WASHINGTON — If you went looking for a story that encapsulates why Americans are cynical about politicians, a perfect example may be the tale of a one-sentence bill that the House Financial Services Committee will vote on Thursday.
The legislation offers an unusually stark look into the role of money in politics, as a bipartisan group of lawmakers push a measure that would benefit a single campaign contributor.
Even the title of the bill is misleading, suggesting its goal is to collectively help all small banks: "A bill to amend the Dodd-Frank Wall Street Reform and Consumer Protection Act to adjust the date on which consolidated assets are determined for purposes of exempting certain instruments of smaller institutions from capital deductions."
But as American Banker reported on May 18, the bill would impact only one of the nation's 7,307 banks — Emigrant Bank of New York.
Emigrant currently has $10.5 billion of assets, but on Dec. 31, 2009 it had more than $15 billion. As a result, it's subject to the Collins Amendment, a section of Dodd-Frank which prevents banks above the $15 billion asset threshold from counting trust preferred securities as part of their Tier 1 capital. The House bill would push back the capital provision's enactment date to March 31, 2010, by which point Emigrant had fallen below the $15 billion mark.
So a more honest title for the legislation would be: "A bill to prevent Emigrant Bank from losing $300 million in Tier 1 capital."
To be sure, there is a reasonable argument in favor of changing the law for the benefit of Emigrant. The bank was above the $15 billion threshold for just two years, and only because it was exercising prudence near the height of the financial crisis. Moreover, there's nothing wrong per se with legislation being tailored to help one company, though such bills should merit close scrutiny.
But lawmakers aren't just trying to help a local institution with a potentially significant issue—they are also using the legislative process to assist a single campaign contributor and trying to pass the bill without any public examination.
The sponsor of the Emigrant Bank bill is Rep. Michael Grimm, a Staten Island Republican. In March, Grimm received $2,500 in campaign contributions from Howard Milstein, Emigrant's chief executive officer, and his wife, Abby, according to campaign-finance records.
The bill has eight co-sponsors, including others who have received campaign cash during the 2012 election cycle from Milstein and his members of his family.
Rep. Carolyn McCarthy, a Long Island Democrat, received $4,000 last year from the Milsteins and their son, Michael. Democratic Rep. Gregory Meeks of Queens received $3,000 from Milstein and his wife in 2011 while Rep. Carolyn Maloney, a Manhattan Democrat, received $2,000.
In the House of Representatives, there's a process for allowing certain bills — usually non-controversial proposals — to skip the committee stage and move directly to a vote by the entire House.
In the case of the Emigrant Bank measure, the Republican staff of the House Financial Services Committee asked the committee's Democratic staff whether there would be objections to using that procedure. But Rep. Barney Frank, the committee's top Democrat, objected, which led the committee to schedule a hearing on the bill earlier this month.
At that hearing, Frank said he wanted to ensure there was a public discussion of the bill.
"The piece of legislation we're talking about today affects one institution," he said. "I have no objection to that, but I must be honest and say I was asked if we could do this is in a way that would move quickly. And my answer was, 'Yes, I'd like to move quickly, but I think it's important that it be done in the light of day.'"
"Frankly I think had it not been done this way, somebody might have drawn adverse inferences about the legislation which aren't justified," he added.
While Maloney complimented Frank for his commitment to using the normal committee process, she, McCarthy and Grimm used the hearing to lob a series of softball questions to Richard Wald, Emigrant Bank's chief regulatory officer.
"Can you tell me a little bit about the local communities in New York City where Emigrant does its lending and how that lending will be impacted if we don't take action today?" Grimm asked.
Wald responded: "Most of our branches are in the boroughs. And most of our borrowers — cops, teachers, firemen, correctional officers — this is the traditional deposit and borrowing base. And so to the extent that our capital has to shrink, obviously, those are the types of individuals that credit will be less available to."
Although there were no hard questions, the hearing still served an important purpose. The bill's true aim — and the financial support that its beneficiary has given to some of the bill's supporters — is now out in the open.
If Frank had not registered an objection, it is likely that the legislation would have been approved by the House with only a tiny cadre of insiders understanding its actual implications.
It's easy to see why the bill's House sponsors might have preferred to keep the legislation hush-hush. The quiet passage of legislation to help one company likely happens more frequently than anyone realizes, as members of Congress drop narrowly tailored provisions inserted into larger bills with the goal of benefitting specific constituents.
When a public hearing is held, on the other hand, articles like this one get written. And the legislation's backers get asked uncomfortable questions.
Grimm, whose fundraising practices were scrutinized in a January New York Times article that detailed his ties to a rabbi's aide who is under federal investigation, did not respond to requests for comment made through his office.
Neither did Meeks, who skipped the May 18 committee hearing on the bill.
Maloney released a written statement that defended her position on the legislation but ignored questions about the campaign contributions she received. In the statement, Maloney said that she supported the Collins Amendment when Dodd-Frank was being written, before explaining why she believes it should be changed to benefit Emigrant.
"Emigrant Bank surpassed the $15 billion threshold temporarily during the financial crisis — the time period set by the Collins language — when they did the prudent thing by taking on extra short-term assets to enhance its stability and meet its financial obligations," Maloney stated. "They have since shed those short-term assets and during normal times, they are a smaller community lender."
"That's why I signed on to the H.R. 3128, because I don't believe the intent of the Collins Amendment was to 'capture' a bank of Emigrant's usual size with the increased capital requirements."
McCarthy's office also released a written statement that ignored questions about the campaign funds she received.
"This is about making sure that vital economic activity in New York isn't hampered at a time when government should be working to grow the economy, help consumers and protect local jobs," McCarthy spokesman Shams Tarek said.
For its part, Emigrant Bank also released a written statement, which echoed the arguments of the bill's co-sponsors about why the legislation is a good idea.
Emigrant's statement also said, "The bank and its principals have supported innumerable political and charitable causes in their local communities and will continue to do so."
In the end, it may be that the legislation's sponsors would have supported the Emigrant Bank bill even if they didn't receive campaign money from the bank's CEO.
The lawmakers argue that the legislation will lead to more lending in the neighborhoods they represent, and they could be right, although there is some dispute about the link between bank capital and lending.
But between the campaign cash, the misleading bill title and the effort to pass the bill under the cover of darkness, it's hard not to feel a little uncomfortable.
Kevin Wack covers Capitol Hill for American Banker. The views expressed are his own.