How Might Congressional Republicans Remake Financial Services Policy?
Last week, Cook Political Report—one of the country’s preeminent elections prognosticators—issued updated ratings for races in the U.S. House of Representatives ahead of the midterms this November.
The summary did not paint a pretty picture for Democrats. The GOP needs a net gain of just five seats to win back control of the lower chamber of Congress. While Cook predicts four current Republican seats will be won by Democratic candidates, it also predicts eight Democratic seats will be stolen by GOP candidates.
That would be a net gain of four seats for the Republicans—an outcome that would keep House Speaker Nancy Pelosi (D-Calif.) in her current role (if she decides to run again). But barely, and that’s not the whole picture. Cook also listed 15 Democratic seats in the toss-up column, meaning those seats are too close to call. That figure is more than twice the number of Republican toss-up seats.
Democrats clearly are in a more perilous position, which means GOP leaders are getting ready to potentially takeover control of the House and its committees. What would Republican control look like for financial services policy?
House Lawmaker Opts for Policy Role over Leadership Position
Republican preparations include the man who is all but certain to run the House Financial Services Committee (HFSC) if Republicans take back the House: Rep. Patrick McHenry (R-N.C.). Today Rep. McHenry is the top Republican, or ranking member, on the HFSC. He has served in that capacity since 2019, which means that under the GOP’s committee term limit rules (read more on those rules here), he has just two years left to serve at the top of the financial services panel and make his imprint on federal housing, banking, international finance, and insurance policy.
Perhaps that narrow window is why Rep. McHenry announced this week that he would not seek a position in House leadership if his party takes over. (While members of leadership can serve on committees, they traditionally do not lead them.) Clearly Rep. McCarthy has an agenda he wants to pursue. What’s on it?
Digital assets certainly occupy one of the top positions on Rep. McHenry’s to-do list. As Politico Pro reported, the congressman already has assembled a GOP plan for cryptocurrency regulation, which is firmly on the side of team crypto. After President Joe Biden issued his executive order calling for broad rulemakings on sector activities, McHenry issued a statement that said, “As Congress contemplates regulatory frameworks for digital assets, we must also fully acknowledge their benefits … and their underlying technologies.” He also warned, “Despite some Democrats’ claims, we have not seen widespread evasion of our sanctions using digital assets by Russia, due to the transparent nature of blockchain technology. Any attempt to use the crisis in Ukraine as the rationale for today’s action is short-sighted and will not lead us to the right solutions that allow this technology to flourish in the U.S.”
Specifically, Rep. McHenry has rejected the White House’s plan calling for stablecoins to register as banks. Instead, he “wants to build off existing state-based regulation of digital currencies and establish what would in essence be a federal option for crypto startups.” The congressman also is author of the Clarity for Digital Tokens Act of 2021, which would create a pathway for crypto companies to launch their own token sales without having to abide by existing federal securities legislation.
Rep. McHenry also will be focused on fostering innovation more broadly by championing legislation to spur startup capital formation. The congressman outlined dozens of ideas to do so in a report issued earlier this month. For example, his efforts to expand opportunities for underrepresented entrepreneurs and investors would include:
Modernizing the accredited investor definition;
Increasing access to investment opportunities for retail investors through closed-end funds;
Modifying the qualifying venture capital fund exemption under the Investment Company Act of 1940;
Expanding the scope of qualifying investments for venture capital funds; and
Creating a micro-offering exemption.
Rep. McHenry also will use whatever power he has to push back on what he views as regulatory overreach by the Biden administration. In March, the ranking member sent a letter arguing that action taken by Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra would stifle financial inclusion and consumer choice. Just 10 days earlier, he penned a Wall Street Journal op-ed challenging the U.S. Securities and Exchange Commission’s authority to issue rules requiring publicly traded companies to disclose extensive climate-related data.
As the person in charge of setting the committee hearing schedule, Rep. McHenry will look for other ways to challenge the White House’s regulatory agenda. Indeed, during a speech at the American Bankers Association’s Washington Summit last month, he promised to seek “a lot more oversight of the financial regulators than what we’ve seen in this Congress.”
The congressman’s other priorities, as outlined in a March letter to House appropriators, include strong oversight of how COVID-19 relief funds were spent, reining in the U.S. Post Office’s ability to provide financial services, improving supply chains, countering China’s growing economic influence, and reducing regulations that Rep. McHenry argues have constricted the availability of affordable housing.
On Senate Side, Would Next GOP Banking Lead Follow Toomey’s Example?
While the race for the U.S. Senate is much tighter—Cook Political Report has four Democratic toss-up seats and five for the GOP—Republicans on the Senate Banking Committee also are contemplating their path forward if they win control of the upper chamber of Congress.
The first order of business is to determine who actually will take the gavel. Current Ranking Member Sen. Patrick Toomey (R-Penn.) is not running for reelection. Sen. Mike Crapo (R-Idaho), who would be next in line purely by seniority, already has held the gavel. According to the Structured Finance Association, Sen. Tim Scott (R-S. Carolina) is Sen. Toomey’s likely successor. The junior senator from the Palmetto State has served on the Banking panel since 2015.
While Sen. Scott has been relatively quiet on the regulation of digital assets, he likely would put general regulatory reform squarely at the center of his agenda. Earlier this year, he and other members of the Senate Banking Committee introduced The TAILOR Act, which would require regulatory agencies like the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau to take into consideration the risk profiles and business models of individual financial institutions when they shape regulations. The bill also requires the regulatory agencies to provide an annual report to Congress outlining the steps they have taken to reduce regulations and modernize bank supervision.
If he takes the gavel next year, Sen. Scott also will address financial inclusion and literacy. With Sen. Joe Manchin (D-W.Va.), he is a co-sponsor of the Credit Access and Inclusion Act of 2021, which would expand access to credit for an estimated 45 million Americans with either no credit history or a thin credit history because of their credit score. The bill would permit landlords and utility and telecom providers to report on-time payment data to credit reporting agencies to give consumers an opportunity to develop a positive credit history.
Like his House counterpart Rep. McHenry, Sen. Scott also would use his powers to address perceived U.S. Postal Service overreach into financial services. And he would strongly question the Biden administration’s regulatory policies. In fact, Sen. Scott’s oversight could include personnel matters at federal agencies. With Sen. Toomey, Sen. Scott recently wrote to FDIC Acting Chairman Martin Gruenberg about “troubling allegations of racial discrimination and fears of retaliation at the FDIC under his previous leadership of the agency.” The senators said, “to better understand the problems that arose and to ensure the FDIC does not revert back to a toxic workplace,” they would need the FDIC to turn over all records pertaining to allegations of workplace misconduct by senior officials from November 2004 to September 2018.
As chair, Sen. Scott also would have the power to schedule—or delay—hearings on President Biden’s nominees to financial services and housing boards and agencies. Sen. Scott also might try to remake some agencies. With Sen. Toomey and Sen. Ted Cruz (R-Texas), he has introduced legislation to reform the governance of the FDIC.
The Republican leaders-in-waiting have broad and aggressive agendas. Of course, because any legislation would need the signature of the man in the White House to become law, their seats on the Banking Committee and HFSC will be more bully pulpit than a place to enact changes to statute – but that perch can be quite effective.