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What Does Senate Rule Change Mean for Financial Regulation?

  • By Konstantine Kastens, AFP Public Policy Analyst
  • Published: 2013-12-05

A recent filibuster rule change to the U.S. Senate’s nominee confirmation process could have implications on future financial regulatory reform.

Presidential appointments to the U.S. Federal Reserve Board of Governors, Commodity Futures Trading Commission (CFTC) and the U.S. Court of Appeals for the District of Columbia Circuit have remained vacant for several reasons: minority opposition in the Senate, the generally slow pace of Congress and a high volume of agency staff transitions.

Last month, the Senate voted in favor of procedural changes to the standing rules, allowing for a simple majority to confirm most presidential nominees to executive-office and judicial slots, a reversal of the 60 votes formerly needed. Requiring a Senate up-or-down vote expedites the appointment process, potentially ensuring regulators and judicial overseers are in place faster and to move forward on policy implementation.

Impact on the D.C. Circuit Court

The change came after recent attempts by President Obama to fill three D.C. Circuit Court vacancies were blocked by Senate Republicans. Considered the second highest federal judicial body after the U.S. Supreme Court, the D.C. Circuit Court comprises 11 judges and rules on cases involving federal regulations and serves as center stage for legal challenges to key provisions of the Dodd-Frank Act. From CFTC-imposed position limits on derivatives, to proxy-access rules written by the SEC, much of the financial regulatory policy debate has moved from U.S. Congress to the D.C. Circuit court.

With only 51 votes now needed in the Senate to advance President Obama’s three Democratic court nominees—Patricia Millet, Corneilia Pillard and Robert Wilkins—the full judicial panel would create a 7-4 Democratic majority. While this would seemingly tilt the court in favor of White House initiatives, the effect on financial regulatory cases may not be hugely dramatic. That’s because the 11 judges serve on a randomly-selected, rotating three-judge panel with a supplemental group of more senior judges who assist during high caseloads. These senior judges generally are Republican appointees.

Still, as financial regulators continue to roll out the Dodd-Frank Act, future challenges heard by the D.C. Circuit will continue to be a key hurdle in the final outcome of financial regulation. The latest rule stemming from Dodd-Frank is a big one that could spark a legal battle—the so-called Volcker Rule, which banks oppose.

Impact on the Federal Reserve

Although Federal Reserve Chair nominee Janet Yellen is expected to be easily confirmed, President Obama has three other vacancies to fill on the Fed’s seven-member board of governors, including Yellen’s current post as Fed Vice Chair.

In addition to its traditional role managing monetary policy and open market operations, the Fed is working on a host regulatory matters involving stability of the financial industry, as prescribed by Dodd-Frank. These include overseeing prudential regulation of systemically risky large institutions, implementing the Volcker Rule and creating a governing framework for over-the-counter derivatives trading, including margin requirement rules. Three Obama appointees on the Federal Reserve board, along with Yellen as Chair, would seemingly clear a path for quicker Dodd-Frank rule implementation.

Impact on the CFTC

The CFTC is chiefly focused on reforms to the derivatives market. Legal challenges from the financial industry have stymied much of the CFTC’s efforts to govern the largely unregulated swaps market. The Senate will consider three nominations to the commission, including a new Chair.

Retiring at the end of the year, Chairman Gary Gensler is set to be succeeded by Timothy Massad, Assistant Treasury Secretary for Oversight of the Troubled Asset Relief Program (TARP).

Commissioner Jill Sommers also will leave the CFTC at the end of the year. Sommers is one of two Republicans on the commission. She is set to be replaced by Christopher Giancarlo, a Republican who currently serves as  chairman of the Wholesale Markets Brokers’ Association.

Also leaving December 31 is Commissioner Bart Chilton, a champion for stronger swaps regulation. Senate Democrats have insisted that Chilton’s replacement be an equally strong advocate for financial reform.

Exit Stage Left: 113th Congress, 1st Session

With just two weeks left this year and much of that time committed to a tight December 13 budget deal deadline and confirming Yellen, who already cleared the Senate Banking Committee, the Senate is unlikely to move on additional confirmations until 2014.

A simple up-or-down vote on Presidential nominees will not force a tectonic shift on financial regulation. But for the White House the Senate rule changes would seemingly make the Obama Administration more capable of defending and implementing its policy initiatives and doing so with greater flexibility during the vetting process. The Administration certainly would enjoy greater leverage to enforce its policy initiatives moving into 2014 and beyond.


Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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