Weighing in on Deregulation

There have been endless debates in the political sphere about the pros and cons of deregulation post-recession. The discussions have taken a new turn following mid-term elections wherein the Democrats took over the House of Representatives. In the wake of the House Financial Services Committee, likely to get a new Chair in the form of Rep. Maxine Waters, there is serious speculation on what lies ahead for the banking industry.

Waters is reported to have told The Financial Times that “it is critical to bring accountability to the current administration and the regulatory agencies under the committee's jurisdiction.”

Waters also called for increased regulation of the largest U.S. banks in July and pledged tougher fines for financial institutions that take advantage of customers. While deregulation, as she suggests, would help protect consumers from fraud and predatory lending to some extent, the opposition believes that ‘grinding down deregulation may harm economic growth’.

According to the committee's current chair, Rep. Jeb Hensarling, Waters is likely to use her subpoena power much more often, which could end up being a challenge for the heads of the Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and the FDIC, or Federal Deposit Insurance Corp. “I fear that she will use this as a tool to harass the administration, to really grind down the deregulation—the deregulatory efforts of the administration,” Hensarling said to FOX Business’ Stuart Varney before the midterm results. “So it’s bad, really bad for economic growth.”

Impact on the housing market

The stewardship of the Bureau of Consumer Financial Protection (BCFP) is an area that is likely to be impacted putting at stake affordable housing legislation. The success of bills such as the Affordable Housing Credit Improvement Act, the New Markets Tax Credit (NMTC) Extension Act, the Historic Tax Credit (HTC) Enhancement Act, and others depending on who wins the House and Senate seats.

Chief among the changes that the housing market is likely to see is the possibility of the conservatorship of the GSEs, which is expected to be unwound in the coming years. It is also anticipated that Democrats, under Maxine Waters will agree with the provision of affordable housing funds and offer expanded credit provisions for underserved borrowers-both of which were included in the last bipartisan attempt of the party to end the conservatorship a few years ago.