This time banks have little to fear from the public reuniting of the former committee chairs known for guiding namesake legislation into law that changed the banking rule book. But headlines including Barney Frank and Christopher Dodd harken back to a time when financial services policy was at the tip of tongue regarding the multifaceted reform bandwagon rolling through Washington in the 2008-2009 recession cleanup.
Former chairmen Frank and Dodd recently endorsed Federal Reserve Chairman Jerome Powell’s reappointment. Frank is a loyal member, ex officio, of the House of Representative’s left wing. Dodd is a highly respected member of the former senators’ club also known for left-of-center intellectual leadership on banking and foreign policy issues. More moderate-to-conservative Democrats in the House and Senate endorsed Powell earlier this month. These trusted validators joined previous endorsers representing all factions of Democrats’ bicameral caucuses and are in our view clinching indicators of Powell’s reappointment.
During a Senate hearing yesterday before the committee once chaired by Dodd, the current SEC chair, Gary Gensler, said that capital markets operations rules deserve updating to match 21st Century market structures. On Monday, we pointed out that fiscal matters will consume much of the Biden administration’s remaining 2021 domestic policy energy, but that competition policy looked to be a candidate for increased activity next year. Gensler’s widening focus on market structures (and products) seems destined to gain more steam, possibly, for 2023 action.
We anticipate several quarters of study, public testimony, and legislative drafts released before Gensler can help push through new law, if at all. House Financial Services Chairwoman Maxine Waters and Senator Sherrod Brown are proponents of updating the rules. In his opening statement yesterday, Brown asserted “the disconnect between the stock market and most American’s lives has never been more painfully clear” (emphasis added). He went on to align himself squarely with Bidenomics, especially the human capital investment aspect. In mid-August, Waters released a statement applauding the SEC’s proposed rule to companies listed on national stock exchanges to provide gender and racial diversity data of their boards.
Twelve years later, one of America’s more sophisticated banks finds itself in the focus of a senator who was instrumental in creating an agency under Dodd-Frank designed to protect consumers of financial products. Senator Elizabeth Warren on Monday sent a six-page litany against proven abuses occurring since 2008 at Wells Fargo for which the bank holding company has been assessed $5 billion in penalties.
Wells Fargo is unlikely to feel less heat from Washington for a while, even as a renewed focus on financial services creates greater regulatory risk. But midterm election years are politically fruitful for politicians to consider rather than act on rules tightening. Many Democrats voted out in 2010 will point to Dodd-Frank as one factor in their political demise. The non-election year following next year makes more sense for some of the reforms for which Gensler has support from powerful Democrats.
More immediately we would not be surprised to see rules changes or clarifications for Federal Reserve Bank officials, including presidents in the aftermath of trading disclosures by two presidents. Although both officials stress their investment activities followed the letter of guidance, optics present the Federal Reserve Board an opportunity to get in front of this story and manage it internally. Doing so makes sense for Powell as he seeks to protect a left guard action to end his chairmanship. It also would play well before for whomever the president nominates to step into the vice chair of supervision job.
The Federal Reserve System in November of 2009 instituted changes to rules governing selection of the 12 district bank boards designed to broaden representation to more accurately reflect local businesses and communities. In the wake of Lehman’s bankruptcy, some in Congress and elsewhere worried about a lack of diversity among Fed bank boards. While the issue was a recurrent topic in conversations during consideration of Dodd-Frank, the Board’s decisions helped mitigate momentum to amend the System’s 1913 statutory charter.
