Virus focus further dashes banks’ hopes of pot banking, AML reform
WASHINGTON — Despite partisan divisions in Congress, banks were hopeful that lawmakers could come together on a select number of industry-backed bills that had bipartisan support.
But with Congress now shifting gears to efforts to stabilize the financial markets, the coronavirus outbreak has further narrowed the odds for progress on bills to help banks service marijuana businesses and require businesses to disclose their beneficial owners.
“It’s going to obliterate the legislative calendar,” said Brian Gardner, an analyst at KBW.
Dwight Fettig, a former Democratic staff director for the Senate Banking Committee, agreed that preexisting banking policy issues such as cannabis banking and beneficial ownership are not currently on the radar for members of the Senate and House banking committees.
“I think it’s fair to say that the committee staff … are going to be extremely busy and have been extremely busy working on their pieces of the coronavirus legislative efforts,” said Fettig, a partner at Porterfield, Fettig & Sears. “That’s talking about forbearance for mortgages, student loans, emergency rental assistance and transit assistance.”
Before the coronavirus pandemic hit the U.S., bank lobbyists were urging the Senate to take up two key bills that had passed the House in 2019. One would bar regulators from penalizing banks that opened accounts for cannabis businesses in states where the substance is legal.
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Bankers also saw potential for Congress to reform decades-old anti-money-laundering laws and pass a bill that would require businesses to report their true owners to the Financial Crimes Enforcement Network. That bill would take the burden off of banks to report beneficial ownership information for their customers.
To be clear, the 2020 presidential election already squeezed the calendar for passing those bills in the 116th Congress.
But as the number of coronavirus cases in the U.S. continues to rise and the stock market is harder-hit, those bills appear to have moved even further down lawmakers’ to-do list.
“I think largely everything else is going to be shut down and it’s just going to be focused on containing the fallout from this,” said Brandon Barford, a partner at Beacon Policy Advisors.
Gardner said banking industry priorities were already competing with other issues for lawmakers' attention.
“Lawmakers have an innate sense of survival, especially in an election year,” Gardner said. “While those of us in the bank world think that these items are very important for the banking industry, in the grand scheme of things, they don’t fit in the vast majority of lawmakers’ priorities. … Lawmakers are focused on more pressing matters in terms of their re-election.”
The coronavirus has also taken a key tool away from banking industry trade groups when it comes to pushing their priorities on Capitol Hill. Several trade groups have had to cancel their conferences in Washington, where bankers from all over the U.S. organize to lobby their interests to Congress.
“Trades are canceling their fly-ins, so it’s going to be harder to see what your next priorities are,” said a source close to the banking industry. “None of those little things that you use to build momentum are there, so it slows things down.”
Fettig said that the banking industry trade groups will likely need to lobby their representatives and senators in their state offices.
“It certainly does reduce your potential for some meetings on the issues in D.C., but I would think you are still going to try to meet with your members in the district,” Fettig said. “One advantage of the fly-in is you can get everyone in your state in at one time. … It’s a small inconvenience, but it’s not insurmountable.”
Aside from canceling their fly-in conferences, banking trade groups are also sharpening their own focus on ensuring that their member banks are in a positon to help customers hurt by the coronavirus.
“The first priority is to make sure that the banks are doing well, so that they could serve the credit needs of their customers and make sure the customers of the financial institutions are taken care of,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America. “So that’s our number one priority. Obviously issues related to the coronavirus are really our short-term immediate focus.”
If trade groups are pushing legislation, it is likely related to the coronavirus. For example, the U.S. Chamber of Commerce is pushing Congress to pass legislation enabling the creation of credit facilities to provide loans and loan guarantees to employers with more than 500 employees experiencing significant losses due to the coronavirus.
The Chamber is pushing the Treasury Department, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to work with banks to establish a system of credit facilities to provide loans and loan guarantees that can be accessed by businesses with more than 500 employees.
Barford said that it is likely in the best interest for banks to focus on helping consumers in the midst of the coronavirus pandemic after the financial sector took the blame for the 2008 financial crisis.
“It would be a useful thing to turn from legislating or any priorities … to being generous on extending loan terms or payment options,” Barford said. “They should be much more focused on that, and I think it would help them to undo the negative sentiment” from the financial crisis, he added.
Still, bankers are holding out hope that Congress can pass cannabis banking and beneficial ownership legislation before the end of the year, even if some members were hesitant about the bills prior to the coronavirus hitting the U.S.
“We understand responding to the coronavirus should be everyone’s top priority, and that holds true for the banking industry as well,” said James Ballentine, executive vice president for political affairs and congressional relations at the American Bankers Association. “At the same time, congressional leaders have indicated that the work of government will continue, so we are planning accordingly.”
Sen. Sherrod Brown, D-Ohio, the ranking Democrat on the Banking Committee, told American Banker in February that he and Chairman Mike Crapo, R-Idaho, made progress on beneficial ownership but that some Republicans were not on board because the National Federation of Independent Business opposed the House-passed bill, known as the Corporate Transparency Act.
“The problem is one of the right-wing groups, the NFIB, is scaring the hell out of the Republicans," Brown said. "Democrats are mostly on board and the Republicans are jittery because one of their rating special interest groups is saying that they are against. So until Republicans get some backbone, we are not going to get it. Crapo is trying. I don’t blame Crapo. … We will have almost every Democratic vote and Crapo has been in good faith.”
Other small business groups, the American Bar Association, and the American Civil Liberties Union also opposed the beneficial ownership legislation that the House passed. But the source close to the banking industry source said that Crapo and Brown are working to write beneficial ownership legislation that singles out NFIB as the only group in opposition to the legislation.
“I think they’ve tried to do everything they can to put in language that minimizes [small business burden],” the source said. “I think more of the focus is making sure that NFIB is more alone in their opposition than they’ve been able to be in the past. Can you get other groups that voiced opposition in the House process to be more comfortable?”
But Congress would need to move quickly on either cannabis banking or beneficial ownership. Merski said the Senate likely has until August to build enough support to move on either bill before the election hits into high gear. Or the bills could potentially pass during the lame duck session after the election.
“Typically by August, you have to have support for bipartisan legislation, so there’s plenty of time between now and August,” Merski said. “And if this is something that has enough bipartisan support in the Senate, this is something that can get done in the lame duck session … after the election.”
Barford added that some industry groups could also try to attach some of their legislative priorities to a third emergency economic stimulus package that the House is currently working out.
“The third legislative package from the house … that could become a legislative Christmas tree,” Barford said. “Every industry will be making an attempt to get their ornament on the tree.”
Though Gardner said House and Senate leadership is likely going to be wary of including industry gifts in a coronavirus response package.
“At some point the Christmas tree collapses on its own weight,” Gardner said. “I think the leadership is going to be … making sure the voters know that the focus of lawmakers is on the [coronavirus] crisis.”