Senate GOP Targeting Bank Failure Fund in Dodd-Frank

By Rob Tricchinelli

The legal process for winding down a failing bank under federal control is in jeopardy, as some Senate Republicans are looking to use a workaround to chip away at pieces of the Dodd-Frank Act without needing a 60-vote majority.

The lawmakers are targeting the “orderly liquidation fund,” which is designed to bankroll the Federal Deposit Insurance Corporation as it liquidates a failing institution. Slashing that fund would crimp the FDIC’s ability to carry out its Dodd-Frank powers.

“One way to make sure you can’t use the orderly liquidation authority is by not having funding in place for it,” Kevin Petrasic, the head of the global financial institutions practice at White & Case LLP, told Bloomberg BNA in an interview.

Reconciliation Process

Using “budget reconciliation,” Republicans could attack parts of the sweeping law that involve federal spending. Also in the crosshairs are the Consumer Financial Protection Bureau and Office of Financial Research.

Sen. Pat Toomey (R-Pa.) is spearheading the effort, and Republican staff members are combing through the law to find other sections that could be eligible for changes through reconciliation. Republicans will have a 52-seat majority in 2017, but incoming Senate Minority Leader Chuck Schumer (D-N.Y.) has vowed to protect Dodd-Frank from GOP repeal efforts.

Senate rules, however, require only a simple majority under the reconciliation process, which permits faster congressional action on tax and spending matters. Traditional legislation requires surmounting a 60-vote threshold to invoke cloture and block a potential filibuster.

To start the process, the House and Senate have to agree on a budget resolution that directs specific committees to change existing law. Once the committees create and approve the changes, they would have to pass the full Senate and House.

Budget resolutions don’t require a presidential signature to become law, but the reconciliation bills do. Under Senate rules, reconciliation can’t be used to make policy that doesn’t involve taxes, spending or the debt limit.

Subject Areas

Because reconciliation is limited to fiscal matters, Republicans must frame those changes in those terms, and the orderly liquidation fund qualifies.

A downside to that change, Petrasic added, would be that the FDIC potentially faces severe restrictions if it has to handle multiple institutional failures at once. Resolving one failing institution, he said, could avert other failures that are intertwined with it.

Bringing the CFPB under the appropriations process is another potential reconciliation tactic, a Republican aide told Bloomberg BNA, given the agency’s roughly $600 million annual budget.

Yet another GOP target is the Office of Financial Research, set up under the Treasury Department to monitor risks in the financial system. Republicans are dissatisfied with how OFR data has been used in the “systemically important financial institution” designation process of large nonbanks.

Political Priorities

The Dodd-Frank changes aren’t likely to get off the ground until late spring, a Republican aide told Bloomberg BNA. Congress will tackle reconciliation for fiscal year 2017 first, which is likely to include changes to the Affordable Care Act.

Dodd-Frank modifications would be incorporated into a fiscal year 2018 effort afterward. Given the surprise outcome of the presidential election, aides say they hadn’t been searching through Dodd-Frank for potential reconciliation changes until recently.

Incoming Senate Banking Committee Chairman Mike Crapo (R-Idaho) told Bloomberg BNA he wouldn’t rule out using reconciliation but wants to work with Democrats on Dodd-Frank changes.

“Right now I’m not taking any option off the table, but like I say, I would prefer to build a broad consensus on the committee,” he said. He added that he hasn’t designed the committee’s 2017 agenda yet.

Democrats voted in lockstep against a set of Dodd-Frank changes offered in 2015 by Sen. Richard Shelby (R-Ala.) and that resistance to change is a big motivation for Republicans to use reconciliation.

“We’ll look at whatever proposals they send, but this idea of massive changes in Dodd-Frank or rollback of Dodd-Frank, I don’t think it’ll happen because I think our caucus is pretty unified on that,” Schumer told Bloomberg BNA.

— With assistance from Jeff Bater.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at PDiamond@bna.com

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