Army of lobbyists helped water down banking regulations

WASHINGTON — 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.

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