Congress seems to be on track to pass a full-year government funding bill next week after giving themselves a one-week deadline extension to finalize the details this week. (UBS)

Government Funding Bill. The risk of a government shutdown has loomed over Congress for weeks as it has worked on a bill to fund government operations before the current deadline of December 16 (today). Progress was made this week in crafting a bill to fund the government through the end of the fiscal year (September 30, 2023), but more time is needed to write the many details of that bill. To provide the additional time, the House passed a measure this week to extend the deadline to December 23 and the Senate is expected to pass that extension later today. This action will avert a government shutdown for the time being and put pressure on lawmakers to pass a more comprehensive bill next week, which we believe they will do. The larger bill will provide increases in funding for the spending priorities of both parties (defense for Republicans and non-defense for Democrats).

The loser will be the federal budget deficit and national debt, which will continue to grow as a result of the bill’s expected passage next week.

Debt Ceiling Extension. While there has been interest among many lawmakers in including an increase in the debt ceiling in the government funding bill, we do not expect that to be included in the final version. This will leave Congress with the task of passing the debt ceiling increase next year. That probably will need to happen in the summer or early fall. With divided government, this exercise will be contentious and highly political. Particularly with the increases in government spending in recent years, many Republicans are interested in bringing a debate over deficit reduction into the debt ceiling process.

Markets will fret over the brinksmanship in Congress, and this will be a highlight (or lowlight) next year.

Proposed Equity Market Overhaul. Following a lengthy review of equity market rules after the market volatility in Gamestop and other “meme” stocks early last year, the SEC this week approved several major rule proposals. Totaling over 1,600 pages, the proposals reflect ideas presented by Chair Gary Gensler in a speech earlier this year. They include new disclosure requirements for the routing of orders, smaller tick sizes for the quoting and execution of equity orders, a new standard for best execution of orders (not just for equity markets, but other markets as well), and a new requirement to have order by order competition of retail orders through auctions. Though retail investors have benefitted from low transaction costs and strong liquidity, Chair Gensler has expressed concern about market concentration and the small number of wholesalers filling retail orders. Those concerns animate the proposed rulemakings. The two Republican Commissioners questioned the need for some of the rule proposals and voted against the latter two. They expressed concern about the cumulative and unpredictable impact of these complex and prescriptive proposals.

The SEC’s actions also will be subject to scrutiny on Capitol Hill at a time when Chair Gensler faces criticism in the wake of the FTX collapse for the Commission’s perceived lack of action in regulating the largely unregulated crypto market.

More Crypto Coverage. Two congressional committees held another round of hearings this week on the FTX collapse. One was intended to feature former FTX CEO Sam Bankman-Fried, but his appearance was preempted by a federal criminal indictment (along with separate civil charges from the SEC and CTFC). The hearings delved into the details of governance and other problems at FTX that led to its collapse and the misappropriation of customer funds, while also considering what legislative and regulatory reforms are necessary in response. Some lawmakers, particularly Republicans, tried to distinguish between the bad actions at FTX and the promise of digital assets.

While Congress will hold additional hearings next year and lawmakers will come forward with a variety of legislative proposals, there will be many challenges to coming together on any sort of comprehensive and workable bipartisan legislative response anytime soon.

Main contributor: John Savercool

For more, see Washington Weekly, 16 December, 2022.

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Approval date: 12/16/2022

Review Code: IS2207186