(Bloomberg) — When Jeb Hensarling took over the congressionalpanel that spawned the Dodd-Frank Act, he vowed to roll back thelandmark Wall Street law and eliminate government programs thatbackstop private markets.

More than a year later, the Texas Republican is boxed in. Hisinitiatives to undo banking rules haven't won Democratic support.At the same time, his own party's leaders, backed by industrygroups that disagree with Hensarling's purist free- marketphilosophy, have stymied his plans to abolish Fannie Mae and limitfederal flood insurance.

Now, Hensarling must choose again. His chances of making animpact as chairman of the House Financial Services Committee mayturn on whether he loosens his opposition to two programs pushed bybusiness lobbies and top House Republicans: government-backedterrorism insurance and loans for buyers of U.S. exports.

"He's isolated himself a little bit," said Brian Gardner, aformer congressional staff member who is now senior vice presidentfor Keefe, Bruyette & Woods Inc. in Washington. Hensarling,Gardner said, "has to make a strategic decision" about whether tobend on the next two big issues.

Since he was first elected to Congress in 2002 from the Dallasregion, Hensarling, 56, has been one of the most outspokenproponents of a federal government with less heft and a shorterreach. He led House opposition to the $700 billion bank bailout in2008, calling it a "slippery slope to socialism," and voted againstDodd-Frank two years later.

Tea party

"He was Tea Party before there was a Tea Party," said MarkCalabria, a former aide on the Senate's banking panel now at theCato Institute, a Washington-based research group that supportsfree markets.

In an interview, Hensarling said that while he hasn't backed offhis principles, the committee has been productive under hisleadership, approving more than 20 regulatory bills, some withDemocratic votes.

"Many of them we've gotten across the House floor, and then theygo where many good ideas go to fail — and that's the United StatesSenate," he said.

Hensarling's January 2013 appointment to head the committeeafter serving as chairman of the House Republican Conference, thefourth-ranking job in the party's leadership, gave him anopportunity to put into action an agenda he had long espoused.

Debt clock

He quickly put his stamp on the panel. He had a displayinstalled in the hearing room to continuously tally the rising U.S.debt. He frequently cites the "debt clock" when spending issues areon the table. Hensarling also tries to script the committee'ssessions by handing out "Win the Debate Kits" to his fellowRepublicans, complete with talking points and suggested questionsfor witnesses.

As a result, regulators summoned to testify have foundthemselves excoriated for their budgets as well as their rule-making. Hensarling told Securities and Exchange Commission ChairmanMary Jo White last month that while the agency says it'sunderfunded, past increases were followed by "financialmismanagement, squandered resources and mission failure."

The chairman has heaped his most intense criticism on theConsumer Financial Protection Bureau, the entity created byDodd-Frank which he has called "the most powerful and leastaccountable government agency in the history of the Republic." At aJanuary hearing, he dueled with the bureau's director, RichardCordray, slamming its plan to assemble databases on consumerfinance products and its $100 million project to renovate itsoffices.

Trump tower

Hensarling told Cordray the bureau was spending more persquare-foot than it cost to build New York's Trump World Tower orthe Bellagio Hotel and Casino in Las Vegas. "What on God's greenEarth is going on here?" he asked. Cordray responded that therenovation was initiated and managed by the General ServicesAdministration, not the consumer agency.

Hensarling has won bipartisan support for bills dealing withderivatives and community banks. Of the other Hensarling- backedlegislation that would chip away at Dodd-Frank — including ahalf-dozen that would diminish the consumer bureau's power — mostcleared the committee or full House with at best modest Democraticbacking. They haven't gathered enough support to be taken up by theDemocratic-controlled Senate, much less gain the signature ofPresident Barack Obama.

Hensarling has had a "learning curve" as chairman, SpencerBachus of Alabama, his Republican predecessor as committee head,said in an interview. Although Hensarling has begun to compromise,Bachus said, "I think that's been a problem with him because he hasstrong ideological positions."

Flood insurance

While refusing to do much horse-trading with Democrats,Hensarling also defied House leaders over spending. He and fellowTexas Republican Randy Neugebauer, for example, tried to stand inthe way of a bill that rolled back reforms in federal floodinsurance, saying the program is flawed and puts taxpayers at riskfor actions by private landowners.

Republican leaders who wanted to prevent steep increases inflood-insurance premiums took extraordinary measures. HouseMajority Leader Eric Cantor bypassed Hensarling's panel and moved abill following negotiations with the committee's top Democrat,Maxine Waters of California. The measure passed by a 306-91 votethat included 126 Republicans. Hensarling voted no.

"Jeb was championing a cause he believed in, very strongly,"said Tom Cole, an Oklahoma Republican. Cantor "wanted to getsomething done and wanted to protect members in coastal areas, andfrankly wanted to help Senate candidates," Cole said.

Winning 'respect'

Former Senator Phil Gramm, 71, who has known Hensarling since hetaught the future congressman in his economics class at TexasA&M University in the 1970s, said the outcome of the floodinsurance battle wasn't a setback.

"Sometimes you win by losing," Gramm said in an interview. "Ithink Jeb's willingness to stand on principle on that issue was theright thing to do and I think it earned him a lot of respect."

Hensarling spent much of his legislative capital on a bill thatwould overhaul the housing-finance system by eliminating Fannie Maeand Freddie Mac and almost entirely privatizing the mortgagemarket. He declined to modify the measure to gain more votes fromthose in both parties who think the government still needs to playa role in preserving broad access to mortgages.

The bill was approved with Republican votes by the committee inJuly 2013 and has won support from lawmakers with Tea Party ties aswell as free-market groups including the Club for Growth andHeritage Action. Yet it failed to gain enough traction for a Housefloor vote.

'Same page'

The task of coming up with a solution moved to the SenateBanking Committee — which last week approved its own bill in a 13-9bipartisan vote. That one also faces headwinds: Senate MajorityLeader Harry Reid is unlikely to bring it to a vote of the fullbody because six Democrats on the panel voted against it.

Hensarling said he has been recently spending more timecommunicating with the House leadership "to make sure we're on thesame page."

Still, his history as chairman has cast into doubt the panel'snext two big agenda items — reauthorization of terrorism insuranceand the U.S. Export-Import Bank.

House Speaker John Boehner said March 13 that extending the twoprograms were among his top priorities. House Majority Whip KevinMcCarthy said in April that the chamber will pass the insurancebill "come hell or high water."

'Achievable victory'

Hensarling presents his opposition as integral to his politicalidentity. Last month, he told constituents at a senior center inAthens, Texas, that the bank is a "boondoggle" that "puts taxpayersat risk in order to lower costs for a few big corporations to selltheir goods overseas," according to a report in the ChandlerBrownsboro Statesman newspaper.

In a May 20 speech at the Heritage Foundation in Washington,Hensarling said the demise of the bank would "clearly be one of thefew achievable victories for the Main Street competitive economyleft in this Congress."

The biggest beneficiaries of the bank, which backed $38 billionin exports last year, are major manufacturers including Boeing Co.,General Electric Co. and Caterpillar Inc.

While the program has business critics — including Atlanta-basedDelta Air Lines Inc., which says taxpayers shouldn't make it easierfor foreign competitors to buy jets — Hensarling's position putshim at odds with some of the biggest industry groups. They includethe U.S. Chamber of Commerce, the National Association ofManufacturers, Aerospace Industries Association and Nuclear EnergyInstitute.

Congressional 'outreach'

"We are going to be intensely increasing our congressionaloutreach in the coming weeks," said Christopher Wenk, seniordirector for international policy at the U.S. Chamber, who said hisgroup has held hundreds of meetings on Capitol Hill to discuss theissue in the past two years.

Opposing the bank's reauthorization, which used to be anon-controversial matter in Congress, has now become "a point oforthodox litmus-testing on the right," said Representative GeraldConnolly, a Virginia Democrat who supports the program. Hepredicted "a blood bath" among Republicans over the bill.

Also high on the business lobbying agenda is the Terrorism RiskInsurance Act enacted after the 2001 attacks, known by its initialsTRIA. It provides a U.S. backstop when claims stemming from asingle terror incident hit $100 million. Congress renewed it in2005 and 2007, and it expires again at year's end.

Among firms urging Congress to extend the program are AmericanInternational Group Inc., Wells Fargo & Co., Loews Corp.,NASCAR and the National Football League.

'Economic fallout'

"Without adequate coverage, our ability to mitigate furthereconomic fallout in the event of an attack would be greatlyimpaired," a business coalition wrote in an April 2 letter tolawmakers.

Hensarling and Neugebauer plan to propose extending TRIA through2017 while limiting reimbursements for attacks with conventionalweapons. That contrasts with a bipartisan Senate measure led by NewYork Democrat Charles Schumer, which would extend the program forseven years and raise insurers' co- payments to 20 percent.

Jaret Seiberg, an analyst at Guggenheim Securities LLC, saidthat if House Republicans decided to bypass Hensarling on terrorismas they did on flood insurance, it would be a more significant markon his leadership of the committee.

"TRIA is going to be a real test as to whether he can get donemust-pass legislation," Seiberg said.

'Remain conservative'

Hensarling's supporters take a different view. Ron Bonjean, whowas an aide to former Senate Majority Leader Trent Lott, aMississippi Republican, said Hensarling's willingness to stand firmagainst compromise can produce a better outcome.

"The Republican conference needs chairmen like Hensarling whoremain conservative and start with policies further to the rightbefore they even start negotiating," Bonjean said.

Gramm, the former Senator who helped launch Hensarling'spolitical career and championed deregulation in the 1990s, saidHensarling's strategy could pay off for him next year.

If Republicans gain House seats in the fall elections and wincontrol of the Senate, the next Congress "almost certainly is goingto be more favorable to his views," Gramm said.