Lobbyists Watered Down Banking Regs    03/21 06:18

   It seemed like a good idea at the time: Red-state Democrats facing grim 
reelection prospects would join forces with Republicans to slash bank 
regulations -- demonstrating a willingness to work with President Donald Trump 
while bucking many in their party.

   WASHINGTON (AP) -- It seemed like a good idea at the time: Red-state 
Democrats facing grim reelection prospects would join forces with Republicans 
to slash bank regulations -- demonstrating a willingness to work with President 
Donald Trump while bucking many in their party.

   That unlikely coalition voted in 2018 to roll back portions of a 
far-reaching 2010 law intended to prevent a future financial crisis. But those 
changes are now being blamed for contributing to the recent collapse of Silicon 
Valley Bank and Signature Bank that prompted a federal rescue and has stoked 
anxiety about a broader banking contagion.

   The rollback was leveraged with a lobbying campaign that cost tens of 
millions of dollars that drew an army of hundreds of lobbyists and it was 
seeded with ample campaign contributions.

   The episode offers a fresh reminder of the power that bankers wield in 
Washington, where the industry spends prodigiously to fight regulation and 
often hires former members of Congress and their staff to make the case that 
they are not a source of risk to the economy

   "The bottom line is that these banks would have faced a tougher supervisory 
framework under the original ... law, but Congress and the Trump regulators 
took an ax to it," said Carter Dougherty, a spokesman for Americans for 
Financial Reform, a left-leaning financial sector watchdog group. "We can draw 
a direct line between the deregulation of the Trump period, driven by the bank 
lobby, and the chaos of the last few weeks."

   President Joe Biden has asked Congress for the authority to impose tougher 
penalties on failed banks. The Justice Department and the Securities and 
Exchange Commission have started investigations. And congressional Democrats 
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 tougher regulations back in place, underscoring the 
banking industry's continued clout.

   That influence was on full display when the banking lobby worked for two 
years to water down aspects of the 2010 Dodd-Frank law that had placed weighty 
regulations on banks designed to reduce consumer risk and force the 
institutions to adopt safer lending and investing practices.

   Republicans had long looked to blunt the impact of Dodd-Frank. But rather 
than push for sweeping deregulation, Sen. Mike Crapo, an Idaho Republican who 
led the Senate banking committee, hoped a narrowed focus could draw enough 
support from moderate Democrats to clear the Senate's 60-vote filibuster 
threshold.

   Crapo broached 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 office schedule 
posted to his Senate website.

   A lobbying strategy also emerged, with companies and trade groups that 
specifically mention Crapo's legislation spending more than $400 million in 
2017 and 2018, according to an Associated Press analysis of the public lobbying 
disclosures.

   The bill was sold to the public as a form of regulatory relief for 
overburdened community banks, which serviced farmers and smaller businesses. 
Community bankers from across the U.S. flew in to Washington to meet repeatedly 
with lawmakers, including Tester, who had 32 meetings with Montana bank 
officials. Local bank leaders pushed members of their congressional delegation 
when they returned home.

   But the measure also included provisions sought by midsize banks that 
drastically curtailed oversight once the Trump Fed finished writing new 
regulations necessitated by the bill's passage.

   Specifically, the legislation lifted the threshold for banks to be 
considered "too big to fail" -- a designation that carries a strict regimen of 
oversight, including mandatory financial stress testing.

   That component, which effectively carved large midsize banks out of more 
stringent regulation, has come under new 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 one," Sen. Elizabeth Warren, a Massachusetts Democrat who vehemently 
opposed the bill, told reporters last week.

   Campaign checks were written. Ads were cut. Mailers 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 tracking money in politics.

   Democratic Senate leader Chuck Schumer freed members to vote for the bill, a 
move intended to bolster the standing of vulnerable moderate incumbents. But 
the move also bitterly divided the Democratic caucus, with Warren singling out 
the moderates as doing Wall Street's bidding.

   In the hours before the bill passed the Senate with 17 Democratic votes, 
Heitkamp took to the chamber floor to inveigh against the "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 thanking Tester for his role in the bill's passage, 
records show.

   Less than a month after the bill was passed out of the Senate, Tester met 
Greg Becker, the CEO for the now-collapsed Silicon Valley Bank, according to 
his schedule. Becker specifically lobbied Congress and the Federal Reserve to 
take a light regulatory approach with banks of his size. Lobbyists with the 
firm the Franklin Square Group, which had been retained by Silicon Valley Bank, 
donated $10,800 to Tester's campaign, record show.

   Heitkamp was the only member of the group invited to the bill signing 
ceremony, beaming alongside Trump. Later, Americans for Prosperity, the 
grassroots conservative group funded by the billionaire industrialist Koch 
brothers, ran an online ad commending Heitkamp for taking a stand against her 
party.

   In an interview, Heitkamp pushed back against suggestions that the 
legislation was directly responsible for the collapse of Silicon Valley Bank. 
She acknowledged, however, that there was an open question about 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 look at the argument that this had something to do with it," 
Heitkamp said, adding: "I think you will find that (the Fed) was engaged in 
some level of some supervision. Why that didn't work? That's the question that 
needs to be resolved."

   In a statement issued last week, Tester did not directly address his role in 
the legislation, but he pledged to "take on anyone in Washington to ensure that 
the executives at 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 the bill was a good piece of 
legislation that offered much needed relief to struggling community banks.

   But like any major piece of legislation that moves through Congress, final 
passage hinged on support from a broad coalition of interests -- including 
those of Wall Street and midsize banks.

   "Was it a perfect piece of legislation? No. But there's an old saying in 
Washington: You can't let the perfect be the enemy of the good," said Fine.

   Many of the moderate Democrats who supported the measure did not fare as 
well.

   Of the core group who wrote the bill, only Tester won reelection. Others 
from red states who supported it, including Claire McCaskill of Missouri and 
Bill Nelson of Florida, lost.

   Tester will be on the ballot again in 2024. Last week he was in Silicon 
Valley for a fundraiser.

   One of the event's sponsors was a partner at a law firm for Silicon Valley 
Bank.