprehensive tax reform — potentially coupled with an infrastructure investment package — and repealing and replacing the Affordable Care Act. 

“I don’t think there is ever going to be a bill on the House and Senate floor that will be broad Dodd-Frank rollback like that,” said the senior financial services source. 

Democrats already presided over some Dodd-Frank rollbacks when they controlled the Senate before 2015.  

And Sen. Sherrod Brown (Ohio), an ardent progressive and the Senate Banking Committee’s ranking Democrat, said he’s willing to work with new Banking Chairman Mike Crapo (R-Idaho).

Brown and Crapo have touted their close working relationship, and Brown highlighted his work on an insurance capital standards bill that reeled in Dodd-Frank.

Despite the bipartisan overtures, Brown warned Republicans about aiming too high with meager majorities.

“There’s things we can do, but they can’t use a bill to begin to weaken regulation of Wall Street,” said Brown. “They always want to overreach and they want to help their Wall Street friends.”

Republicans say any negotiation with Democrats over Dodd-Frank will be difficult, tense and rancorous.

“It’s just going to be a long, hard slog,” said Lucas.

This article was updated on December 12 at 3:08 p.m.