2022 may feel a bit like Groundhog Day for many, but there will be a key difference on Capitol Hill: Congressional Democrats will push hard to effect as much change as possible ahead of the midterm elections and Republicans will be working to finalize their agenda in the event they take back the House and/or the Senate. These dueling approaches will be on exhibit in the two Congressional committees with jurisdiction over financial services policy and regulation.
Senate Banking Committee and House Financial Services Committee Democrats will continue to highlight key issues, including heavy focus on sector specific oversight (banks, fintech, credit reporting agencies, student loans, hedge funds, and private equity) and continued engagement with the administration and regulators on pandemic response, digital currencies, AI, trading, housing initiatives, and ESG issues. Republicans will further develop their agenda through the previously announced task forces, which are expected to report recommendations piecemeal beginning in the second quarter of this year.
Many of the top Treasury Department and financial regulatory jobs have been filled or nominated but there are also several high-profile positions that remain vacant with nominations expected in the first half of the year. Given this dynamic, financial regulators will start off slow in 2022 (the exception being the SEC and CFPB), with more activity later in the year on big ticket items.
Financial Regulatory Nominations: Econ and Politics 101
When the Senate Banking Committee considers the Federal Reserve Board nominations, Democrats and Republicans will use these moments to pose questions and trigger broader debate on economic policy, regulatory supervision, and a host of other topics. With an evenly divided 50-50 Senate and limited Republican support for most Biden appointees to date, all nominees must get unanimous Democratic support that is not always guaranteed (see withdrawal of OCC and OMB nominees). In this instance, Fed Chair nominee Jerome Powell with public backing from Republicans may be the exception.
Financial Regulators – current vacancies and nominees
Federal Reserve Board
- Chair Jerome Powell (nominated)
- Vice Chair Lael Brainard (nominated)
- Vice Chair for Supervision (TBA)
- Two Board Governors (TBA)
Federal Deposit Insurance Corporation
- Chair Jelena McWilliams resigned effective February 4 and Marty Gruenberg will become Acting Chair.
- Vice Chair (TBA)
Commodity Futures Trading Commission
- Democratic Commissioner nominee Kristin Johnson
- Democratic Commissioner nominee Christy Romero
- Republican Commissioner nominee Caroline Pham
- Republican Commissioner nominee Summer Mersinger
Securities and Exchange Commission
- Republican Commissioner (TBA). Republican Elad Roisman resigned effective January 31.
Office of the Comptroller of the Currency
- Comptroller (TBA). Saule Omarova withdrew. Michael Hsu is Acting Comptroller.
First Quarter Financial Services Highlights on the Hill
Beyond nominations and several bicameral hearings that are mandated under law (Federal Reserve, Treasury, and CFPB appearances), these panels will reprise their greatest hits from 2021. Banking Committee Chair Senator Sherrod Brown (D-OH) and Financial Services Committee Chair Maxine Waters (D-CA) both will also use their gavels to accelerate agency rulemakings as well as cajole companies to make proactive reforms on many of the ESG priorities that they continue to promote.
Below is a brief outlook for Congress and with regulators through year end.
- Banking Industry oversight – After the fireworks at the FDIC last year leading to Chair McWilliams’s resignation, it is clear there will be increased attention on bank mergers and the impacts on competition in the sector as well as use of technology, local branches, governance, and consumer credit. House Financial Services Committee leaders reacted to the events at the FDIC with polar opposite responses by Democrats and Republicans.
- ESG legislation – The House Financial Services Committee in 2021 passed a series of proposals directed at corporate disclosures on climate, diversity, outsourcing, and political finance that mostly direct action at the SEC. These bills will not be taken up by the Senate but will serve as House Democrats’ roadmap to push SEC Chair Gary Gensler to move forward in those areas. There may be some legislation on D&I issues related to asset managers, financial regulatory appointments, pay equity, and housing appraisal bias. Republicans for their part will continue to embrace materiality as a fundamental basis for disclosures.
- SEC Rulemakings – SEC Chair Gary Gensler has telegraphed an aggressive agenda and set up 2022 to be fairly busy with climate being his number one priority. The SEC’s rulemaking plans for this year highlight proposals on Treasury market reforms, trading, remaining Dodd Frank derivatives and executive compensation requirements, proxy voting, and human capital.
- Consumer lending – Both committee Chairs are strong supporters of legislation that would create a 36% rate cap, but there is no real path for full committee approval as several rank-and-file members have concerns about its potential implications for access to credit. Republicans and many Democrats will continue to oppose a 36% rate cap and argue for more innovation and competition in the consumer lending space. Several Democrats have identified “Buy now, pay later” offers as a new area for scrutiny so they can assess whether there are gaps in current lending rules allowing companies to avoid triggering certain existing regulations. Proponents of checking account overdraft protection legislation are planning to reintroduce and try to move their proposal this year in the House.
- Private Equity/housing – Democrats on both committees are raising their concerns on the role of private equity in rental, manufactured, single family and multi-family housing. In this specific instance, Senate Democrats are looking at the sale of housing units to private equity interests and its impact on local real estate markets and subsequent availability of affordable housing units.
- Cannabis banking reform – There is broad bipartisan support for the SAFE Banking act and its protections for banking cannabis related assets, but Senate Democratic leaders are opposed to adopting it before they consider a broader marijuana decriminalization measure. The SAFE Banking act was nearly enacted as part of the 2021 National Defense Authorization Act (NDAA) after the House voted for it but was dropped as an NDAA amendment due to those objections by Senate Democrats.
- Community Reinvestment Act (CRA) – Once the leaders of all the financial regulators are confirmed, they will reinvigorate a joint effort to consider new rules to the Community Reinvestment Act (CRA). There is no specific timeframe in which they have to act, but industry, civil rights advocates, and Congressional Democrats have advocated for a new set of reforms to this 1977 law requiring banks invest in the communities they serve. Republicans will continue to call for the modernization of the CRA that recognizes the impact of internet banks and other innovations with clear rules of the road for financial institutions.
- Cryptocurrency – Congress continues to educate itself on the basics of digital currencies and while it will not be in position to advance any major legislation with a 50/50 Senate, there will continue to be hearings. The growing desire for lawmakers to act in this area was evidenced when the Bipartisan Infrastructure law carried a provision to require crypto brokers to report gains in 1099 forms beginning in 2024. Expect a predictable partisan divide on the need for near term regulation with some Democrats advocating for legislation clarifying the SEC has authority in this area. The two Committees may have the Treasury Department appear in February to discuss the report of the Presidential Working Group on use of stablecoins. Ranking Member Patrick McHenry (R-NC) dismissed the working group’s conclusions in his statement from November.