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House Financial Services Committee After The Election

Given the current status of the midterm election, it appears likely, but not certain, that Republicans will control the House. If so, this means Rep. Patrick McHenry, R-N.C., currently ranking member of the House Financial Services Committee, will  become chairman. Overall, this change will be negative for the country.

Regulatory agencies most at risk include the Consumer Financial Protection Bureau (CFPB), given Sen. Elizabeth Warren's role in creating the agency and in light of the fact that an appeals court ruled the CFPB’s funding mechanism  unconstitutional: "A three-judge panel of the 5th U.S. Circuit Court of Appeals ruled that the design of the CFPB violated the Constitution because it receives funding through the Federal Reserve, rather than appropriations legislation passed by Congress." As a matter of turf, McHenry is likely to support bringing the agency under congressional funding procedures, as broken as these are.

We also expect the Securities and Exchange Commission (SEC) to come under scrutiny, especially with respect to crypto. 

McHenry will review the exit of former Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams who resigned unexpectedly. Her departure on Feb. 4, moved FDIC board member Martin Gruenberg to the acting chair position. This  "followed an attempt by Gruenberg and other Democrats on the agency’s board to wrest control from McWilliams, whose term was not scheduled to end until June 2023." 

Finally, we expect the new chair to examine the Office of the Comptroller of the Currency's approach to fintech.

Increased volatility with respect to financial institution policy means that decisions made over the past two years will be revisited and possibly reversed, a waste of time, money and effort that places the US at a competitive disadvantage.

Should the Democrats retain control, we expect the student loan forgiveness program to be made into a legislative proposal and passed. We also expect continuing scrutiny of megabanks. Obviously, there will be no review of the FDIC. Crypto will still come under scrutiny, however, given FTX.  This is, of course, a much better outcome for the country. Lower policy volatility will mean more certainty concerning financial and economic policy. 

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