How Two House Democrats Defended Helping the GOP Weaken Dodd-Frank Financial Regulations

Ten years after the meltdown, Congress moves to loosen rules again. What could go wrong?

US President Donald Trump signs into law S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act during a ceremony in the Roosevelt Room of the White House on May 24, 2018 in Washington, DC. Photo by Olivier Douliery/ Abaca Press(Sipa via AP Images)
President Donald Trump signs into law S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, during a ceremony in the White House on May 24, 2018. Photo: Olivier Douliery/ Abaca Press/Sipa USA via AP

Legislators from both parties came together this week to put the finishing touches on a sweeping measure to weaken bank regulations put in place to respond to the 2008 financial crisis.

In a shock to some observers, 33 House Democrats and 17 Senate Democrats ultimately joined with nearly every Republican to send the bill to President Donald Trump’s desk. Only one GOP legislator, Rep. Walter Jones, R-N.C., voted against it. Sen. Heidi Heitkamp, D-N.D., a co-author of the bill, stood next to Trump at the signing ceremony on Thursday.

The repeal bill was a major priority for industry. As The Intercept has reported, the bill loosens an array of regulations, including reporting requirements used to counter racial discrimination in lending practices. The bill also crucially shrank the amount of capital reserve banks must maintain and raised the threshold at which banks are required to comply with heightened risk-management regulations — all of it with the consequence of introducing more risk into the system.

Though touted as a bill narrowly tailored to benefit small and community banks, it also includes a provision that could allow banks, such as Citigroup and JP Morgan, to add more debt-fueled risk to their balance sheet, a change advocated by Citigroup’s lobbyists.

The House Democrats who backed the bill are broadly a coalition of New Democrats and Blue Dogs, who are self-consciously pro-business, and members of the Congressional Black Caucus, who have been the target of focused lobbying campaigns by Wall Street.

The Intercept spoke to two of the New Democrats who voted in support of the bill, one of whom previously worked at Goldman Sachs, while the other made his fortune launching two commercial lending start-ups.

Rep. John Delaney, D-Md., one of the Democrats to vote for the repeal bill, said the measure was “entirely about community banks.”

Asked about large regional banks, such as SunTrust Bank, that stand to directly benefit from the bill, Delaney shrugged off the issue. “Yeah,” he said, “but they’re much more like community banks.”

Delaney is not running for re-election to the House, but said he instead plans to run for president. He is one of the only former chief executives of a publicly traded corporation to serve in Congress. He founded two commercial banks, one of which, CapitalSource, was later acquired by PacWest Bancorp, a bank with over $24 billion in assets.

The suggestion that SunTrust is akin to a community bank might strike some as odd. SunTrust currently holds $201.6 billion in assets, making it roughly the same size as Countrywide, the failed subprime lender that originated 1 out of every 5 mortgages in the country at its peak, helping to trigger the global financial crisis.

The banking lobby, Delaney continued, had no influence over his vote. “I didn’t have anyone come and see me,” he said. The Maryland representative said the bill contained consumer protections targeted for veterans, and that Barney Frank, one of the original drafters of the Dodd-Frank financial reform bill, had supported the repeal bill. (Frank has praised aspects of the repeal bill, but has said if he were in Congress, he would have voted against the measure.)

Questioned about Frank’s new role as board member to Signature Bank, Delaney did not respond.

“I think when people misrepresent what things are, it makes it really hard for our democracy to work. I gotta go,” Delaney said.

Rep. Jim Himes, D-Conn., another supporter of the repeal effort, stood by his vote, though he argued that the bill wasn’t ideal. In particular, he thought the bill was too generous in expanding the threshold for enhanced regulatory scrutiny to $250 billion.

“If I were writing the bill, I wouldn’t have gone to $250 billion; I might have sort of landed at $100 to $150 billion. But, you know, on balance, this bill wasn’t perfect, it wasn’t the bill I would have written, but we don’t get to vote on perfect bills,” said Himes.

Himes, whose district in Connecticut is home to a sizable population of financial industry types, did concede that the banking lobby had pushed the bill, but said his vote was based on a consideration of all sides of the issue. “Obviously the lobbyists weigh in,” said Himes.

Himes is a former Goldman Sachs banker, and many of the supporters of the repeal bill have received significant financial support from the banking lobby. Himes bristled at the suggestion that the banks had significant influence over the vote, and when his former career in the industry was brought up, said it made no difference. “If you oppose a bill, you say this is a Wall Street bill. But this is not a Wall Street bill. This was a bill about providing relief to small- and medium-sized community banks. No, but they are not big Wall Street banks,” Himes argued.

The banking lobby mobilized scores of lobbyists to influence the vote. As we’ve reported, bankers mobilized public support for the bill through targeted advertising, letter writing, and a concentrated lobby effort designed to sway moderate Democrats.

In one unusual twist, the American Bankers Association decided to use a 501(c)(4) nonprofit to air a campaign-style television advertisement in support of Sen. Jon Tester, D-Mont., one of the leading sponsors of the repeal measure, who is facing a tough re-election this year. The decision to use such a nonprofit to air the ad conceals the source of the funding, a strategy commonly referred to as “dark money.”

Both Delaney and Himes are members of the New Dem caucus, a group of business-centric Democrats. Of the 33 House Democrats voting in support of the repeal bill, 27 are members of the New Dems. Himes is the chair of the group. The New Dem PAC, which has worked to recruit more moderate Democrats as candidates for Congress this year, receives significant funding from the banking industry.

Other Democrats who spoke to The Intercept expressed concern that Congress was moving to give the financial industry another policy victory, just 10 years after the crisis that sparked the Great Recession.

“The truth is the American people are sick and tired of government working for somebody other than them,” said Rep. Pramila Jayapal, D-Wash., an avowed opponent of the repeal bill. “We’re rolling back rules under the guise of helping community banks and small banks. But you can fix that with a scalpel, you don’t need to take a sledgehammer to the Dodd-Frank regulation overall. I think, again, I think they tried to hide behind this community bank thing. This is couching small banks in order to give big banks relief from these necessary regulations,” she added.

House Democratic Leader Rep. Nancy Pelosi, D-Calif., said she was “very proud of our vote against this” when The Intercept asked about the repeal bill. In regards to the 33 House Democrats who voted for it, she said, “They have an issue about community banks, that we share their concern about, but, overwhelmingly, we voted against it.”

Trump, at the bill-signing ceremony, gloated about receiving support from the Democratic Party, a voting bloc that made passage possible in the Senate. “Dodd-Frank was something they said could not be touched and, honestly, a lot of great Democrats knew that it had to be done,” he said.

Top photo: President Donald Trump signs into law S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, during a ceremony in the White House on May 24, 2018.

Join The Conversation