Election Analysis: Regulation and Congress
October 29, 2024
As part of our continuing analysis leading up to the Nov. 5 election, CREFC’s Government Relations Team is updating its Election 2024 Scenario Analysis. This week focuses on the impact Congress can have on regulation.
Why it matters: While the President and regulators often have broad authority to craft and carry out policy through regulation, Congress and the courts have been increasingly more proactive in shaping regulations, either by repealing them or striking them down.
Congress, with the signature of the President, has the power to write and pass laws that can repeal or rewrite regulations since regulation emanate from a statutory grant of authority via Congressional legislation. While the Constitution and courts may set limits on what Congress can delegate to regulators, the existing statutory authority remains broad when considering financial services.
Recent examples of Congress taking a major regulatory role include:
- The 2010 Dodd-Frank Act unleashed a massive amount of new regulation mandated by statute.
- For CREFC members, Dodd-Frank required new rules on issues including Credit Risk Retention, the Volcker Rule, and Conflicts of Interest in Securitization, among others. Dodd-Frank passed with three GOP supporters in the Senate (60-39), though Democrats had a 59-41 majority.
- S.2155, also known as the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, rolled back some Dodd-Frank and financial regulation, primarily focused on large regional banks. The bill had broad bipartisan support in the Senate and passed in a 67-31 vote.
- For CREFC members, S.2155 also specifically rewrote the High Volatility Commercial Real Estate (HVCRE) capital rules, which applied increased capital charges on most construction loans made by banks. The law revised certain definitions to target the rule on more risky construction loans.
Congressional Review Act (CRA): Politics is often the binding constraint on Congressional regulation/deregulation. The 60-vote threshold to overcome a filibuster in the Senate makes it difficult for either party to muster support to impact regulation.
- However, the CRA provides an expedited process for Congress and the President to repeal (technically “disapprove”) certain recently finalized regulations. The House and Senate still need to pass legislation that is signed by the President, but the CRA allows the Senate to skip the filibuster to advance the bill with a simple majority.
- The CRA was used 16 times in the first Trump administration to repeal a variety of Obama-era regulations and three times in the early Biden administration to repeal Trump-era regulations.
Timing is key to unlocking the Senate simple majority threshold. Predicting which rules will be subject to the CRA is difficult because it is dependent on how many days Congress is in session.
- Generally, Congress has 60 legislative days once the rule is finalized to act. For the next Congress, this is expected to include rules finalized by late July or August 2024.
- If a new Congress comes into power during that timeframe, the clock resets to the full 60-day period on the 15th legislative day. After January 3, 2025, the new Congress will have 75 legislative days to use the CRA, which means lawmakers could work well into the fall months.
What could be repealed?
- Regulators have been keenly aware of the CRA deadline and the threat of repeal if Trump regains the White House.
- Even if Republicans control Congress, they likely won't be able to muster a two-thirds majority to overcome a Harris veto of a CRA resolution.
Below are a few regulations of interest to CREFC members that could be in play, mostly because they have yet to be finalized:
- Basel Endgame Capital Proposal: The proposal has not been re-proposed, much less finalized, so if it were finalized at any point between now and a Trump administration with a GOP Congress, it would be very vulnerable to CRA disapproval.
- Bank Long-Term Debt Proposal: Like the capital rule, the proposal has yet to be finalized and would fall into the CRA time period.
- SEC Custody Rule: The SEC’s safeguarding customer assets rule has yet to be finalized.
- FinCEN Regulations: Treasury’s Financial Crimes Enforcement Network (FinCEN) is implementing the Corporate Transparency Act to provide for the federal collection of beneficial ownership information. A key update to banks’ customer due diligence regulation is still forthcoming. FinCEN is also considering expanding anti-money laundering (AML) requirements on certain non-financed CRE transactions. Since both rules have yet to be proposed, it is more likely the next administration would write the rules, meaning the President would be less likely to support a repeal of them.
While Congress can have the final say on regulation and deregulation, federal courts increasingly have been more involved in striking down or pairing pack regulation. This trend is expected to continue in light of the Loper Bright decision overturning Chevron deference to regulators.
Contact David McCarthy (dmccarthy@crefc.org) with questions on this article. Contact Sairah Burki (sburki@crefc.org) with questions on regulation.
Contact
Sairah Burki
Managing Director, Head of Regulatory
Affairs & Sustainability
703.201.4294
sburki@crefc.org
David McCarthy
Managing Director, Chief Lobbyist,
Head of Legislative Affairs
202.448.0855
dmccarthy@crefc.orgThe information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2024 CRE Finance Council. All rights reserved.