Four years after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), financial services regulators continue hard at work implementing the 398 rulemakings required by the legislation. To date, regulators have fi
approximately 50 percent of the Dodd-Frank Act rulemakings, while almost 25 percent have not yet even been proposed. Although regulators have expressed their commitment to full implementation of the Dodd-Frank Act, the agencies nevertheless continue to struggle with budget constraints and pressure from various Members of Congress (mostly Republicans, but some Democrats, too), who have voiced concerns regarding the burdens and potential unintended consequences of the Dodd-Frank Act rulemakings.
With Republicans in control of both the House and Senate, we expect continued pressure and scrutiny on regulators as they complete the Dodd-Frank Act rule-making process and begin to focus on compliance and enforcement. We also expect renewed attempts by both chambers to re-open the Dodd-Frank Act to not only make needed technical corrections, but also to address several substantive issues of controversy discussed below. With a narrowly divided Senate and a President who could veto any proposals that are perceived as paring down the Dodd- Frank Act, the potential for substantial changes to the Dodd-Frank Act remains uncertain. However, we anticipate that Republicans will push to
approve legislation on various targeted financial reform issues.
Financial Stability Oversight Council.
Anticipate continued scrutiny of the Financial Stability Oversight Council (FSOC), which has authority to designate certain non-bank companies as systemically important financial institutions (SIFIs). Lawmakers will continue to pressure the FSOC regarding its lack of transparency and due process in its designation of SIFIs, particularly in the insurance and asset management industries. Moreover, lawmakers will insist on increased transparency regarding FSOC’s designation process vis-à-vis the international SIFI designation process currently underway by the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS). Finally, Republicans may also debate whether to expand the FSOC to include additional members from various regulatory agencies and provide additional records andinformation regarding FSOC member meetings.
Consumer Financial Protection Bureau.
The 114th Congress will see continued eff by Congress to curb the regulatory authority of the Consumer Financial Protection Bureau (CFPB). Lawmakers will likely re-introduce legislation to subject the CFPB to the annual congressional appropriations process. Congress may also seek to replace the CFPB’s single director structure with a board structure, withnominees appointed by the President and confirmed by the Senate.
Housing Finance Reform.
This year, the Senate Banking Committee approved legislation to reform the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. The House Financial Services Committee also approved GSE reform legislation, though it was markedly diff from the Senate Banking Committee proposal. GSE reform has proven to be a divisive issue in both chambers. While the future of GSE reform remains uncertain,
we are likely to continue seeing substantive debate on this issue, and renewed attempts to pass GSE reform legislation, in the 114th Congress. Additionally, as it moves forward with a single mortgage-backed security to build a Common Securitization Platform, the Federal Housing Finance Agency (FHFA) will also play an essential role in the debate over housing
Enhanced Prudential Standards for Large Banks.
Globally, the Basel Committee on Banking Supervision is overseeing the implementation of Basel III, a comprehensive set of reform measures developed to strengthen the regulation, supervision, and risk management of the banking sector. In July 2013, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) approved a financial rule implementing the Basel III regulatory capital requirements in the United States.
Additionally, the Federal Reserve is expected to propose special capital requirements for the largest banks that will be noticeably higher than those currently required under international banking regulations. Of note, stakeholders have expressed concerns regarding the $50 billion threshold (total assets) established under the Dodd-Frank Act, which subjectslarge banks to enhanced prudential standards such as increased capital requirements. In recent remarks, Federal Reserve Governor Daniel Tarullo suggested that the asset level for enhanced prudential standards should be reexamined. Several Members of Congress from both sides of the aisle have also expressed concerns regarding the $50 billion threshold. As such, expect this issue to continue to be raised in the 114th