Bank Lobbyists Eye Red State Democrats to Move Legislation

By Rob Tricchinelli and Jeff Bater

Bank lobbyists are eyeing Democratic lawmakers up for reelection in 2018 from rural states as the possible key to giving small and midsize banks a break on stress tests and consumer-protection supervision.

Democrats from those states, where small banks may be the only financial services providers in many communities, could be pivotal as Republicans look for a more modest alternative to a broad overhaul of the Dodd-Frank Act.

“If those banks were to consolidate due to excessive regulatory burden, constituents living in those areas would be left without a community bank presence,” Brian Cooney, senior vice president and legislative counsel for the Independent Community Bankers of America, told Bloomberg BNA. “We would hope that senators up for reelection in those states would be very supportive of community bank regulatory relief.”

Sen. Jon Tester (D-Mont.) told Bloomberg BNA Sept. 7 that he’s “very optimistic that there’s enough votes” on the Senate Banking Committee to get something done. “The reg reform is really important, especially for rural areas so it’s something I’m going to continue to push for,” said Tester, who has also advocated for reducing stress test requirements for some midsize banks.

Tester and two other Senate Banking Committee Democrats — Heidi Heitkamp (N.D.) and Joe Donnelly (Ind.) — are up for reelection next year in states won by President Donald Trump last November. That gives them a strong incentive to find reasonable changes to support, Daniel F. C. Crowley, a financial services partner at K&L Gates, told Bloomberg BNA.

All three signaled their willingness to break ranks today. They joined two other committee Democrats to vote in favor of Randal Quarles’ nomination to be vice chairman for supervision at the Federal Reserve. The committee voted 17-6 in favor of the nomination.

Heitkamp, who appeared on stage with Trump at an event in North Dakota one day earlier, was also the sole Democrat to support Joseph Otting’s nomination to run the Office of the Comptroller of the Currency, which was approved 13-10 by the committee.

“We’ve been working on this for four years, building good coalitions for small-lender relief from Dodd-Frank,” she told Bloomberg BNA. “It is a bipartisan effort, and I am looking forward to getting something done yet this year.”

Heitkamp has also backed easing mortgage disclosure rules for small banks and called for simplifying the Volcker Rule, which bans proprietary trading by lenders. Donnelly has supported efforts to raise the threshold that subjects a bank to exams and supervision by the Consumer Financial Protection Bureau.

Senators have already been reaching across the aisle to give banks a break on CFPB regulations. Donnelly has previously introduced legislation (S. 1499) that would raise the threshold from $10 billion to $50 billion as the minimum asset size for a bank to come under CFPB supervision. The Indiana Democrat also led a bipartisan letter in July to bureau Director Richard Cordray advocating a tailored regulatory approach to smaller institutions. Heitkamp and Sen. Mike Rounds (R-S.D.) teamed on a bill (S. 1310) this year that would raise the thresholds for the number of home loans a bank can originate before being subject to CFPB reporting requirements under the Home Mortgage Disclosure Act. Reducing the demands of stress testing on midsize banks is another area where there is support in both parties. Banks with assets $10 billion and up are required by Dodd-Frank to run stress tests on their balance sheets. Tester and Sen. Jerry Moran (R-Kan.) offered a bill (S. 1139) to raise the asset threshold on the Dodd-Frank tests to $50 billion.

Such a move would spare 72 midsize banks from a supervisory regime that lobbyists say was intended for larger institutions.

Senate Banking Chairman Mike Crapo (R-Idaho), has been working with the panel’s top Democrat Sen. Sherrod Brown (Ohio) to find bipartisan solutions that address overregulation.

Tampering with Dodd-Frank has been considered taboo among Democrats. The Choice Act (H.R. 10), comprehensive legislation to revamp Dodd-Frank, passed the House in June, but without any Democratic support.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas), chief backer of the Choice Act, has said he’s willing to break up the package into smaller component bills, according to Thomas Quaadman, executive vice president of the U.S. Chamber Center for Capital Markets Competitiveness.“We expect to see a lot of activity,” Quaadman told Bloomberg BNA, including more hearings and new legislation, to “really get the gears going.”

The agenda on Capitol Hill has been packed all year and promises to remain so. In addition, housing finance overhaul is a big-ticket item for Crapo.

Wholesale changes to the Dodd-Frank are a lower priority, especially given that most would have to go through regular order, requiring 60 votes and the support of some Senate Democrats.

Tester said he has talked with Crapo about both a housing finance bill and help for community banks.

Crapo told reporters Sept. 7 that helping community banks “is one of my highest priorities.”

“We continue to negotiate, and I feel very positive about it,” Crapo said.

The lack of progress has been a disappointment for banking groups eager to take advantage of a sympathetic White House and Republican control of both houses of Congress. “There’s been minimal movement and, of course, it’s frustrating,” James Ballentine, executive vice president of congressional relations and political affairs at American Bankers Association, told Bloomberg BNA. “It just requires us to use as many different tactics as we can to move legislation through.”

Some Senate aides aren’t sure when a Dodd-Frank package will be unveiled by the committee. The snail’s pace of congressional output has some Senate aides privately grousing about the prospects of getting any financial overhaul bills to Trump’s desk.

Brian Gardner, a managing director at Keefe, Bruyette & Woods, told Bloomberg BNA he’s “skeptical” that the Brown-Crapo effort will gain traction unless it’s strongly limited to community banks.

And other Democrats will look to Brown, who is also up for 2018 reelection in a state Trump won but has vowed to oppose many proposed changes to Dodd-Frank.

“Republicans have to attract at least eight Democrats,” Gardner said. “In order to get some of those eight, I actually think you have to have ranking member Brown on board.”

Regular order, though, isn’t the only way to proceed on rule relief for banks. Supporters hope to push breaks for banks through the appropriations process, attach their bills to must-pass legislative vehicles, or sidestep Capitol Hill and directly lobby regulators for changes. “You have to be nimble to get regulatory relief measures through,” Ballentine said.

To contact the reporters on this story: Rob Tricchinelli in Washington at Jeff Bater in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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