Bachus’ Rise Could Mean Different Approach to Munis

WASHINGTON — The Republican takeover of the House could result in an entirely different perspective on municipal market regulation, if Alabama Republican Spencer Bachus, who has called for greater federal oversight of muni issuers, takes over as chairman of the Financial Services Committee as expected.

Although Bachus has said he has the support of GOP leadership, California Republican Ed Royce announced late Wednesday that he would also seek the chairmanship.

Bachus, who would succeed Massachusetts Democrat Barney Frank in January following the Republicans’ win of more than 60 House seats in Tuesday’s mid-term elections, has repeatedly said he would support legislation to boost federal control over state and local issuers.

He made the statements as officials in Jefferson County, which is partly in his district, threatened to file for bankruptcy while negotiating a restructuring of $3.2 billion of variable- and auction-rate sewer warrants after their interest rates skyrocketed.

Though a spokeswoman for Bachus could not be reached for comment, he told American Banker Wednesday that he would like to rewrite the derivatives section of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which generally requires standardized swaps to be traded on exchanges and centrally cleared. He also said he wants to roll back the broad new liability requirements the law imposes on rating agencies and possibly shut down the government-sponsored enterprises Fannie Mae and Freddie Mac, which are not addressed in the Dodd-Frank law.

Bachus has previously said he would like to give the Securities and Exchange Committee authority to regulate muni issuers directly, suggesting he might support a repeal of the so-called Tower Amendment, which currently restricts the SEC from establishing a corporate-style registration system for muni borrowers.

During a hearing on municipal market “efficiency and oversight” in May 2009, he vowed to introduce legislation to give the SEC “real authority to oversee the municipal securities market.” He told fellow lawmakers: “The municipal securities market presents itself to the public as safe, stable, and secure for all investors. It should welcome more sunlight, consistency, and thorough disclosures that apply across the asset classes and commonsense modernization.”

Though that legislation never materialized, Bachus’ perspective contrasts sharply with many Democrats currently on the committee like Frank, Massachusetts Rep. Michael Capuano, and Missouri Rep. Emanuel Cleaver, who have rebuffed calls to impose heightened regulatory burdens on state and local governments.

Last year, Frank and other Democrats fought, mostly unsuccessfully, for the inclusion of the muni market in the federal government’s emergency programs, steps that most Republicans, wary of anything resembling a federal bailout, opposed.

One market participant who asked not to be identified said that the Republicans on the committee are either “disinterested in the muni market or actually in favor of further SEC regulation.”

“They’re interested in mitigating regulatory burdens on businesses but not on muni issuers,” the market participant said, referring generally to the GOP’s calls for smaller government.

Bachus’ rise would come as the SEC moves forward with a series of muni field hearings, including one that is to be held next year in Birmingham at his request. The hearings, designed to boost the quality and timeliness of municipal disclosure, are expected to lead to a report recommending regulatory and legislative changes, as well as industry “best practices.”

Despite his current role as the committee’s ranking Republican, Bachus was not always seen as the likely choice for chairmanship. He was replaced as the lead House Republican negotiator on the Troubled Asset Relief Program when fellow Republicans felt he was too quick to support Democrats. But he fought back against rumors that he would be bypassed, and is now widely expected to become chairman.

Though Bachus will be challenged by Royce, another potential challenger, Texas Rep. Jeb Hensarling, a rising GOP star, has announced that he will seek the chairmanship of the House Republican Conference Committee, after Indiana Rep. Mike Pence decided to step down.

Rep. Scott Garrett, R-N.J., is expected to become the chairman of the subcommittee on capital markets, replacing Pennsylvanian Paul Kanjorski, who was among the Democrats to lose Tuesday.

Michael Decker, managing director and co-head of the municipal securities division of the Securities Industry and Financial Markets Association, said it is too early to say how Republicans’ approach to muni regulation will play out.

“State and local officials have a lot of influence in Congress and their position is going to weigh heavily,” he said. “It’s too early to say more than we’re going to see some activity.”

Despite GOP gains in the House, Democrats will still retain control of the Senate, where Banking Committee chairman Christopher Dodd, D-Conn., is retiring. He is expected to be replaced by Sen. Tim Johnson of South Dakota, a moderate.

Johnson, still suffering from the aftereffects of a brain injury three years ago that has affected his speech and mobility but not mental acuity, is open to holding hearings on how Dodd-Frank’s implementation is progressing and potentially small tweaks to the bill, according to an aide.

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