capitol building

This Week:

The Senate passed a bill to repeal the 1991 and 2002 authorizations of military force in Iraq, a bill to end the official Covid-19 national emergency (see below) and a resolution to overturn a Biden administration rule that expands environmental regulation over additional bodies of water throughout the US. The House passed a comprehensive energy policy package (see below).

Next Week:

Both the Senate and House will be on recess until the week of April 17.

The Lead

Bank Hearings.

Senate and House committees began what will be a series of hearings on recent bank failures. Senior officials from the Federal Reserve, FDIC and the Treasury testified at each. The hearings featured competing narratives on the failures, between some Democrats who primarily blamed regulatory relief measures by Congress and regulators in 2018 and 2019, and Republicans and some other Democrats who focused more on basic failures in risk management and supervision. Republicans also continued to express concerns about why the FDIC was not able to arrange a sale of the banks sooner. The regulators defended their actions in response to the failures and are conducting their reviews of the supervision and regulation of these institutions, which are due on May 1. We consider the prospects for action on a few key policy issues below.

  • Deposit Insurance Coverage. An increase in the deposit insurance coverage limit would need to be enacted by Congress. By May 1, the FDIC will issue a report with policy recommendations on the appropriate level of deposit insurance coverage. There has been some bipartisan interest in raising the limit. However, given differing opinions on the appropriate level and on the costs and benefits of raising the limit (to say nothing about interest in tying an increase to other reforms), we don’t see a realistic path for a legislative change at this point.
  • Bonus Clawbacks. There also is bipartisan interest in legislation to claw back executive compensation in failed banks, but the details of getting this right are tricky. The Dodd Frank Act included a clawback provision, but regulators have been unable to implement that requirement almost thirteen years later. This proposal is unlikely to be acted on, but it will continue to be discussed given its popularity with the public.
  • Changes to Regulatory Requirements. Any legislative change to roll back regulatory relief from 2018 is a nonstarter in the Republican House. However, regulators have plenty of discretion to raise prudential regulatory requirements under that 2018 law. While regulators have yet to conduct their reviews, the Biden administration already has outlined a detailed set of potential changes to capital, liquidity and other requirements that it would like to see regulators implement. Republicans will push back against any such efforts, arguing that potential lapses in supervision shouldn’t be a basis for changes to regulatory requirements. Nonetheless, some regulatory tightening seems likely.

Other Issues

Debt Ceiling Posturing.

House Speaker Kevin McCarthy (R-CA) and President Biden this week pointed fingers at each other for a lack of progress in advancing an increase in the debt ceiling. Since neither has put forward a solution that can pass either the House or Senate, both of them will have to negotiate at some point, though there hasn’t been the urgency to engage in meaningful negotiations just yet. One likely catalyst will be Treasury Secretary Janet Yellen’s announcement sometime next month after Tax Day (April 18) of a new “X-date.” The X-date is the effective date when the government will run out of room to maneuver with extraordinary measures and can no longer meet all of its obligations. The X-date will provide an operative deadline for negotiations, and no progress will be made other than further posturing until it is announced.

Energy Priority #1.

The House passed a comprehensive energy reform bill that Republican leaders have made their top priority this year. The bill is important not because it will be acted on by the Senate (it won’t), but because it contains energy infrastructure permitting reforms that could have broad bipartisan support in the Senate. The process for federal permitting of energy projects (both fossil fuel and sustainable energy) is laborious and time-consuming and can be a deterrent to getting needed investments. The House bill’s proposed reforms, which include time limits on reviews, would give industry more of an incentive to invest in and develop energy projects. We expect many lawmakers will insist that these permitting reforms be included in any debt ceiling compromise.

Covid Emergency Declaration RIP.

The Senate followed the House in passing legislation to allow for the termination of the Covid-19 national emergency declaration made in 2020. The emergency designation has significance. It has allowed the government to waive certain requirements to give healthcare providers greater flexibility, increase health insurance coverage through Medicaid and provide for greater funding for healthcare programs. Both President Trump and President Biden also used the emergency authority to pause student loan repayments. Additional spending and regulatory authority under the designation will now be discontinued. Related to this action, Republican lawmakers are eager to use unused Covid funding (which stands at $90.5 billion) as a part of their budget compromise offer to Democrats. While most Americans believe the Covid crisis has largely passed, it has taken until now for federal policy to acknowledge that.

Immigration on Deck.

President Biden visited Canada last week. With Prime Minister Justin Trudeau, he announced a plan to allow each country to reject migrants seeking asylum who enter one or the other country at unauthorized entry points along the northern border. The deal was encouraged by Canada, which had 40,000 asylum seekers cross into Canada from the US last year. This agreement is a bit surprising given that the same problem (but on a much larger scale) is faced by the US at its southern border, with individuals seeking asylum into the US. If a similar deal to the US-Canada agreement was applied to the southern border, it would be well received by Republican lawmakers who have criticized the President for being too lenient in allowing non-citizens into the country through the asylum process. Consideration of a comprehensive immigration bill will be an upcoming priority for House Republicans in late April or May. The bill will focus on border enforcement and security. Given that Republicans think that the logic of the US-Canada agreement is applicable to the southern border, the bill may include a provision to reject asylum candidates entering at unauthorized locations at both borders. The House Republican bill will likely pass, but the Senate has no plans to consider it.

Advance Refunding Bonds.

A group of bipartisan House lawmakers introduced a bill to restore tax-exempt advance refunding for municipal bonds. This bill would reverse course from the 2017 tax law and give state and local governments the ability to reduce their borrowing costs by refinancing existing debt though tax-exempt advance refunding. Interestingly, a growing number of House Republicans (well over 100) were not even members of Congress when the 2017 tax bill was signed into law, which means fewer lawmakers feel the need to defend every single provision of that tax law. This bill is unlikely to move ahead this year. Instead, the intent is more to tee it up for consideration in a possible major tax bill in 2025, given that many provisions of the 2017 law are set to expire in 2026.

The Final Word

Ramping Up for 2024.

Next week, President Biden will begin a three week “Invest in America” tour where he will tout the impact of his legislative accomplishments across different parts of the country. The President’s tour comes at a time when his approval numbers have started to drop again. A recent poll found that 62% of Americans believed that he has accomplished “not very much” or “little or nothing.” Over the next three weeks, President Biden will visit 20 states, often accompanied by members of his cabinet and/or Vice President Kamala Harris. The overarching theme of the tour will be to emphasize the positive impact of the Biden administration’s different legislative accomplishments. While the main objective for the administration will be to increase the popularity of the president and his administration, a secondary objective will be to test what messages resonate (or don’t) with the American people, especially in key swing states like Georgia, Nevada and Pennsylvania. For a president who is expected to seek re-election next year, this tour will serve as a precursor and a warm-up to the campaign.