The House Financial Services and Senate Banking Committees are gearing up for a busy agenda during the 113th Congress. The Committees will hold hearings and possibly mark up legislation on a wide array of regulatory and policy issues affecting the financial services industry. This includes what may be the panels’ biggest issue — reform of the mortgage finance market, including the future of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac — as well as proposed changes to the Dodd-Frank law, oversight of the Consumer Financial Protection Bureau (CFPB) and whether “too-big-to-fail” banks continue to pose a threat to the stability of the financial system.

The Committees, however, will have to navigate the polarized political environment that dominates Capitol Hill following the November election. As the recent fight over the “fiscal cliff” illustrates, it will be difficult for the Committees to reach a consensus on major financial issues, such as GSE reform and changes to the structure and financing of the CFPB, because of the differing views held by conservative Republicans, who control the House Financial Services Committee, and liberal Democrats, who control the Senate Banking Committee, particularly on the appropriate level of federal government involvement in the financial markets.

Nevertheless, there are opportunities for the Committees to engage in bipartisan legislative cooperation. For example, both Republicans and Democrats support developing fixes for technical problems implementing the Dodd-Frank law and enacting alterations to the law’s derivative provisions. However, on most of the big issues facing the Committees, it will take time for the Republicans and Democrats on the Committees to see if they can bridge their differences and work together.

House Republicans

The political tone and policy direction of the Committees will be shaped by their leadership, which has undergone significant changes at the start of the 113th Congress. For example, Rep. Jeb Hensarling, a conservative Republican from Texas, takes over as Chairman of the Financial Services Committee. Hensarling succeeds Rep. Spencer Bachus (R-AL), who led the Committee during the last two years, and before that, served for four years as Ranking Member. Bachus stepped down as chairman because of the six-year term limit for House Republican committee leaders.

Since first being elected to Congress in 2002, Hensarling has been a rising Republican star, including becoming Chairman of the House Republican Conference, the fourth-ranking job in the party’s leadership. In his nine years on the Financial Services Committee, Hensarling has been one of the strongest conservative voices including leading the House opposition to the $700 billion bank bailout in 2008, voting against the Dodd-Frank law and supporting an end to all U.S. backstops to the home mortgage industry and the complete privatization of the home mortgage market.

In addition, Rep. Gary Miller (R-CA) will serve as Vice Chairman of the Committee. Rep. Lynn Westmoreland (R-GA) will serve as Committee Whip, a newly created position.

House Democrats

Democrats on the Financial Services Committee also have a new leader — one who hails from the other end of the political spectrum. She is Rep. Maxine Waters of Los Angeles, California, a strong liberal. Rep. Waters succeeds former Committee Chairman and Ranking Member Barney Frank (D-MA), who co-authored the Dodd-Frank law that bears his name. Frank retired in December.

Rep. Waters has often had a tense relationship with the financial industry. At one point, she called “bankers ‘gangsters’ and said if they ‘don’t come up with loan modifications and keep people in their homes that they’ve worked so hard for, we’re going to tax them out of business.’”¹  However, since being elevated to the top Democratic position on the Financial Services Committee, Rep. Waters has been repairing her relations with the banking industry, including meeting recently with representatives from some of the nation’s largest banks including Bank of America Corp., JP Morgan Chase & Co., Capital One Financial Corp., Goldman Sachs Group Inc. and Citigroup Inc.

Senate Democrats

In the Senate, Senator Tim Johnson (D-SD) returns as Chairman of the Banking Committee. He is likely to keep the most contentious of debates behind closed doors or delegate such work to his more firebrand colleagues. Senator Elizabeth Warren (D-MA) joins the Committee as an aggressive consumer advocate and protector of the newly established CFPB. Senator Joe Manchin (D-WV) is the Democrats’ most conservative Senator on the Committee and will focus his efforts on community bank and credit union issues; he may challenge some of the more liberal statements expected from Senator Warren. Senator Heidi Heitkamp (D-ND) is the third new addition. Heitkamp will add an interesting dynamic to the Committee, because North Dakota is currently prospering and the state is home to the only state-owned public bank.

Senate Republicans

On the Republican side, Senator Michael Crapo (R-ID) replaces Senator Richard Shelby (R-AL) as Ranking Member. Senator Shelby gave up the top Republican spot on the Banking Committee to become Ranking Member of the Senate Appropriations Committee. Like Senator Shelby, Senator Crapo has stated his opposition to the Dodd-Frank law — particularly the CFPB. However, Crapo is also a member of the bi-partisan “Gang of Eight,” a group of senators that has been working to come up with a bipartisan federal deficit solution that can pass the Senate. He is regarded as someone that can make big deals happen across the aisle. New to the Republican side of the Committee is Senator Dean Heller (R-NV) who comes in with experience from the House Financial Services Committee and strong support from the banking industry. Senator Tom Coburn (R-OK) joins with little banking experience, but was part of the oversight panel that investigated money laundering problems at HSBC. He is a strong conservative who is likely to take a position against anything perceived to be government involvement in activities that could otherwise be managed by private enterprise.

Subcommittees

The Subcommittee Chairmen of the House Financial Services Committee are as follows: Rep. Randy Neugebauer (R-TX) will serve as Chairman of the Housing and Insurance Subcommittee. Rep. Shelley Moore Capito (R-WV) will serve as Chairwoman of the Financial Institutions and Consumer Credit Subcommittee. Rep. Scott Garrett (R-NJ) will serve as Chairman of the Capital Markets and Government-Sponsored Enterprises Subcommittee. Rep. John Campbell (R-CA) will serve as Chairman of the Monetary Policy and Trade Subcommittee. Finally, Rep. Patrick McHenry (R-NC) will serve as Chairman of the Oversight and Investigations Subcommittee.

The Democrats recently selected their Subcommittee Ranking Members: Rep. Michael E. Capuano (D-MA) will serve as Ranking Member of the Housing and Insurance Subcommittee. Rep. Gregory W. Meeks (D-NY) will serve as Ranking Member of the Financial Institutions and Consumer Credit Subcommittee. Rep. Carolyn B. Maloney (D-NY) will serve as Ranking Member of the Capital Markets and Government-Sponsored Enterprises Subcommittee. Rep. Wm. Lacy Clay (D-MO) will serve as Ranking Member of the Monetary Policy and Trade Subcommittee. Rep. Al Green (D-TX) will serve as Ranking Member of the Oversight and Investigations Subcommittee.

The Subcommittee Chairmen of the Senate Banking Committee are as follows: Sen. Jon Tester (D-MT) will serve as Chairman of the Economic Policy Subcommittee. Sen. Robert Menendez (D-NJ) will serve as Chairman of the Subcommittee on Housing, Transportation and Community Development. Sen. Sherrod Brown (D-OH) will serve as Chairman of the Subcommittee on Financial Institutions and Consumer Protection. Sen. Mark R. Warner (D-VA) will serve as Chairman of the Subcommittee on Security and International Trade and Finance. Sen. Jack Reed (D-RI) will serve as Chairman of the Subcommittee on Securities, Insurance and Investment.

The Republicans have also selected their Subcommittee Ranking Members: Sen. David Vitter (R-LA) will serve as Ranking Member of the Economic Policy Subcommittee. Sen. Crapo (R-ID) will serve as Ranking Member of the Subcommittee on Housing, Transportation and Community Development. He will also serve as Ranking Member of the Subcommittee on Securities, Insurance and Investment. Sen. Bob Corker (R-TN) will serve as Ranking Member of the Subcommittee on Financial Institutions and Consumer Protection. Sen. Mike Johanns (R-NE) will serve as Ranking Member of the Subcommittee on Security and International Trade and Finance.

Below is the summary of likely agendas of the Committees.

House Financial Services Committee

Under the leadership of Chairman Hensarling, Republicans on the House Financial Services Committee will focus on weakening the Dodd-Frank law through oversight hearings and legislative alternatives. Chairman Hensarling and his Republican colleagues have made clear their strong opposition to the statute. Among the Dodd-Frank provisions and issues they can be expected to take on are: the Volcker rule that limits banks’ proprietary trading, “too-big-to-fail” and the Orderly Liquidation Authority; the financial and regulatory structure of the CFPB; and a derivatives end-use exemption.

GSE reform is also going to be a top priority for Chairman Hensarling. As discussed above, Chairman Hensarling favors complete privatization of the home mortgage finance market. He will likely try to move through the Committee a GSE reform bill to this effect, but his main purpose may be to drive a message of GSE reform in order to lay the groundwork for a deal later on with Senate Democrats that would shrink the role of Fannie Mae and Freddie Mac without threatening to choke off the flow of money into home loans, which is critical to a sustainable housing recovery. Chairman Hensarling is a student of former Texas Republican Senator Phil Gramm, and knows that his position to end all U.S. support for the mortgage industry is held by few in Congress and will simply not pass the Senate.

Not surprisingly, Chairman Hensarling’s efforts to scale back the Dodd-Frank law is likely to be a source of considerable tension with Ranking Member Maxine Waters and other Democrats on the Committee. They are focused on ensuring that the Dodd-Frank law, which was passed by a Democratic Congress, is fully implemented. But while Rep. Waters does not support putting the housing mortgage market solely in the hands of private companies, there may be aspects of housing finance reform that she and Chairman Hensarling can agree on, albeit for different reasons. For example, both have raised questions about whether risk-retention requirements that force banks to hold five percent of certain mortgages on their books could inhibit a strong recovery in the housing market. Rep. Waters is likely concerned that these requirements may restrict credit availability. Chairman Hensarling, meanwhile, likely views these requirements as a burdensome regulatory obstacle that could stand in the way of a return to a healthy private securitization market for home mortgages.

Senate Banking Committee

The Senate Democratic leadership will spend much of the 113th Congress defending the major actions of the 112th. Regulations related to the Dodd-Frank reforms continue to come out of the agencies and will be scrutinized by the investment banking community. Similarly, as the CFPB begins full operations, including a series of new enforcement actions, we can expect scrutiny from non-bank financial services providers such as online lenders, payday lenders, pre-paid card issuers and other alternative banking and financing groups.

Serious legislating will require the Democratic leaders on the Committee to design efforts around benchmarks that House Financial Services Committee Chairman Jeb Hensarling will accept. For the most contentious issues they will rely on Ranking Member Crapo to negotiate with them behind the scenes. Where Crapo will specifically stand on bills affecting the GSEs and FHA remains to be seen, but it is clear that his support will be central to any legislation destined for the President’s signature.

Additional legislation the Committee is likely to take up in the 113th includes: Terrorism Risk Insurance reauthorization, Export-Import Bank, CIFIUS and possibly an Indian Housing bill. With a Chairman and Ranking Member that are not known for aggressive confrontation, we should expect well choreographed committee meetings with the hard negotiations occurring long before the opening gavel.

People to Watch

Mary Jo White and Richard Cordray

President Obama announced his intent to nominate Mary Jo White to serve as chair of the SEC and re-nominate Richard Cordray to direct the CFPB. Both appointments will require Senate confirmation.

White served for nearly a decade as the U.S. Attorney for the Southern District of New York—the first woman named to this post—where she specialized in investigating and prosecuting large-scale white collar crimes and complex securities and financial institution fraud.

Cordray likely faces a tough path to confirmation. Last year, he was installed as Director of the CFPB in a controversial recess appointment that expires at end of 2013. At that time, Senate Republicans promised to block his permanent confirmation absent major structural changes to the CFPB. Democrats have refused to consider such changes and a stand-off may ensue again.

Senator Tim Johnson

Senator Tim Johnson (D-SD), Chairman of the Senate Banking Committee, may opt out of running for reelection in 2014. Senator Johnson faces a tough reelection in his home state of South Dakota, which Republican Presidential nominee Mitt Romney won big over President Obama. Senator Johnson, who was close to death after suffering a rare brain illness five years ago, has indicated that he will make a decision in the spring.

Rep. Shelley Moore Capito

Rep. Shelley Moore Capito (R-WV) is running for the Republican nomination for Senate in West Virginia to succeed retiring Senator John D. Rockefeller (D-WV) in 2014. Rep. Moore currently serves on the House Financial Services Committee and Chairs the Financial Institutions Subcommittee. She is an ardent foe of the CFPB, calling the agency “a bureaucratic rogue.” If she is elected to the Senate and secures a seat on the Banking Committee, she can be expected to lead the charge against the CFPB as well as the agency’s defenders on the Committee, most notably Senator Elizabeth Warren.

House Financial Services Full Committee Roster — 113th Congress

House Financial Services Subcommittees

Capital Markets and Government Sponsored Enterprises

Financial Institutions and Consumer Credit

Housing and Insurance

Monetary Police and Trade

Oversight and Investigations

Senate Banking, Housing, and Urban Affairs Full Committee — 113th Congress

_{1 “U.S. Mortgage Finance Fix Rests With Odd Couple of Lawmakers”, BGOV, January 16, 2013.}