Two experienced Republican lawmakers are vying for the chairmanship of the U.S. House Financial Services Committee and the chance to try to derail or weaken the financial regulation reform law.
Ed Royce of California, a critic of financial regulatory reform and the government rescue of Fannie Mae and Freddie Mac, is challenging Spencer Bachus of Alabama for the committee gavel.
“This is a critical time for our capital markets and our economy,” Royce said in a statement announcing his candidacy. “The passage of the Dodd-Frank bill fundamentally altered the structure of the U.S. financial services sector. As the Financial Services Committee addresses the implications for taxpayers and our capital markets there is no question that now is the time for a determined and effective [committee] Chairman.”
Royce, a nine-term congressman from Orange County, is one of the rising stars on the 70-member committee that oversees the Fed, Securities and Exchange Commission, Federal Deposit Insurance Corp. and other financial regulators. He vigorously opposed the financial regulatory overhaul bill when it was debated last summer.
Financial industry lobbyists expect whoever is the next Republican chairman of the Financial Services Committee to apply pressure to regulatory agencies required by the Dodd-Frank law to propose scores of new regulations. The panel also can influence or shape agency budgets – a crucial power when the SEC has already said it needs to hire some 800 employees to carry out the financial reform law.
Tough enough for Barney
One GOP lobbyist, who works on financial services issues, praised Royce’s toughness and told the Center that he “can go toe to toe with Barney Frank.” Frank, a Massachusetts Democrat and the current chairman of the committee, is a skillful legislator who helped shepherd the Dodd-Frank law through difficult negotiations with the Senate.
Royce’s bid for the chairman’s gavel comes as Bachus continues to repair his reputation with fellow Republicans.
Although Bachus is the most senior Republican on the panel, he was often overshadowed during the financial regulation debate by other GOP members on the committee. The GOP leadership turned to Republicans Jeb Hensarling and Randy Neugebauer of Texas, and to Scott Garrett of New Jersey, to offer bill amendments that forced Democrats to cast politically difficult votes.
Bachus, who represents a deeply conservative swath of central Alabama, has had a hot-and-cold relationship with Republican leaders. Profiled by the Center in The Chairmen: New House Leaders Have Familiar Ties to Business, Revolving Door, Bachus lost the confidence of House Republican leaders during 2008 congressional negotiations creating the $700 billion bank bailout.
Another lobbying source said that before the election, rumors had circulated that either Royce or Hensarling would challenge Bachus for the chairmanship. Hensarling, who is now in line for another Republican leadership role, has since indicated he supports Bachus.
Neither lawmaker was immediately available for comment. However, on Wednesday, Bachus told CNBC that he would be the next chairman of the House Financial Services Committee.
No decision until after Thanksgiving
Michael Steel, a spokesman for House Minority Leader John Boehner of Ohio who is slated to become House speaker in January, said the choice of the panel’s next chairman “will be a decision for the Steering committee at the appropriate time. The Steering Committee has not yet scheduled a meeting.”
Sources familiar with the Royce challenge say that it will almost definitely mean that the chairmanship won’t be finalized until after Thanksgiving because the Steering Committee is expected to hear presentations from both members.
Bachus has also criticized the Dodd-Frank law, saying that it gives too much power to federal bureaucrats and regulatory agencies. Systemically significant companies enjoy a lower cost of capital, and thus a competitive advantage over smaller banks, Bachus says, because the market sees them as too big too fail.
The Royce challenge comes as Bachus has launched his own assault on Dodd-Frank.
In a letter to the Financial Stability Oversight Council, Bachus said that the so-called “Volcker Rule” mandated by the Dodd-Frank law would drive banks out of the United States because it would put them at a competitive disadvantage in the global arena. The rule, which the council has yet to propose, is supposed to limit banks’ proprietary trading of risky investments for their own portfolios.
“Depending on how U.S. regulators choose to implement it, the Volcker Rule may spark a mass exodus of clients from U.S. banks to banks based abroad,” Bachus said in an eight-page letter to the council. “In addition, U.S. banks may choose to move their operations elsewhere to avoid burdensome restrictions on client-driven market making and the hedging and risk management activities growing out of such market making, which are natural activities of banks and bank holding companies.”
The letter, dated Nov. 3, was signed by Bachus who identified himself as the ranking member of the House Financial Services Committee. Friday is the deadline for banks, financial services experts, consumers, and other members of the public to submit suggestions and comments to the council.
Royce campaign funded mostly by individuals
A pro-business, conservative Republican, Royce bucks the trend in one important way. He received more money from individual donors over the past two election cycles than from contributions to his political action committee — about $1.8 million, according to data from CQMoneyline.
Like Bachus, though, more than half of that PAC money came from banks, auditors, and insurers, which contributed more than half of the $1.25 million in donations his Road to Freedom leadership PAC received during the past two election cycles. The biggest contributors include Credit Suisse Securities, the Credit Union National Association, and KPMG Partners.
Royce, first elected to the House of Representatives in 1992, said in his statement that as chairman he would reign in Fannie and Freddie’s “excessive risk taking.”
“With a business background I understand the importance of a limited, functional federal government that allows business to thrive. It is time to change the message coming from Washington and provide business with a modicum of certainty,” Royce said.