Rob Nichols, the freshly appointed president of the American Bankers Association, has set for himself the ambitious goal of uniting the fractious financial services lobby in Washington. Events this week only highlighted how challenging his mission will be.
Seeking money for a multibillion-dollar transportation bill, Congress took away $1 billion from the nation’s largest banks — politically radioactive behemoths like JPMorgan Chase, Wells Fargo and Citigroup. In that very same bill, lawmakers exempted the influential small banks whose executives hold sway at Rotary Clubs and local chambers of commerce nationwide.
It was a vivid demonstration of what Nichols calls the “balkanization of the banking community in a political sense.”
The Nichols mission is to unite the bank lobby, a step he hopes will help persuade Congress to ease some of the rules it imposed on the financial services industry after the 2008 financial crisis. He’s up against the recent history of legislation, which created an as-yet unhealed wound among bank advocates, as well as a well-organized grouping of smaller banks that have profited from Washington’s willingness to carve them out of some new rules.
The opening gambit by Nichols, 46, has been an advertising campaign on radio, TV and social media, a new focus on issues that concern all banks, large or small, as well as lots and lots of travel.
In mid-October, Nichols flew to Oklahoma City for a reception honoring former Gov. Frank Keating, his predecessor as head of the bankers association. The people who make the state go — including Gov. Mary Fallin and Attorney General Scott Pruitt — had gathered in the new Devon Tower, a sparkling 50-story skyscraper with a panoramic view of central Oklahoma.
The visit to the Sooner State was the latest in a string of stops that Nichols has made all over the country since taking the helm at the association. There as elsewhere, he made the pitch for industry unity as the only way to get what it wants out of Washington.
“‘Together we are stronger’ is his common theme,” said one attendee. “But you also have two groups that are determined to preserve their turf.”
No banker in the room needed any briefing about the bad blood between large and small banks in Washington.
The nation’s capital is awash in bank trade associations. The ABA, which doesn’t release its membership figures, includes banks of all sizes. The Independent Community Bankers of America has 5,000 members, all smaller institutions. The Clearing House Association includes only large banks. Other myriad associations focus on consumer finance, investment banking, and payment systems.
Recent history has divided the bankers like never before.
When former Rep. Barney Frank was negotiating what became the banking regulatory reform law that now bears his name, the Massachusetts Democrat avidly wooed Camden Fine, the president of the community bankers group. The wily Frank didn’t expect Fine would endorse the end product. But a few deft exemptions, notably one that kept examiners from a new consumer protection agency out of Fine’s member banks, persuaded Fine to stay neutral.
“Do you really think Wall Street mega firms give a rat’s ass about small banks? Hell no,” Fine wrote in 2010 in an email defending his decision to his members. “They only care about the credibility small banks can wield on Capitol Hill to get them out from under this rock.”
Politically speaking, smaller banks had come out of the 2008 financial crisis unscathed, a fact Fine played to the hilt. The public and Congress blamed “Wall Street” — now shorthand for large banks. Fine’s group could still put a dozen small-town bankers into any given congressional office to plead a case, but in 2010 they held their fire, and let Wall Street fight the losing battle to stop the bill.
The Dodd-Frank law passed soon after that year. Since then, Fine’s colleagues in the bank lobby have subscribed, seethingly, to the article of faith that his stance ensured the passage of legislation they have grown to hate, because it split the industry. A united front, they believe, would have stopped it.
The fissure has never fully closed.
Late last year, JPMorgan and Citigroup maneuvered a provision into a massive spending bill that eased a rule that would have required banks to spin off some complex derivatives into corporate entities not backed by federal deposit insurance. A furious pushback by Sen. Elizabeth Warren, the Massachusetts Democrat who’s become the scourge of Wall Street, ultimately failed, but it triggered recriminations within the banking lobby.
Two large banks got their prize, but the political uproar reduced congressional appetites for further changes benefiting small institutions. Sen. Richard Shelby, the Alabama Republican who chairs the Senate Banking Committee, has tried to assemble a package of “regulatory relief” changes to Dodd-Frank this year, so far without success.
Nichols took charge at the American Bankers Association this fall and immediately began repeating his message from coast to coast: stop the bank-bank feud, focus on what we all agree on.
So far, Nichols has treated the fundamental split in the industry as a communications dilemma, even as the legislation hammered out this week underscores the hard policy problems behind it. By nature and background, Nichols is a communicator, having worked at the Treasury Department and on Capitol Hill as a spokesman. For the previous 10 years, he ran the Financial Services Forum, a collection of CEOs from the industry that let Nichols be their public face.
All banks, says Nichols, “are facing a series of post-crisis reputational challenges.”
In short, the public hates banks. It blames them in general, and Wall Street specifically, for the financial crisis and recession. Far fewer college and business school graduates seek jobs in finance. In 2006, 30 percent of degree recipients at the Massachusetts Institute of Technology headed for banks; now, about 10 percent do.
The trend dovetails with the Millennial generation’s distinct distaste for banks and sense that there are alternatives out there, Nichols said. Many of them, born between 1981 and 2000, even work in the burgeoning “fintech” sector, Silicon Valley’s answer to banking. Few of them currently envision the lifelong connection with a bank that their parents had.
“They are wary of banks,” Nichols said. “Many of them would rather go to the dentist than hear from their banker.”
On top of all this, the country is a month away from a presidential election year. Democratic candidates and some Republicans have harsh words for banks, and will keep the issue in the spotlight, Nichols said.
The first response from the ABA under Nichols has been an advertising campaign in support of Shelby’s legislation. On radio and TV inside the Beltway and in key states, and on social media, it features smiling, small-town bankers, and avoids the numbers-heavy talk about the cost of regulation that has been the industry’s signature over the past five years.
“I think it’s more instructive to say ‘This is what this regulatory relief measure would do to help our clients, our community,’” Nichols said.
The effort to focus on a common message and avoid fratricide falls on sympathetic ears within Washington’s banking lobby. But that doesn’t mean anyone expects Nichols to succeed.
“There is a structural and political difference between small and large banks,” one senior bank lobbyist said. “No rhetoric can change that.”
Thanks to Dodd-Frank, small banks now possess advantages in regulation. The Consumer Financial Protection Bureau, the agency set up by Elizabeth Warren, now a Democratic senator from Massachusetts, sends examiners into large banks like Citigroup. None of Fine’s banks have to face those examiners. They also pay lower fees to the Federal Deposit Insurance Corporation than large banks.
Fine’s group, the ICBA, has also become a political powerhouse with him at the helm over the last decade, and commands a good deal of loyalty from his members. At a convention in Las Vegas, Fine once delivered a fire-and-brimstone speech about being “proud to be a community banker” that won him a stronger round of applause than the Rat Pack tribute group that preceded him.
Nichols also faces the paradox of better times. When banks are more profitable, it’s harder to make the case that regulation is too tough. In the third quarter of 2015, the nation’s banks made $40.4 billion, up 5.1 percent from the same period a year earlier. Put another way, bank profits are growing at about twice the rate of the economy as a whole.
Events this week demonstrated how Congress continues to distinguish between Wall Street and the rest, and how small banks are willing to leave Wall Street twisting in the wind.
All banks have to maintain shares in the Federal Reserve System, and they receive a disbursement each year. Looking for money to build roads and bridges, Congress trimmed the dividend for large banks but exempted banks with assets below $10 billion, a move that preserved the cashflow for virtually all of Fine’s members. He criticized the “bad precedent,” but praised the carveout for small banks.
The Clearing House Association, which is comprised of only large banks like Bank of America and Citigroup, lashed out at the move. Congress had based its decision on the “political popularity of the bank,” rather than the merits of policy, said its president, Greg Baer.
Nichols, with a membership ranging from the largest to the smallest, could only fume about the provision in general, if colorful, terms.
“This proposal is misguided and undermines a key agreement that has underpinned the U.S. banking system for a century,” Nichols said. “Banks shouldn’t be used like an E-Z Pass to pay for highways.”