Financial Services Report

Our Take

Welcome to 2018! 

Hard to believe but there are only 303 days between now and the mid-term elections.   As has been the case of late, Congress starts the year looking to finish many of the issues that were punted at the end of last year – such as a long-term funding bill, a DACA fix, disaster relief, and CHIP funding.   Once those are dealt with Congress can immediately turn to its 2018 agenda, and while the conventional wisdom holds that not a lot can be done in an election year, it seems that like its predecessor, 2018 could shape up to be an unconventional year.  

Last year the White House and the Republican Congress utilized a “swing for the fences” legislative style that resulted in some misses (e.g., Obamacare repeal) and a huge home run in tax reform.   While there are a few potential areas for “big swing” legislation, such as infrastructure, we think that the compressed legislative calendar and the upcoming mid-term election in 2018 makes it more likely that Congressional Republican will be looking for so-called "small ball" bills that can generate broad bipartisan support.   This will be especially true in the House, where there is a palpable, growing fear that there could be a flip in November.  While much of politics has been turned on its head over the past few years, one unbreakable truth that remains as accurate today as it was when David Mayhew first wrote about it nearly forty years ago, is that Members of Congress are single-minded seekers of reelection.  
 
In this environment we believe that this means that for those in office who are running for re-election there will be a strong impetus to want to be able to run “against” Washington by showing that they are not part of the dysfunction and point to bipartisan efforts (albeit after the primary season). 
 
We believe that this desire, driven by the fear of losing, will push more Republicans in the House to want to deal to be able to campaign on a positive record of legislative achievement, focused primarily on tax reform but also with other “wins.”   Likewise, this holds true for the nearly dozen Democratic Senators from states that went for the President in 2016.   The confluence of these forces creates an ideal environment for the possibility of the success of the so-called “small ball strategy.”  
 
For an example of how this plays out, just look to the Senate Banking Committee, where Chairman Crapo and a dozen or so bipartisan members have cobbled together a bank regulatory relief bill.  Expected to be on the floor around the end of the month, this legislation may reflect the model for moving bills in 2018, though it is worth noting that passage in the Senate is just the next step in the negotiations for this bill – as House Republicans want to see its scope expanded.
 
So, while the headlines are focused on the gridlock and stalemates on the possible “home runs” like immigration and transportation, the real story will be the little bills that are getting passed.   Possible agenda items for this strategy could include other areas of financial services regulatory relief, as well as a data breach bill, CFIUS reform and possible housing reform and flood insurance. 
 
Looking Ahead

Near Term

• Both the House and Senate have fairly non-controversial calendars this week, though expect most of the fireworks to take place offstage, as Republicans and Democrats continue to negotiate a long term spending package, disaster relief and some type of immigration reform.
• The Senate Banking Committee holds a hearing on money laundering.
• Three House Financial Services Subcommittee hearings this week.  One on CFIUS reform, one on Federal reserve reform, and one on various reg relief legislative proposals.

Further Out

• January 19^th – Federal Funding, FISA extension, Flood Reform expires
• January 30^th – State of the Union
• February 3^rd – Fed Chair Yellen’s term ends
• February 5^th – President’s Budget is delivered (non-mandatory statutory deadline)
• March 5^th – Conclusion of the President’s DACA extension.
• March 31^st – FAA Authorization, CHIP extension end.
• End March / early April – debt ceiling breached (end of extraordinary measures)
• September 30^th – end of the Federal Government’s FY18.
• November 6^th – Election Day