It’s a big week for bank regulation. Top Federal Reserve officials are poised to make news on what happens next in their fight to hike big bank capital requirements. But MM wants you to think ahead this morning. What happens to the plan if the GOP wins big in November? Republicans are beginning to game it out, and we have some early insights to share. Some GOP lawmakers are floating the possibility of using the Congressional Review Act to block the proposed capital requirements. Under a Trump administration 2.0, “we [would] immediately try to draw it down,” Sen. Thom Tillis said in an interview. “If you know how the Congressional Review Act works, hopefully we can find ways to have it withdrawn — or work with the administration to have it withdrawn — as quickly as possible,” the Banking Committee member said. It all hinges on political dynamics eight months from now, but it’s a real pressure point today for the Federal Reserve, FDIC and OCC. If it takes them until this summer or later to finalize the regulation, it will likely be exposed to a potential reversal by the next Congress under the Congressional Review Act. The CRA allows rules to be blocked by a simple majority in both chambers. A Republican-controlled Senate is a strong possibility. But even one that’s evenly divided and doesn’t flip could be a threat, given the bipartisan resistance to the rule. (Critics would probably also need Republicans to hold their House majority, which is no sure thing.) It’s a scenario worth exploring because it’s unclear whether the agencies will finish the rule in time to escape the treacherous CRA window. They have to sort through wide-ranging complaints from the banking industry and beyond. Revising the regulation will take time, and it’s possible they may have to re-propose it depending on the extent of the changes. Fed vice chair for supervision Michael Barr, who is giving speeches Wednesday and Friday, hasn’t offered a timeline for finalizing it. Don’t forget: The largest U.S. banks are already threatening to sue the Fed if the rule isn’t scaled back. Something to keep in mind is that undoing the rule under the Congressional Review Act could have long-term impacts for how regulators adjust bank capital requirements. The CRA says regulators can’t offer new rules that are “substantially the same” as ones that are blocked, unless there’s congressional sign-off. “This is where Barr’s playing with fire,” Tillis said. Republicans will have to weigh whether to use the double-edged sword, and they may decide it’s not worth it. Even GOP lawmakers acknowledge that the increase in bank capital requirements since the 2008 crisis has made the financial system safer. “The idea that Congress would use a blunt tool like the Congressional Review Act may seem appealing in this stage of the negotiation process between the Hill and the Fed, but I don’t think they’ve fully thought through what the day after looks like,” said Aaron Klein, a Brookings Institution senior fellow who served at Senate Banking and Treasury. Democrats who support the agencies’ efforts don’t want them to take any chances, either. “I’ve talked to Barr,” Senate Banking Chair Sherrod Brown said in an interview. “I want to see this moving as quickly as possible.” It’s Monday – What are the agencies going to do with the Basel rule? Send tips to zwarmbrodt@politico.com.
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