Bankers No Longer Feel So Welcome at Political Conventions

Four years is a long time, but even longer when comparing banks' relationship with Washington since the last round of political conventions.

How much has changed since Barack Obama and John McCain were formally nominated in 2008? Just a global financial crisis, the longest wave of bank failures since the savings and loan debacle, an unprecedented bailout and a just-as-unprecedented regulatory overhaul.

With the industry still fragile, many banks that had been a mainstay of past conventions are passing on the Republican gathering in Tampa starting Monday, and the Democratic convention in Charlotte the following week.

"In this economic environment, there is a major drop-off in participation by financial institutions," said Richard Hunt, president of the Consumer Bankers Association.

Let's compare that just to the 2008 Democratic convention in Denver. Bank of America, which would soon have a shotgun wedding with Merrill Lynch and then get a $45 billion lifeline from the government, was honored with a glitzy party. In attendance — to celebrate B of A's investments in green technology — were Democratic members of Congress and liberal celebrities such as Susan Sarandon.

Long before any derivatives trading losses in its London investment office, JPMorgan Chase hosted a reception for female governors during the Democratic gathering. Attendees included Janet Napolitano and Kathleen Sebelius, now, respectively, the secretaries for homeland security and health and human services. Before becoming President Obama's first chief of staff, up-and-coming Democratic Rep. Rahm Emanuel was also at the party, speaking to the press about his longstanding friendship with the bank's chief executive, Jamie Dimon.

"They are a very important financial institution in troubled times for the financial industry in America," Emanuel said.

The industry's top concerns about a potential Obama administration involved credit-card regulation, which was enacted the following year, and attempts — ultimately unsuccessful — to allow bankruptcy judges to "cram down" mortgage debt. But both were later overshadowed by other seismic changes in banking.

While there was recognition in Denver that the banking sector was facing trouble, no one foresaw the magnitude of the crisis that would hit the following month.

"The storm hadn't quite come ashore," said Cornelius Hurley, director of the BU Center for Finance, Law & Policy at Boston University, "but there was a lot of fear and foreboding."

Referring to what has happened since then, Hurley said, "It's been mind-boggling."

There have been two key developments in the industry's relationship with politicians since 2008. First, the industry's backlash against the Dodd-Frank Act, enacted at a time when Democrats controlled the White House and both houses of Congress, has brought banks closer in alignment with one political party — the GOP — than at any time in recent memory. Financial regulation was not an overly partisan issue for most of the 1990s and 2000s, but it is today.

This trend can be seen most plainly in the industry's campaign contributions. In this year's election cycle, commercial banks are favoring Republicans over Democrats by a larger percentage than in any election since at least the 1980s, according to campaign finance data from the Center for Responsive Politics.

The second shift is the public's growing suspicion of banks as financial regulation has generally become a more prominent political issue. A June 2012 Gallup poll found that only 9% of Americans have a great deal of confidence in banks, the second-lowest mark since polling began in 1979. (Congress still scored lower.)