FedFin Post-Election Forecast: Operationalize, Finalize, Reform and – Maybe – Break Up

In this report, we assess the impact of the election on pending financial-regulatory and housing-finance issues.  With Gov. Romney’s defeat, the Dodd-Frank “repeal and replace” agenda also died.  Now, we would call the regulatory agenda an “operationalize and finalize” one for all the systemic and prudential rules in the hopper.  The to-do list includes the FRB’s systemic standards, naming more systemic nonbanks and advancing MMF regulation, building out the orderly-liquidation authority, advancing tough derivatives and Volcker standards and continuing U.S. support for all the global rules ratified earlier this week at the G-20 (see Client Report REFORM95).  Housing-finance reform will not be the back-burner item some anticipate, the result of renewed Administration determination to settle this issue and new challenges looming at the FHA.  Regulatory line-ups will finalize in the near term, although the long-term prospects for leadership at the FRB, SEC and CFTC remain uncertain as current terms expire towards the end of next year and early 2014.  The CFPB will continue largely as is, since GOP efforts to restructure it will not be enacted, although a new leadership fight looms with Director Cordray’s recess appointment ending in 2013.  While the agenda proceeds along these lines, a new franchise challenge looms: renewed pressure from empowered Democrats in the Senate to advance legislation to break up big banks.  We do not think this will pass, but it will push the Administration and regulators to make their own rules as tough as possible under current law.

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