WASHINGTON — The second half of the 117th session of Congress could possibly be a pivotal time for monetary coverage as Democrats race to perform their legislative agenda forward of the 2022 midterm elections.
By all accounts, 2021 was largely uneventful for banks on Capitol Hill. The Democratic sweep within the 2020 elections had worried many within the business, however lawmakers had been unable to do a lot in addition to overturn a Trump-era reform that had eased rules for bank-fintech partnerships.
The truth is, the largest legislative improvement was a victory for banks. The business — via a grassroots marketing campaign that mobilized customers — efficiently fought again a controversial measure requiring monetary establishments to assist catch tax cheats by reporting account data to the Inner Income Service.
However 2022 is anticipated to be a busier legislative yr as Democrats attempt to craft legal guidelines forward of the approaching midterm elections which, traditionally, do not portend well for the president’s party. This might inspire Congress to attempt to resurrect the IRS proposal and advance different items of laws much less pleasant to banks.
“We anticipate Washington to characterize extra threat than reward for monetary companies subsequent yr,” wrote Jaret Seiberg, a coverage analyst on the Cowen Washington Analysis Group, in a analysis be aware Monday.
Among the many potential dangers, Democrats may take a second run on the IRS reporting plan to assist pay for President Biden’s Construct Again Higher agenda, think about new statutory restrictions for cryptocurrency actions and even discover legislative adjustments to make the assessment course of for financial institution mergers extra rigorous.
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Nonetheless, laws that’s extra useful to the monetary sector is also on the desk.
For instance, Democrats may revisit hashish banking reform. The business was hopeful that the 2020 elections would easy the trail for a invoice making it simpler for banks and credit score unions to serve marijuana companies in states the place the substance is authorized. However that laws took a again seat final yr as Democrats opted to push as a substitute for full marijuana legalization.
The Construct Again Higher Act, in the meantime, may present rewards to the business along with dangers if Democratic leaders are capable of enact the bundle despite resistance from moderates inside their very own occasion. The practically $2 trillion social coverage plan consists of housing investments and different financial drivers seen as useful to lenders.
Past laws, Congress could have a jam-packed yr for essential Senate confirmations among the many prudential financial institution regulators for financial institution coverage.
Here’s a rundown of what the brand new yr may maintain for banking coverage in Congress.
Construct Again Higher 2.0
The destiny of President Biden’s “Construct Again Higher legislative agenda can be high of thoughts for many Democratic lawmakers in 2022. The stakes for banks and the overall economic system are vital. Analysts say monetary establishments would broadly profit from the potential trillions in new authorities spending.
The funds reconciliation invoice faltered after Sen. Joe Manchin, D-W.V., introduced his opposition in early December. Senate Majority Chief Chuck Schumer, D-N.Y., has vowed to attempt passing the invoice in early 2022.
The defeat of Construct Again Higher was “adverse broadly for financials and housing as we anticipated the practically $2 trillion over 10 years in spending to spice up the economic system whereas decreasing credit score losses,” Seiberg mentioned in a be aware final month.
It stays to be seen how lawmakers will revise the laws to attempt to garner extra assist. However core Democratic aims stay roughly the identical, comparable to increasing the nation’s housing supply and making extra infrastructure resistant to climate change, which may pay historic dividends for lenders.
However there is also vital compliance threat for banks inside a model 2.0 of Construct Again Higher, together with the return of a much-reviled proposal from the Treasury Division to extend banks’ data reporting necessities to the Inner Income Service.
The unique plan would have required banks to submit their clients’ gross inflows and outflows in the event that they exceeded a sure threshold, an try and shore up tax compliance that triggered widespread consumer privacy fears.
Slightly than abandon the plan, Democratic lawmakers led by Sen. Mark Warner, Va., have tried to slender its focus to rich taxpayers and unreported enterprise earnings — an strategy that will soothe client fears on the expense of a bigger compliance headache for banks.
One other swing at hashish banking reform
The election of President Biden coupled with the Democrats gaining management of the Senate final yr buoyed hopes that Congress would be capable to face up to GOP opposition and at last cross laws making it simpler for banks to work with hashish companies.
Democratic management all but abandoned laws focused at monetary companies within the hopes they may safe broader hashish legalization. Lawmakers, led by Schumer and Sen. Cory Booker, D-N.J., argued that Democrats’ high precedence must be “restorative justice” for 1000’s of individuals incarcerated for cannabis-related crimes, reasonably than making it simpler for banks to revenue.
However few in Washington anticipate a legalization push to succeed whereas Senate filibuster guidelines require that the majority laws get not less than 60 votes to cross. Nonetheless, that would depart marijuana banking reform as Democrats’ most viable different.
Isaac Boltansky, director of coverage analysis at BTIG, wrote in a December be aware that in 2022, “the forthcoming effort to advance complete hashish reform will virtually actually fail,” leaving the Secure and Fair Enforcement (SAFE) Banking Act as “a logical legislative fallback.”
That consequence doesn’t imply Congress received’t think about folding in parts of restorative justice right into a hashish banking invoice. Boltansky mentioned that lawmakers might in the end agree on a invoice that helps banks work with hashish companies whereas additionally making it simpler for nonviolent hashish offenders to expunge their felony histories.
“We’ve began to see a consensus type round sure restorative justice ideas, which ought to assist construct a SAFE+ bundle that may in the end win the assist of key progressive holdouts,” Boltansky mentioned. “Advocacy efforts are sometimes cumulative and the push to advance SAFE has been each sturdy and more and more broad.”
Federal framework for cryptocurrency regulation
The cryptocurrency sector’s fast progress attracted sharp consideration from Washington in 2021. For now, analysts are bearish that policymakers will produce vital laws with the potential to turn out to be legislation anytime quickly.
However 2022 may nonetheless show to be a pivotal yr on Capitol Hill for crypto as Congress as mulls future coverage on digital property.
To this point, Democrats in Congress have appeared largely sympathetic with the considerations espoused by a number of key policymakers in regards to the systemic dangers posed by sure crypto merchandise, together with Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and performing Comptroller of the Forex Michael Hsu.
Monetary regulators who’re a part of the President’s Working Group on Monetary Markets urged Congress to develop a brand new regulatory framework particular to stablecoins — a kind of cryptocurrency pegged to a fiat forex to take care of a set worth.
Senate Banking Committee Chair Sherrod Brown, D-Ohio, has in current months signaled a transparent curiosity within the sector and in stablecoins particularly. In November, Brown despatched letters to Coinbase, Gemini, Paxos, Binance, Tether and different stablecoin issuers requesting extra details about their merchandise and underlying companies. He convened a listening to in December on the identical topic, the place main crypto CEOs urged lawmakers to not regulate them out of existence.
Cowen’s Seiberg mentioned in a December be aware that Brown’s strategy to crypto to this point would go away “the door open to a number of hearings on crypto subsequent yr. We’d anticipate the primary one to be in late January or February.”
“It’s laborious to see this leading to laws on this Congress, although a invoice to make clear coverage could possibly be attainable subsequent yr as an modification to a broader bundle. We can be expecting any indicators of that,” Seiberg mentioned.
Financial institution merger assessment
The principles guiding regulators’ evaluations of proposed mergers have turn out to be an more and more high-profile political goal for Democrats. Many progressives argue that the businesses have been too lax in approving offers, rubber-stamping them as a substitute of conducting crucial analyses on the results of credit score entry, client value and monetary stability.
Whereas the regulators themselves can be liable for altering these guidelines, congressional lawmakers may affect the path of sure reforms via symbolic laws and the Senate nomination course of.
Financial institution merger assessment has been within the regulatory highlight because the summer time of 2021, when the Biden administration introduced an govt order meant to promote competition across the U.S. economy. As a part of that effort, the White Home nudged the Justice Division, the Federal Reserve, Federal Deposit Insurance coverage Corp. and the Workplace of the Comptroller of the Forex to replace their tips “to supply extra sturdy scrutiny of [bank] mergers.”
Democrats in Congress have already put ahead laws to usher in better scrutiny of banks’ mergers. In September, Sen. Elizabeth Warren, D-Mass., and Rep. Jesús “Chuy” García, D-Sick., launched a bill that may require financial institution regulators to weigh how a merger might affect group entry to reasonably priced credit score and whether or not the deal presents dangers to monetary stability. Whereas the laws faces lengthy odds of changing into legislation so long as the Senate filibuster stands, the proposal may function a free blueprint for Biden’s financial institution regulators.
However in 2022, Congress is anticipated to play a extra direct position in deciding who precisely can be making any potential adjustments to the financial institution merger assessment course of. The Senate can be liable for confirming each prudential financial institution regulator nominated by the Biden administration, together with the comptroller of the forex, the Fed’s vice chair for supervision, and — as of February — the chair of the FDIC.
Given Warren’s outstanding position on the Senate Banking Committee and public support from Chair Sherrod Brown, D-Ohio, nominees’ stance on the way forward for financial institution merger evaluations may play a major half in whether or not they’re in the end confirmed.
