Richard X. Bove, Vice President Equity Research for Rafferty Capital Markets, continues to believe that the majority of Richard Shelby’s bill will become law and the biggest part with be focused on Fannie Mae and Freddie Mac. Below is an excerpt from a report to clients.
Last week the Senate Banking Committee voted to move Senator Richard Shelby’s (R., AL) banking Bill entitled Financial Regulatory Improvement Act of 2015 to the full Senate for consideration. While the vote was passed purely on partisan support (no Democrat voted for it) I continue to believe that most of this legislation will become law. This is because the legislation has been crafted in a manner to garner the greatest amount of support possible from the banking, mortgage and insurance industries without giving anything to the nation’s biggest banks.
It should also be noted that Senator Shelby is a consummate politician and he has the capability of steering this legislation through the Congress. Moreover, the Democratic objections to the Bill appear to be innocuous at best. They claim it helps the big banks and does little to aid the small banks. This objection is so far off the mark, that one wonders if objectors even read the Bill (which they clearly did). When the lobbyists for small banks, credit unions, mutual savings banks, real estate brokers, mortgage companies, insurance companies and insurance agencies get to them the Democratic views will change. This is particularly so given the likely support of most portions of the Bill by normally Democratic supporters who want more mortgage funds for low income households.
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Large industrial corporations with significant financial businesses will also support the Bill because it gives them a way out of regulation. Even strong right wing conservatives will find something to like because the Bill includes a measured attack on the Federal Reserve and its powers. If accepted these proposals would begin to tear down the authority of the Fed.
Richard Shelby’s bill sets Fannie Mae and Freddie Mac on a path to destruction
The biggest fight around this legislation will be focused on Fannie Mae and Freddie Mac. The Bill clearly sets these two companies on a path to destruction. It sets the stage for the re-introduction of the failed Corker/Warner legislation at some future point.
The remainder of this commentary will briefly highlight the key parts of the legislation.
Title I: Regulatory Relief and Protection of Consumer Access to Credit (George Orwell would love these Titles)
The first Title of this act includes 25 sections. These sections go right at key elements of the Dodd Frank legislation in an attempt to alleviate the pressure on multiple small financial institutions:
- Credit Unions without FDIC insurance can apply for membership in Federal Home Loan Banks. This increases credit union access to funding.
- Allows individual to have their part of a state declared a rural area. This reduces regulation.
- Reduces the litigation potential over mortgages and establishes a study to evaluate the whole mortgage finance sector.
- Establishes a financial ombudsman to determine if regulators are overstepping their authority when auditing banks
- Eases regulatory pressure on the manufactured housing industry.
- Makes inflation adjustments for banks allowing them to avoid more regulation as they grow in size.
- Reduces ability of households to sue home appraisers.
- Eliminates dividend rule which has been preventing mutual savings banks from going public.
- Allows institutions under $10 Billion in assets to avoid Volcker Rule.
- Seeks a study of the mortgage servicing industry.
- Reduces call report requirements.
- Demands a comprehensive review of Federal banking regulations.