WASHINGTON President Obama hit on several important issues for bankers in his annual address to Congress Tuesday night, though as expected financial services issues took a backseat to other national concerns, like unemployment and the minimum wage.
The president did not blast the banking industry as he has in years past, nor did he declare victory on the implementation of the Dodd-Frank Act, as some had predicted. Indeed, he didn't even tout his success getting key regulators like Richard Cordray, director of the Consumer Financial Protection Bureau, and Mel Watt, head of the Federal Housing Finance Agency, confirmed to their posts in 2013.
But he did touch on the need for housing finance reform and announced a plan to launch government-backed retirement accounts that may prove to be a new line of business for the banking industry.
Below are three key takeaways from the night, including reactions from key lawmakers on the Senate Banking and House Financial Services Committees.
GSE reform is still on the radar
If you sneezed or turned your head at the wrong time you might have missed it, but ongoing efforts in Congress to overhaul Fannie Mae and Freddie Mac did get shout-out, albeit a vague one, during the speech.
Obama asked lawmakers to "send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans," building on his earlier support last fall of Senate efforts at a bipartisan housing reform.
A White House fact sheet accompanying the speech noted that Obama remains "encouraged" by efforts on the Senate Banking Committee to forge an agreement on the issue. Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, the ranking member, have been working together for several months and are said to be working toward introducing legislation addressing the government-sponsored enterprises sometime later this year. Their efforts will likely build on work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., who were also praised in the fact sheet.
After the speech, lawmakers acknowledged that the issue is a terribly complex one, making a nuanced discussion unlikely during a high level address watched by millions of Americans.
"GSEs is a hard thing to cover in the State of the Union because it's a very detailed, granular topic," said Rep. John Delaney, D-Md., who is developing his own mortgage finance reform plan with two other House Democrats, in an interview. "You're never going to get a lot of detail on GSEs because you either talk about GSEs for 30 seconds or for 30 minutes, there's kind of no in-between."
Moreover, Michael Stegman, a counselor to the Treasury Secretary on housing finance policy, gave a lengthy and detailed speech just last week at a securitization conference in Las Vegas, Nev., that reiterated the White House's commitment on the issue, likely sating many in the industry for now.
Rep. Al Green, D-Texas, added that Obama has already helped along the mortgage finance reform movement by getting Watt, a former Democratic congressman from North Carolina and member of the House Financial Services Committee, confirmed as director of the FHFA late last year.
"That's significant because he came right off the committee, he knows what's going on at the committee level," Green said in an interview. "I think it's going to be a real plus for our nation to have someone who has had a hands-on experience in the House with these concerns and who can relate across the aisle."
Still, Rep. Scott Garrett, R-N.J., author of a conservative plan to overhaul the GSEs pending in the House, downplayed Obama's efforts on the issue, arguing that more concrete work needs to be done.
"We've been waiting for his five years for them to do anything on housing finance, and they haven't done anything," he said in an interview. "He's talked about it in the past, so now he's talked about it again."
Details on new savings program are slim, but it could potentially provide new fee income for banks
President Obama also detailed a new government-backed retirement savings program during the speech, an effort that could provide additional fee income for banks.
Obama said that he would direct the Treasury Department on Wednesday to establish "to create a new way for working Americans to start their own retirement savings: MyRA."
But there were few specifics on the plan and what was said about it was confusing. During the speech, Obama called it a "new savings bond that encourages folks to build a nest egg" and "guarantees a decent return with no risk of losing what you put in."
Yet a White House fact sheet referred to it as "starter retirement account" that would be offered through Roth IRA accounts and, like a savings bond, be backed by the U.S. government.
The Treasury Department is expected to release more details on the idea on Wednesday. If it is an account, it could provide banks with additional fee income if they are held and managed by private institutions.
For their part, lawmakers after the speech were interested.
"Anything to democratize savings is a good idea," said Delaney, a former entrepreneur and banker, adding that there could be "business opportunities around something like that where you could tie it into financial services a lot of different ways."
"Any way we can give people an opportunity to save money and do it in such a way as to take care of their future needs, I think that's a positive thing," said Green. "So I see this as one additional tool that is to be utilized."
Lawmakers bristle at unilateral approach
Still, while reaction to the State of the Union address largely split along party lines, there was some concern on both sides of the aisle about the president's focus on implementing executive actions, rather than going to Congress, on a number of issues. Phrases like "and if Congress wants to help" were uttered several times throughout the speech.
"What I offer tonight is a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class," Obama said. "Some require congressional action, and I'm eager to work with all of you. But America does not stand still, and neither will I. So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that's what I'm going to do."
Obama outlined plans to raise the minimum wage for federal contract workers, improve the nation's infrastructure and expand worker training programs, along with other initiatives.
While the President does have some latitude to move forward with a variety of agenda items absent consent from Congress, some key issues for bankers are likely to require legislation, such as regulatory relief for smaller banks, delays to the flood insurance program, patent reform, improved cybersecurity standards, and GSE reform. With partisan dysfunction already at an all-time high in the Capitol, a splintering amongst congressional Democrats and the White House could make such legislative efforts all the more difficult.
"That's a tough one that rubs a lot of people wrong. And I'll be honest, me too," Sen. Joe Manchin, D-W.V., told reporters, adding that he "prays" the President won't exceed his authority in an effort to do what he thinks "is right."
Delaney, who overall praised Obama's speech, expressed some concerns with the approach as well.
"I would have liked to have seen even more of an extension of his hand to work with Congress, because I think we need more of that, and even more of an expression of his intent to really work with Congress to find compromise so we can get things done," he said.
Republicans were quick to raise concerns about the constitutionality of some of Obama's proposed efforts, warning that they will push back if they start feeling shut out.
"If in fact he is thinking of things to do that he has legal authority to do it with to streamline government, cut red tape, expedite permits, so on and so forth, to create jobs, the American public must ask, where have you been the last five years if you had that authority?'" said Garrett. "On the other hand, if what he's talking about is outside the bounds of the Constitution, then the House and the Senate should stand up and say, this is what the American public wants, is to live by the Constitution and the rule of law and not by executive fiat, because you do not have the authority to do those things."
Still, some Democrats stuck by Obama, pointing to ongoing worries about Republican obstructionism.
"I think the number one problem facing America is the decline of middle class income," Sen. Charles Schumer, D-N.Y., told reporters. "So, it would be better and you could do it more comprehensively if Congress would join us, but if there are people who are just going to obstruct, he's going to do it on his own, and that's a lot better than nothing."
Victoria Finkle is American Banker's Capital Hill reporter.