What a GOP Senate Takeover Means for Dodd-Frank, CFPB, User Fees

While a Republican takeover of the Senate will likely mean revisions to the Dodd-Frank Act as well as to the structure of the Consumer Financial Protection Bureau, a GOP majority will not hamper advisory groups’ efforts to secure backers of a Senate bill that allows the Securities and Exchange Commission to collect user fees to fund advisor exams.

With two weeks remaining until the midterm elections, numerous polls predict that Republicans will win a Senate majority.

Indeed, Greg Valliere, chief political strategist with Potomac Research, said in his Tuesday commentary that Potomac is “sticking” with a 65% chance of a GOP takeover, which is “based on our belief that the GOP will lose no more than one of its seats while the Democrats are likely to lose at least seven — West Virginia, South Dakota, Montana, Louisiana, Arkansas, Alaska and either Colorado or Iowa.”

GOP challengers, Valliere said, are also close in North Carolina and New Hampshire. “While the Senate still looks close, the House could be a GOP blowout,” he said.

David Tittsworth, president and CEO of the Investment Adviser Association, adds that because “no one is predicting that Democrats will achieve a majority” in the House, “it’s thus likely that the Financial Services Committee will continue to be chaired by Rep. Jeb Hensarling, R-Texas, although some of the subcommittee chairs might shift.”

Just six Senate seats are needed for control to shift, adds Joe Lieber of Washington Analysis in his recent commentary. “Polls in Iowa and Colorado — two toss-up races — are improving for the GOPs,” Lieber says. “While a poll in Kentucky shows the Democratic challenger to Mitch McConnell, R-Ky., with the lead, this may be an outlier, as nearly every other recent poll has McConnell ahead. In Kansas, Sen. Pat Roberts, R-Kansas, who was recently lagging, is now leading. Meanwhile, the Republican-held Georgia seat is now looking more competitive, as is South Dakota.”

All in all, however, Lieber says, “things still look good for the GOP, and the majority of prominent political observers and organizations share our perspective.”

Aaron Klein, director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center in Washington, told ThinkAdvisor in a recent interview that a Republican takeover of the Senate “increases the probability [that there will be] a set of reforms to Dodd-Frank, which could improve the function of the bill.”

For instance, he said, under Dodd-Frank, the threshold at which bank holding companies are subject to enhanced prudential supervision, known as the systemically important financial institution (SIFI) threshold, was set at $50 billion in consolidated assets, which is “too low.” The Bipartisan Policy Center has recommended that the threshold be raised to $250 billion, while Federal Reserve Governor Daniel Tarullo has proposed raising it to $100 billion. “I think you’ll see bipartisan support for raising it,” Klein said.

Outright repeal of Dodd-Frank, however, is unlikely, Peter Wallison, the Arthur F. Burns fellow in financial policy studies at the conservative American Enterprise Institute in Washington, told ThinkAdvisor. While neither Hensarling nor Sen. Richard Shelby, R-Ala., ranking member on the Senate Banking Committee — who will likely replace retiring chairman Sen. Tim Johnson, D-S.D., — voted for Dodd-Frank, “the problem with repeal is that the law is perceived as tough on the banks, and thus voting to repeal can be seen as doing the bidding of the big ‘Wall Street’ banks,” Wallison says.

However, Wallison adds, “this isn’t true for two major reasons.”

First, “Dodd-Frank burdens the banking industry with so much regulation that it actually works to the benefit of the largest banks,” he says. “Only they can handle the costs of the new regulation. [JPMorgan CEO] Jamie Dimon called [Dodd-Frank] a ‘big moat against competition,’ and he was right.”