An apparent agreement between House and Senate conferees on a rewrite of federal financial regulations itself underwent an emergency revision on June 29 as the lead Senate negotiator, Christopher Dodd (D-Conn.), won approval for an amendment he hopes will get the bill through the chamber. Construction officials theorized that if the measure becomes law, its new regulatory mandates and costs could prompt banks to make already-tight credit even more dear.
Dodd saw that objections to a $19-billion “assessment” on banks and hedge funds was likely to doom chances of the Senate’s passing the bill, upon which conferees on June 25 agreed. Dodd’s new plan substitutes the bank/hedge-fund charge for a Troubled Asset Relief Program cut and a boost in the fee banks pay to the federal deposit insurance fund.
Eventually, the revised bill, named for Dodd and lead House conferee Barney Frank (D-Mass.), is likely to clear the House. The question mark is the Senate. Dodd hopes the revision will gain the 60 votes needed to avoid a filibuster. He said he had “vetted” the change with colleagues to determine whether they could support it. He adds, “But obviously, until they actually cast a vote, you never know.”Looking at the earlier version, Robert A. Murray, McGraw-Hill Construction’s vice president for economic affairs, says its short-term impact on construction lending would be “neutral to somewhat negative.” He says, “The [bill’s] greater emphasis on regulation and the adaptation of the banking industry to this new environment may push back the timing when lending conditions can improve.”
Anirban Basu, Associated Builders and Contractors’ chief economist, sees the Dodd-Frank bill as “moderately negative” for construction. He predicts banks probably will respond to its mandates by raising interest rates. He says, “In other words, one of the primary impacts of the legislation is to increase the cost of capital.” One possible bright spot is its provisions aimed at preventing a repeat of the 2008 collapse of Lehman Bros. and the following “cataclysmic chain reaction.”
Chip Rodgers, Real Estate Roundtable senior vice president, agrees Dodd-Frank has the potential to make credit more expensive and harder to obtain because of new restrictions on financial derivatives and on banks’ ability to trade and invest in hedge funds. But, he adds, “Overall, I would say many people are concerned that [the bill] isn’t what the economy needs right now. It doesn’t address the problem of expanding credit capacity.”
Observers agree underlying economic trends, not Dodd-Frank, will be the dominant factor in construction’s health. Jeffrey Shoaf, Associated General Contractors’ senior executive director for gov-ernment affairs, says, “Until the economy comes back, it won’t test the limits of the [Dodd-Frank] rules.”