WASHINGTON (AP) – It seemed like a good idea at the time: Democrats in the red state facing bleak re-election prospects would join Republicans to cut banking regulations — demonstrating their willingness to work with President Donald Trump while bucking many in their own party.
This unlikely coalition voted in 2018 to roll back parts of a far-reaching 2010 law aimed at preventing a future financial crisis. But those changes are now being blamed for contributing to the recent Silicon Valley bank collapse and signature bank that prompted a federal bailout And he raised concern about the spread of a banking infection.
The rollback was capitalized on by a lobbying campaign costing tens of millions of dollars that attracted an army of hundreds of lobbyists and dedicated large campaign contributions.
The episode provides a fresh reminder of the power wielded by bankers in Washington, where the industry spends heavily to fight regulation and often hires former members of Congress and their staffs to prove they are not a threat to the economy.
“The bottom line is, these banks would have faced a much stricter supervisory framework under the original… Clean Financial Sector Watch Group,” said Carter Dougherty, a spokesman for Americans for Financial Reform, who is left-wing. Trump, led by the bank lobby, and the chaos of the past few weeks.”
President Joe Biden has asked Congress for the authority to impose tougher sanctions on failing banks. The Department of Justice and the Securities and Exchange Commission have launched investigations. And Democrats in Congress are calling for new restrictions on financial institutions.
But so far there is no indication that another bipartisan coalition will form in Congress to put stricter regulations back in place, underscoring the continued influence of the banking industry.
That effect was most evident when the banking lobby worked for two years to ease aspects of the 2010 Dodd-Frank Act that placed heavy regulations on banks designed to reduce consumer risk and force institutions to adopt safer lending and investing practices.
Republicans have long sought to soften the influence of Dodd-Frank. But rather than push for sweeping deregulation, Sen. Mike Crapo, the Idaho Republican who led the Senate Banking Committee, hoped the narrow focus would attract enough support from moderate Democrats to cross the Senate’s 60-vote threshold.
Crapo floated the idea with Democratic Sens. Jon Tester of Montana, Joe Donnelly of Indiana and Heidi Heitkamp of North Dakota — all on the ballot in 2018 — as well as Mark Warner of Virginia. By the fall of that year, the bipartisan group met regularly, according to a copy of Tester’s desk schedule posted on the Senate website.
A lobbying strategy has also emerged, as companies and trade groups that specifically mention Crapo legislation spent more than $400 million in 2017 and 2018, according to an Associated Press analysis of lobbying public disclosures.
The bill was sold to the public as a form of regulatory relief for overburdened community banks, which serve farmers and small businesses. Local bankers from across the United States traveled to Washington to meet with lawmakers frequently, including Tester, who held 32 meetings with Bank of Montana officials. Local bank leaders paid their congressional delegation members when they returned home.
But the measure also included provisions sought by mid-size banks that dramatically reduce oversight once Trump’s board finished writing the new regulations it required to pass the law.
Specifically, the legislation raised the threshold for banks that faced a strict regime of oversight, including mandatory financial stress testing.
That component, which effectively removed large mid-cap banks from stricter regulations, has come under fresh scrutiny in light of the failure of Silicon Valley Bank and Signature Bank, whose executives lobbied on behalf of the 2018 slump.
Lobbyists were everywhere. “You can’t throw an elbow without hitting one,” Sen. Elizabeth Warren, a Massachusetts Democrat who has vehemently opposed the bill, told reporters last week.
Campaign checks have been written. Ads have been cut. Mails went out.
As a reward for their work, Heitkamp ($357,953), Tester ($302,770) and Donnelly ($265,349) became top recipients of money from the Senate banking industry during the 2018 campaign season, according to OpenSecrets, a nonpartisan group. Track money in politics.
Democratic Senate Leader Chuck Schumer released members to a vote on the bill, a move intended to bolster vulnerable moderate incumbents. But the move also bitterly divided the Democratic caucus, with Warren describing moderates as doing what Wall Street wants.
In the hours before the bill passed the Senate by 17 Democratic votes, Heitkamp climbed onto the floor of the auditorium to speak out against the “diatribe,” “hyperbole,” and “exaggeration” of the bill’s opponents.
Meanwhile, Tester met with executives from Bank of America, Citigroup, Discover and Wells Fargo, who were there on behalf of the American Bankers Association.according to his publicly available office schedule.
Records showed that the American Bankers Association, which helped lead the payment, later paid $125,000 for an ad campaign thanking Tester for his role in passing the bill.
Less than a month after the bill passed the Senate, Tester met with Greg Baker, CEO of the now-defunct Silicon Valley bank, according to his schedule. Baker pressed Congress and the Federal Reserve specifically to take a light regulatory approach with banks of his size. Lobbyists for the Franklin Square group, which is held by Silicon Valley Bank, donated $10,800 to Tester’s campaign, a record showing.
Heitkamp was the only member of the group invited to the bill-signing ceremony, and he beamed alongside Trump. Later, Americans for Prosperity, a grassroots conservative group funded by billionaire industrialist The Koch Brothers, posted an ad online praising Heitkamp for taking a stand against her party.
In an interview, Heitkamp rejected suggestions that the legislation was directly responsible for the Silicon Valley bank collapse. However, she acknowledged that there was an open question as to whether new rules put in place by the Fed after the measure was signed into law could have played a role.
“I’m willing to consider the argument that this has something to do with it,” Heitkamp said, adding: “I think you’ll find that (the Fed) was engaged in some level of supervision. Why didn’t that work? That’s the question that needs to be resolved.”
In a statement last week, Tester did not directly address his role in the legislation, but pledged to “take on anyone in Washington to ensure that the executives of these banks and regulators are held accountable.”
Overall, the bill has been good legislation that provides much-needed relief to struggling community banks, said Cam Fine, who led the independent business group of Community Bankers of America through the legislative push.
But like any major piece of legislation that passes Congress, the latest passage hinges on support from a broad coalition of interests — including Wall Street interests and mid-sized banks.
“Was it perfect legislation? No, but there is an old adage in Washington: You can’t let the perfect be the enemy of the good,” Fine said.
Many moderate Democrats who supported the measure did not, either.
Of the core group that wrote the bill, only Tester won re-election. Others from red states lost, including Claire McCaskill of Missouri and Bill Nelson of Florida.
The tester will be on the ballot again in 2024. Last week he was in Silicon Valley for a fundraiser.
One of the sponsors of the event was a partner in the law firm of Silicon Valley Bank.
___
Sweet reported from New York. Associated Press writer Kevin Fring contributed to this report.
“Twitteraholic. Total bacon fan. Explorer. Typical social media practitioner. Beer maven. Web aficionado.”