It’s not shaping up as a Merry Christmas on Capitol Hill for Wall Street and the U.S. financial industry.
In the two must-pass pieces of legislation as 2015 winds down — transportation legislation and an all-encompassing spending bill — Republican congressional leaders did more than abandon a brewing fight for loosening regulations on banks. They made banks pay for what the rest of the country will drive over in the coming years.
Hours after congressional negotiators finished work on a 2009-page omnibus spending bill to fund the federal government through the current fiscal year, bank lobbyists fumed that Republicans championed no real changes to the 2010 Dodd-Frank law that forced comprehensive rules on the industry following the most serious financial crisis since the Great Depression.
“Layers upon layers of ill-fitting regulations have been applied to the whole industry,” said Rob Nichols, president of the American Bankers Association. “Failing to pass needed regulatory relief while forcing banks to pay for roads and bridges is unconscionable.”
The unpopular banking industry got left behind, as Republicans focused on other priorities including energy and health care. Efforts to strike a bipartisan compromise on changes to financial regulations foundered amid an insistence by Sen. Richard Shelby, the Alabama Republican who chairs the banking committee, that it include provisions beneficial to large and small banks. Wall Street, whose political contributions have trended Republican since the 2012 election may withhold money this time around, but similar threats have faded in the past as banks pondered the implications of electing more liberal Democrats.
“Wall Street and the financial industry were pushing once again for major rollbacks of financial regulation, and to block consumer and investor rights,” said Lisa Donner, president of Americans for Financial Reform, an umbrella group of consumer advocates, civil rights groups and labor unions. “And on this they failed this time, and the rest of us won.”
From the business lobby’s perspective, the main win may be defensive: a one-year provision barring the Securities and Exchange Commission from writing rules that would force more disclosure of political spending.
Republican priorities turned out to be lifting the 40-year-old ban on exports of crude oil from the United States and a report next year that would detail everything the federal government spends on the issue of climate change, a possible prelude to squeeze that money in later budgets.
In health care, Republicans focused on changes to the Affordable Care Act, aka Obamacare, that would delay provisions that faced bipartisan opposition when the law passed in 2010. The so-called “Cadillac tax” on premium health plans — opposed by organized labor — and a tax on medical devices will both take effect later than anticipated, giving a future Congress a chance to kill them outright.
“We have a real opportunity to significantly reduce Obamacare’s tax burdens,” said Sen. Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee.
But changes to bank regulations foundered amid partisan divides and the knowledge that their inclusion would trigger a vociferous reaction from the progressive wing of the Democratic Party, notably from Sen. Elizabeth Warren, a Massachusetts Democrat.
Shelby sought a package of changes that would have eased mortgage regulations, a top priority for smaller community banks, while also lifting intensified scrutiny of mid-sized banks. Even liberal Democrats were willing to tweak rules for smaller banks, but a compromise between Shelby and Sen. Sherrod Brown, an Ohio Democrat, failed to pan out.
Camden Fine, president of the Independent Community Bankers of America, argued that Shelby should have abandoned the larger banks, but that strategy never emerged. “We could have community bank reg relief tomorrow,” Fine said. “But the big bank lobby is trying to pile onto community bank-oriented measures.”
The failure to include regulator changes is a major blow to mid-sized banks such as Regions Financial — headquartered in Shelby’s state — and SunTrust, which have complained bitterly that they face regulatory scrutiny more appropriate for Wall Street giants such as Citigroup and JPMorgan Chase.
Recently-passed transportation legislation deprived larger banks of some of the money they receive for being shareholders in the Federal Reserve System. Now that banks have come up empty-handed in the omnibus as well, lobbyists have privately discussed withholding campaign contributions to Republicans.
Such threats have failed to pan out in the past. For example, Wall Street was frustrated when then-Sen. Scott Brown, a Massachusetts Republican, failed to back repeal of a new rule on debit-card fees in 2011, and lobbyists hinted they’d sit out his 2012 Senate race. But when Warren emerged as his challenger, they opened their wallets, and the industry in general supported Mitt Romney for president.
The omnibus does include a prohibition on any effort by the Securities and Exchange Commission to issue any rules forcing the disclosure of political spending, dealing a one-year setback to a concerted campaign by Democrats and consumer advocates to force action on that front.
Facing the continuing impact of the 2010 Citizens United decision by the Supreme Court, which ended major restrictions on corporate cash flowing into election campaigns, Democratic Sens. Harry Reid of Nevada and Charles Schumer of New York, sought an SEC rule that would have forced disclosure by the companies.
The consumer advocacy group Public Citizen ran ads in the Washington subway system this summer depicting SEC Chairman Mary Jo White as a reluctant superhero — complete with cape and tights — whom “we need to end this menace.” SEC commissioners were divided on the matter anyway, but in the omnibus Congress shut down action by the regulator for the next year.
“With the inclusion of the SEC rider, they will be halting the most requested rulemaking in the agency’s history and simultaneously short-circuiting one of our best chances for public disclosure of corporate political spending since the Citizens United,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division.
The bill contains two minor provisions affecting the Consumer Financial Protection Bureau that Warren, then a professor at Harvard University, helped envision and set up. One would require the agency to report when it draws money from the Federal Reserve, which funds the agency indirectly. Another would subject the CFPB’s various advisory committees to a longstanding federal law that ensures they are open to the public.
Lawmakers turned a cold shoulder to a 5-year push by the banking industry to replace the agency’s director with a five-member commission and subject its funding to the annual congressional appropriations process.