WASHINGTON (AP) — It seemed like a good idea at the time: Red-state Democrats facing tough re-election chances would join Republicans in cutting bank regulations — willing to work with President Donald Trump while riling up many in their party.
That unlikely coalition voted in 2018 to roll back parts of a 2010 law aimed at preventing a future financial crisis. But those changes are now being blamed for contributing to the recent collapse of Silicon Valley Bank and Signature Bank, which prompted a federal bailout and fueled concerns about a broader banking contagion.
The recall was backed by a multimillion-dollar lobbying campaign that drew an army of hundreds of lobbyists.
The episode offers a fresh reminder of the power bankers wield in Washington, where the industry spends heavily to fight regulations and often hires former members of Congress and their staff to make the case that they pose no threat to the economy.
“The bottom line is that these banks would have faced a tougher supervisory framework under the original … law, but Congress and Trump regulators have taken an ax to it,” said Carter Dougherty, a spokesman for the left-leaning Americans for Financial Reform. – Financial Sector Monitoring Committee. “We can draw a direct line between the deregulation of the Trump era, the banking lobby and the chaos of the past few weeks.”
President Joe Biden has asked Congress to impose tougher penalties on failed banks. The Justice Department and the Securities and Exchange Commission have launched investigations. Congressional Democrats are calling for new regulations on financial institutions.
But there is no sign yet of another bipartisan coalition in Congress to bring back tougher regulations, underscoring the banking industry’s continued influence.
That influence was on full display when the banking lobby worked for two years to water down aspects of the 2010 Dodd-Frank Act.
Republicans have long tried to play down the impact of Dodd-Frank. But instead of pushing for massive deregulation, Sen. Mike Crapo, the Idaho Republican who chairs the Senate Banking Committee, hoped he could garner enough support from moderate Democrats to clear the Senate’s 60-vote filibuster threshold.
Crabo shared the idea with Democratic Sens. Jon Tester of Montana, Joe Donnelly of Indiana and Heidi Heitkamp of North Dakota — all of whom are on the 2018 ballot — and Mark Warner of Virginia. In the fall of that year, the bipartisan caucus met regularly, according to a copy of Tester’s office schedule posted on his Senate website.
A lobbying strategy has also emerged, with companies and trade groups referencing Crapo’s legislation spending more than $400 million in 2017 and 2018, according to an Associated Press analysis of public lobbying disclosures.
The bill was sold to the public as a form of regulatory relief for overburdened community banks serving farmers and small businesses. Community bankers from across the United States flew to Washington to meet repeatedly with lawmakers, including Tester, who held 32 meetings with Montana bank officials. Local bank leaders pushed their congressional representatives back home.
But the move also includes rules sought by mid-sized banks, which sharply cut oversight once Trump finishes writing the new regulations required by the passage of the Fed bill.
In particular, the law raised the threshold for banks to be considered “too big to fail” – which carries stricter regulations of supervision, including mandatory financial stress testing.
That component, which effectively carved out large mid-sized banks from more stringent 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 rollback.
“The lobbyists were everywhere. You couldn’t throw an elbow without running into an elbow,” Sen. Elizabeth Warren, a Massachusetts Democrat who strongly opposed the bill, told reporters last week.
Campaign checks were written. Ads were cut. The postmen went out.
As a reward for their work, Heitkamp ($357,953), Tester ($302,770) and Donnelly ($265,349) became the top Senate recipients of money from the banking industry during the 2018 campaign season, according to OpenSecrets, a nonpartisan group that tracks money in politics.
Democratic Senate President Chuck Schumer released members to vote on the bill, which is intended to boost the standing of vulnerable moderate incumbents. But the move bitterly divided the Democratic caucus, with Warren singling out moderates as doing the bidding of Wall Street.
Hours before the bill passed the Senate with 17 Democratic votes, Heitkamp took to the chamber floor to rail against “diatribe,” “hyperbole” and “overstatement” from opponents of the bill.
Tester, meanwhile, huddled with executives from Bank of America, Citigroup, Discover and Wells Fargo who were there on behalf of the American Bankers Association.
The American Bankers Association, which helped lead the push, later paid $125,000 for an ad campaign to thank Tester for his role in getting the bill passed, records show.
Less than a month after the bill passed the Senate, Tester met with Greg Becker, CEO of the now-collapsed Silicon Valley Bank, on his schedule. Becker in particular urged Congress and the Federal Reserve to take a lenient regulatory approach with banks of his size. Franklin Square Group, a lobbyist retained by Silicon Valley Bank, donated $10,800 to Tester’s campaign, a record-breaking event.
Heitkamp was the only member of the group invited to the bill signing ceremony, beaming alongside Trump. Later, Americans for Prosperity, a grassroots conservative group funded by the billionaire businessman Koch brothers, published an online ad praising Heitkamp for taking a stand against his party.
In an interview, Heitkamp pushed back against suggestions that the law was directly responsible for the Silicon Valley bank’s collapse. He acknowledged, however, that there is an open question about whether the new rules will play a role by the central bank after the measure is signed into law.
“I’m willing to see the argument that it had something to do with it,” Heitkamp said, adding: “I think you’ll find that (the central bank) has some oversight involved. Why isn’t it working? That’s the question that needs to be addressed.”
In a statement released last week, Tester did not directly address his role in the legislation, but he pledged to “take on anyone in Washington to make sure the executives of these banks and regulators are held accountable.”
Cam Fine, who led the independent Community Bankers of America trade group during the legislative push, said the overall bill is good legislation that provides much-needed relief to struggling community banks.
But like any major piece of legislation moving through Congress, final passage will depend on the support of a broad coalition of interests — including Wall Street and midsize banks.
“Was it a perfect law? No. But there’s an old saying in Washington: You can’t let the right be the enemy of the good,” Fine said.
Many moderate Democrats who supported the measure did not.
Of the core group that wrote the bill, Tester was the only one to win re-election. Others from red states lost, including Missouri’s Claire McCaskill and Florida’s Bill Nelson.
Tester will be back on the ballot in 2024. Last week he was at 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 Freaking contributed to this report.