Ryan Would Bring Expertise, Ideology to Reshape Financial Industry

Posted October 27, 2015 at 4:25pm

Wisconsin Republican Paul D. Ryan’s likely ascent to the House speakership may mean a dramatic change for the banking and financial services industries.

They consider him an ally, and though Ryan has been noncommittal on questions of concern to banks, including tax issues, he would take with him expertise from the Ways and Means Committee he now chairs. He also is close to House Financial Services Chairman Jeb Hensarling of Texas, who is friendly to the banking industry.

Plus, Ryan is more conservative than departing Speaker John A. Boehner of Ohio and would be in a position to aggressively press his vision for a smaller government with less regulation.

“There are times when frankly working with the leadership there has been a huge headwind in my face, but now there is a tailwind behind us,” Hensarling said about the prospects for his financial services priorities if Ryan is elected speaker next week.

Ryan has long been the top Republican voice on fiscal issues and is aiming to do the first rewrite of the federal tax code in a generation. He is pursuing an international tax code overhaul, but would likely wait to do a full rewrite until after the 2016 election. The reason is that he might then have a Republican ally in the White House to do an ambitious conservative rewrite, but could also default to a more moderate package if a Democrat wins.

As speaker, Ryan wouldn’t be directly involved in moving a tax bill through committee, but he would be certain to have a lead role in whatever deal reaches the floor.

“Paul Ryan doesn’t know bank products, what he knows is tax issues,” said Richard Hunt, the president of the Consumer Bankers Association.

Several lobbyists, including Hunt, said the industry is eager to see if Ryan would consider a proposal championed by his predecessor at Ways and Means, Dave Camp of Michigan, to create a 0.035 percent quarterly surtax on the nation’s largest banks with assets over $500 billion.

Camp suggested the tax, which would raise more than $80 billion over the next decade, as a payback for the 2008 federal bailout of financial firms. It’s been widely panned by banking trade groups and several lobbyists say Ryan has signaled he won’t pursue it.

Hunt, a former House staffer, said Ryan told him “absolutely no” when he asked him directly earlier this year whether he would support the bank tax.

“I know he is a person who does not want to penalize any one industry and I hope he will continue that as speaker,” Hunt said.

Ryan has not directly commented on it.

 


Mortgage Industry

Financial services firms also are watching what deductions might end under a Ryan tax overhaul, including the personal tax deduction of mortgage interest. The mortgage industry considers the  popular tax break crucial to encouraging home buying.

Ryan has not ruled out changes to deductions if they are part of a broader effort to flatten and lower taxes. One veteran tax lobbyist, who spoke on background, said changes in the mortgage deduction could have a far greater impact for financial services companies than a targeted bank surtax because it could mean fewer customers for home loans.

The financial industry also is watching the potential for ending a tax break on compensation earned by private equity fund managers. The so-called carried interest break allows fund managers’ earnings to be taxed at a lower capitals gains rate rather than the higher income tax rate.

Ryan has said he won’t decide on its fate until 2017.

The mortgage industry would also be deeply interested in the fate of Fannie Mae and Freddie Mac, the government-sponsored enterprises that dominate the market by buying up mortgages from private lenders. The government put Fannie and Freddie into conservatorship during the financial crisis in 2008.

“He’s long wanted to reform Fannie and Freddie and phase them out and I think I would have a strong supporter there,” said Hensarling of Ryan. Hensarling backs privatization of the government-sponsored enterprises but said any legislative effort would likely have to wait until the next administration.  

 


Dodd-Frank

Like most Republicans, Ryan wants to scale back the 2010 Dodd-Frank financial regulatory law (PL 111-203) and wants to discourage future federal bailouts of banks. He supported the 2008 financial bailout, calling it a bad option but better than a potential economic depression.

Ryan served on the Financial Services Committee during his first term in Congress but has not been actively involved in financial regulatory issues since. His views on financial issues can be seen largely through the prism of the budgets he wrote for about a decade as the top Republican on the Budget Committee. He took over at Ways and Means in early 2015.

Ryan used those budgets to call for cuts to federal regulatory agencies, among them the Securities and Exchange Commission and Commodity Futures Trading Commission. He also used the budget platform to make his case that the government could save billions by moving the GSEs off its books and into the private sector.

More recently, Ryan backed an aggressive campaign by Hensarling to close the Export-Import Bank, breaking with most other party leaders last year by saying Congress should let the bank’s authority expire. Their efforts have kept the bank from being renewed since the end of June. Attempts to reauthorize it haven’t ended and will be tested with a vote in the House on Monday.

Dennis Kelleher, the head of Better Markets, a group that supports greater market regulation, said Ryan is already “well liked” on Wall Street for his opposition to government regulation.  He said Ryan would likely work even more closely with financial firms as speaker because they are a popular target for fundraising efforts for the GOP.

Ryan-Hensarling Duo





Several aides and lobbyist said the alliance between Ryan and Hensarling should not be understated in assessing how the new speaker might help move banking legislation. They say it goes beyond a shared vision for smaller government and that the two are close friends who frequently talk strategy. Hensarling spent nearly an hour huddled with Ryan in his Capitol office the day Kevin McCarthy, R-Calif., announced he would not run for speaker.

Ryan is more than a decade younger than Hensarling, but both have young children at home and their time in the House has largely overlapped. Each got a start on Capitol Hill working for conservative senators, Ryan for Sam Brownback of Kansas, Hensarling for Phil Gramm of Texas.  They got to know each other in the House and were first noticed for efforts to overhaul the budget process on the House Budget Committee.

In recent years they have moved beyond that issue — into taxes and banking, respectively. Both have been touted for years as future leaders in the House.

“I can’t think of an issue off the top of my head that Paul and I have a disagreement on,” said Hensarling, who at Ryan’s request joined him in 2012 as he flew around the country campaigning as the GOP vice presidential nominee.