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Congressional Outlook 

May 14, 2024

With the election seasons heating up and must-pass items dwindling, Congress will focus on hearings, messaging bills, and legislation to set up for the post-election lame duck session and 2025. Here’s what’s on tap for this week related to financial services.

Oversight of Regulators. The House Financial Services and Senate Banking Committees will convene hearings this week focused on the oversight of financial regulators.

• Witnesses will include Fed Vice Chair Michael Barr, FDIC Chair Martin Gruenberg, and OCC Comptroller Michael Hsu. Gruenberg has reportedly been setting up one-on-one meetings with HFSC and SBC Members as he prepares to testify in the wake of a third-party report on misconduct at his agency.

SEC Legislation. The House Financial Services Committee is expected to vote soon on Republican legislation that would fence in SEC regulations.

• One of the bills, introduced by Rep. Barry Loudermilk (R-GA) would overrule an SEC requirement that securities exchanges provide investors’ personal data as part of CAT reporting except when it’s related to an investigation.
• Another bill that is not yet finalized, led by Reps. Young Kim (R-CA) and Ann Wagner (R-MO), would direct the agency to perform cost-benefit analyses of its rules and review them every five years.

Banking Legislation. The HFSC also plans to vote next week on GOP legislation that would ease regulations on banks.

• Bills expected to be considered include legislation from Rep. Andy Barr (R-KY) that would allow more banks to escape regulations such as the Volcker Rule and debit interchange requirements.
• Other Barr legislation on the agenda would force bank regulators to act on merger applications and require the Fed to review its discount window operations. The markup is also expected to include bills that would curtail the CFPB’s collection of data on small business loans and enforcement of so-called abusive acts and practices

CFTC’s Johnson to Treasury Role. The White House is poised to nominate Kristin Johnson, a Democratic commissioner at the CFTC, to fill a top role at the U.S. Treasury Department overseeing banks. If confirmed, the role as assistant secretary for financial institutions would put Johnson in a senior policy position at Treasury.

Contact David McCarthy (dmccarthy@crefc.org) with questions.

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Fed’s Lisa Cook Remarks on CRE

May 14, 2024

Last Wednesday, Federal Reserve Governor Lisa Cook cited the rise of private credit, the impact of deteriorating CRE assets on small bank portfolios, and cyber risks as top financial stability concerns.

“All told, I view CRE risks currently as sizable but manageable, and I will be paying close attention to the sector in the short and medium run.” -Federal Reserve Governor Lisa Cook

Her remarks, made during a speech at the Brookings Institution in Washington D.C., outlined the Fed’s current assessment of financial stability focusing on four key areas: household and business leverage, financial institution leverage, funding risk, and asset valuations.

Why it matters: Cook is one of the seven members of the Board of Governors of the Federal Reserve, which regulates member banks and has a hand in crafting and approving bank regulation.

What they’re saying: Cook emphasized that CRE encompasses broad asset classes and geographies, and that the Fed is carefully monitoring concentration risk in small and regional banks. Excerpts from her speech are below:

• “CRE is a broad asset class, encompassing multifamily housing, hospitality, retail, warehouses, office buildings, and many other business properties. Accounting for this heterogeneity is important in assessing the risks associated with CRE.”
• “On average, CRE loans make up only about 5%of total assets at large banks but around 30% of assets at smaller banks. Those high concentrations have caused us to step up our supervisory work with community and regional banks that have significant CRE concentrations and to augment our regulatory data for this sector.”
• “For instance, data available from SEC Form 10-Q filings suggest that office exposures account for a small share of most regional banks' CRE loans.”

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Greene’s Motion to Vacate Johnson Gets Tabled

May 14, 2024

After much back-and-forth last week, Rep. Marjorie Taylor Greene (R-GA) called a motion to vacate the chair, directly challenging Speaker Mike Johnson (R-LA).

Democrats came to Speaker Johnson’s aid as promised and the motion was tabled by a vote of 359-43. Tabling the motion effectively kills it for now, but 11 Republicans opposed the motion to table, meaning they wanted to proceed with a vote to oust Johnson.

Why it matters: Johnson survived … for now. If Democrats had not come to his aid and all members had voted along party lines, the motion would have made it to the House floor and Johnson would be out of a job.

What they’re saying: Some conservative members, namely those trying to oust him, are calling Speaker Johnson a “uniparty speaker” as he is only still in the role due to support from Democrats. They have accused him of not being a true conservative for cutting too many deals with Democrats and this could be a sign of future challenges for Johnson.

Former President Trump, who has been supporting Johnson, posted this statement to Truth Social shortly after the vote.

“With a Majority of One, shortly growing to three or four, we’re not in a position of voting on a Motion to Vacate,” Trump stated. “At some point, we may very well be, but this is not the time.”

It is a stark reminder that things could be quite different for Johnson if Republicans retake the White House, House or Senate in January.

The bottom line: This isn’t the end of Speaker Johnson’s trouble with his caucus. If anything it demonstrated that his narrow majority is quite fragile.

The November elections will make all the difference in his ability to govern, both in how many seats the Republicans win, and, even more crucially, who wins those seats.

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