WASHINGTON — House Republicans are exiting Congress in droves ahead of the 2018 midterm elections and the stakes for the financial services industry could be significant.

The key question is if the retirement of 31 GOP members of Congress is a leading indicator of a wave election for Democrats or a symptom of the volatility in modern politics.

“If the election were held today, it would be a big Democratic wave,” said Alex Conant, who runs a Republican consulting firm called Firehouse Strategies. But, he said, “10 months is a really long time for politics and things move very fast. The environment will look different in ten months.”

Exit, stage right: Key Republicans retiring this year
Of the more than 30 GOP lawmakers due to retire at yearend — a historically significant level of departures for a single election — several are important to banking policy.

Still, Conant, who was Sen. Marco Rubio’s communications director during his presidential campaign, says the industry is smart to think ahead.

“Nobody should be surprised if they wake up after the election and find out that Democrats are in charge,” Conant said. “The time to make first contact with a candidate is not the day after he or she won an election.”

If Democrats control the House, the biggest immediate impact for banks and credit unions from a policy perspective would be that Rep. Maxine Waters would likely chair the House Financial Services Committee.

The California Democrat is one of the more progressive members of Congress and has proposed legislation to break up big banks.

“Obviously there is a big ideological difference between Chairwoman Waters and the likely next Republican to be chair,” said Aaron Klein, a fellow in economic studies at the Brookings Institution and former chief economist at the Senate Banking Committee under Democratic Chairman Chris Dodd.

"If the election were held today, it would be a big Democratic wave."

But a financial services lobbyist, who asked to remain anonymous, said that, while efforts to roll back Dodd-Frank regulations would likely be stymied by Waters if she were to hold the panel’s gavel, President Trump’s veto power protects the industry from legislation adding new regulations.

“Sometimes Democrats want to roll out more regulations on financial services," the lobbyist said. "With the Trump administration we are not too concerned about that; we think we have a backstop.”

However, they added that with a potential shift in leadership looming, the industry feels a sense of urgency to get as much done legislatively as it can, including on Dodd-Frank and housing finance reform.

“We think from a strategic standpoint that a blue wave is coming, which is why we are pushing so hard to get as much done in the next eight or nine months from a reg relief standpoint,” said the lobbyist.

While banks and credit unions often support Republicans who favor less regulation, some observers pointed out that Democrats winning back a number of House seats could actually foster an environment more conducive to bipartisanship on bank regulatory issues.

"If the margins narrow significantly, and depending on the policy agenda of the new chairman, you might see more bipartisanship along the lines of the recent Senate Banking Committee reg relief effort," said Tim Jenkins, a partner at the law firm Nossaman.

Change no matter what

Regardless of whether Democrats win the House, Panel Chairman Rep. Jeb Hensarling, R-Tex., is termed out as head of the committee and announced last October that he was retiring from Congress. Reps. Blaine Luetkemeyer, R-Mo., and Patrick McHenry, R-N.C., are viewed as likely successors if the GOP maintains control. Both are considered more pragmatic than Hensarling when it comes to legislating.

Rob Nichols, president and CEO of the American Bankers Association, said he is hopeful that banking issues can return to being bipartisan as they were a decade ago.

“I love the reintroduction of a bipartisan conversation about banking policy,” said Nichols. “I think that is really important and underscores for us the importance of working militantly in a bipartisan manner with any member of the House or the Senate of either party who’s interested in coming up with good economic and financial or regulatory policy.”

Others also pointed to the inherent influx of new members and suggested that the newcomers might not be as bound to old fights and may be willing to take a fresh look at financial regulations.

“The changing of the guard is about potentially younger folks who came up post-Dodd-Frank, post-financial crisis, so their worldview isn’t shaped as much by those events,” said Jeff Stoltzfoos, a senior policy adviser at Venable LLP. “I think this dynamic could lead to a more free-flowing dealmaking environment where it is more about getting stuff done that makes sense on a go-forward basis and less about strong feelings around financial services policy as shaped by the financial crisis 10 years ago.”

Representatives of smaller financial institutions seemed less concerned about the exodus of Republican members.

“The retirements, whether Republican or Democrat, have very little impact on our advocacy efforts on Capitol Hill,” said Camden Fine, president and CEO of the Independent Community Bankers of America. “The influence of community banks remains the same because of the grass roots and local nature of community banks. At the end of the day, all politics is local.”

But the loss of individual members presents fresh opportunities and pitfalls. For example, Rep. Ed Royce, R-Calif., has long been a credit union supporter and was viewed as a contender to become the Financial Services Committee Chairman. He announced his retirement this week after 13 terms. His departure is a blow to credit unions.

“Ed Royce and his support for credit unions is in a league of its own,” said Ryan Donovan, chief advocacy officer at the Credit Union National Association. “It would be unrealistic and imprudent to think that any member of Congress would come in and fill those big shoes.”

The Senate is also in play for Democrats to take, but the electoral map is less favorable than in the House. Democrats will be defending 24 seats, while Republicans only have to worry about eight. Two independents that caucus with the Democrats will also be up for re-election.

But the announced retirement of Sen. Bob Corker, R-Tenn., could have implications for housing finance reform, and the decision by longtime Utah Republican Sen. Orrin Hatch to retire could lead to a change in leadership at the Senate banking panel as the caucus plays musical chairs with committee assignments.

Whether banks decide to be more active in the upcoming election than in the past remains an open question. Some have political giving funds with bylaws that prevent them from contributing to candidates in open seats.

But others might see a Democratic House as more hostile to the industry and feel compelled to contribute to Republicans in close races. Some may also give to Democrats that support banking issues.

“A lot of banking and financial services issues do not cleave along traditional partisan lines,” Conant said.

Howard Headlee, president and CEO of the Utah Bankers Association, also dismissed the idea of painting banks with a broad red or blue brush.

“There is always the desire to create some simple national narrative,” Headlee said. “We do very well because regardless of any kind of national narrative, folks appreciate the role we play locally.”

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