Banks can have a hard time deciphering friend from foe among members of Congress in the post-crisis era. Between legislators calls for deregulation and their criticisms of regulators insufficient approach to enforcing rules and prosecuting offenders, U.S. financial institutions may find themselves plucking petals, wondering if they love me or they love me not.
On the love me side, memories of the recent financial crisis appear to already be fading from the minds of Congressional representatives on both sides of the aisle. Support for deregulation is on the rise.
Two deregulation bills are currently under consideration in the House of Representatives. The Regulatory Improvement Act of 2014 proposes the creation of an independent regulatory oversight committee to review the necessity and burden of certain regulations and to advise Congress and regulators accordingly. The Searching for and Cutting Regulations that are Unnecessarily Burdensome Act of 2014 (SCRUB Act) has also received a great deal of attention, especially among House Republicans. This bill advocates for the creation of a commission to identify and repeal outdated regulations, especially those that impede the growth of small businesses.
These bills are backed by congressional heavyweights who have supported extensive amendments to and even the repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Supporters include the chairman of the House Judicial Committee, Rep. Bob Goodlatte, R-Va.; Rep. Spencer Bachus, R-Ala.; and Rep. Patrick Murphy, D-Fla. Although the SCRUB Act has moved slowly in Congress and has not moved out of committee, it has received considerable attention on Capitol Hill. The Regulatory Improvement Act was also only recently referred to committee.
Wall Street is receiving a little less love from the Senate. Many senators have expressed discontent with the failure of regulatorsparticularly the Department of Justice, the Federal Bureau of Investigation and the Consumer Financial Protection Bureauto exercise their full regulatory powers to bring enforcements and prosecutions against financial institutions.
Sen. Carl Levin, D-Mich., has criticized the DOJs prosecution of Credit Suisse and other Swiss banks that have facilitated tax evasion for U.S. citizens, calling for better enforcement of subpoenas and the issuance of John Doe summonses.
Meanwhile, a coalition of Democratic members led by Sen. Elizabeth Warren, D-Mass., recently expressed disappointment over a report from the Justice Departments inspector general that revealed that pursuing mortgage fraud was a low priority for the FBI following the financial crisis, despite the $196 million in funding the agency received to investigate the area. And the Senate Committee on Banking, Housing and Urban Affairs has raised concerns about the CFPBs sluggish implementation of essential regulations and reports, much to the chagrin of the banking sector.
The stance of some key figures is less clear. As chairman of the House Financial Services Committee, Rep. Jeb Hensarling, R-Texas, yields considerable influence over financial services legislation. Although typically a friend of Wall Street, Hensarling has been somewhat critical of inaction on the part of regulators. For example, the committee recently conducted an oversight hearing of the Securities and Exchange Commission. SEC Chair May Jo White was asked to testify in defense of the agencys $1.7 billion budget request after receiving unprecedentedly high budgetary appropriations in recent years. Hensarling was skeptical about the SECs budget request, noting that the budget has increased by 300% over the past 14 years.
On the surface, the committees scrutiny of the SEC budget might seem like a win for financial institutions that are facing record-high examinations, regulations and supervisory activities. But in actuality, Hensarling was critical of the SECs failure to enact enough new regulations and bring enough enforcement actions. Hensarling noted that the SEC has enacted less than half of the rulemakings required under Dodd-Frank.
Hensarling has criticized both the CFPB and the SEC for financial mismanagement and squandered resources and in March sent a letter to CFPB Director Richard Cordray encouraging the agency to more vigilantly pursue instances of discrimination in auto lending. His criticisms are more than likely bad news for Wall Street, pointing to sustained aggressive support for the completion of pending Dodd-Frank regulations and more harsh rhetoric in congressional hearings.
Financial institutions have their work cut out for them trying to interpret the mixed messages coming out of Capitol Hill. Although deregulation bills like the SCRUB Act have received support, they face an uphill battle to get past the Houseespecially considering the upcoming summer recess and mid-term elections. Moreover, amendments to financial reform legislation and the passage of new legislation require committee hearings, mark-ups, and multiple votes and often encounter unanticipated obstacles.
Members of Congress on the "love me not" side can bypass all of these steps. The legislation and congressional pulpit are already in place for members of Congress to scrutinize delayed rulemakings and lackluster enforcement.
Given these factors, continued pressure from Congress for more stringent regulation will likely encourage a higher number of enforcement actions and prosecutions in the upcoming year.
Brandon Daniels is the president of Clutch Group, a global provider of litigation, investigation, compliance and other legal services for Fortune 500 companies.
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