Pot banking could get new life on Toomey-led Senate panel

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WASHINGTON — Sen. Pat Toomey, R-Pa., who is expected to chair the Senate Banking Committee if his party maintains control, is giving the industry new hope that Congress will enable banks to serve legal cannabis businesses.

In an interview, Toomey signaled support for a marijuana banking bill, a key priority for the financial services industry, taking a different position than other GOP leaders who have resisted letting institutions serve businesses in states that have legalized the substance.

“I am open to working with my colleagues on how we could enable businesses that are operating legally in their respective states to be able to have ordinary banking services,” said Toomey, who worked in the financial industry focusing on derivatives before coming to Congress. “I think that's something we should work on.”

Toomey, who discussed his priorities as the potential chairman, would take the gavel if the GOP wins just one of the two Senate runoffs in Georgia in January. He would succeed Sen. Mike Crapo, R-Idaho, who is widely expected to chair the Senate Finance Committee, atop the Banking Committee.

“I am open to working with my colleagues on how we could enable businesses that are operating legally in their respective states to be able to have ordinary banking services,” said Sen. Pat Toomey, R-Pa.
“I am open to working with my colleagues on how we could enable businesses that are operating legally in their respective states to be able to have ordinary banking services,” said Sen. Pat Toomey, R-Pa.

Toomey’s comments on cannabis banking are a change from the position taken by Crapo last year. The Idaho senator then poured cold water on a House-passed bill that would bar federal financial regulators from penalizing financial institutions that provide services to businesses in states that have legalized cannabis.

Toomey would become chairman as President-elect Joe Biden, a Democrat, moves into the White House. The lawmaker said he is willing to facilitate the confirmation of Biden’s nominees to financial regulatory posts, but added that Congress should be able to block nominees to agencies if it deems necessary.

As the country has seen a recent spike in coronavirus cases, Toomey said he stands firm in his belief that the Federal Reserve should terminate its emergency lending facilities, arguing they are not necessary to stabilize the markets and the economy.

Toomey also indicated that he is sympathetic to bankers’ concerns about the new Financial Accounting Standards Board’s Current Expected Credit Losses accounting standard, or CECL. He said he also understands bankers’ compliance burdens related to combatting money launding, but he is "not enthusiastic" about a pending legislative proposal to transfer beneficial owner reporting requirements from banks to incorporating businesses.

Meanwhile, as Sen. Sherrod Brown, D-Ohio, the committee's top Democrat, has backed measures like a free FedAccount digital wallet to expand consumers' access to financial services, Toomey said Congress should instead work to remove regulatory barriers for new banks as a means to expand access.

Below is a discussion with Toomey about his priorities if he is named chairman of the Senate Banking Committee. The interview is edited for length and clarity.

What would be your approach to evaluating regulatory nominees chosen by President-elect Biden?

PAT TOOMEY: First of all, I would point out, I don't know the exact number, but I think that I supported something like 70% of President Obama's nominees that occurred while I was in the Senate. So my record is clear. I am willing to work with a president of the other party to populate his cabinet and the other confirmable posts. Having said that, I see it as a shared responsibility. The fact that a nominee requires a Senate confirmation imposes an obligation or responsibility on the Senate. And I take the advice and consent responsibility very seriously. So I'm happy to work with the administration, with the next administration on and how we go forward, but it’s a shared responsibility.

You have said that the Federal Reserve should wind down its emergency lending facilities, such as the Main Street Lending Program and the Municipal Liquidity Facility. Is there any additional COVID-19 relief that would you consider?

Let's go back to the [Fed's] 13(3) facilities. They were never intended, they were not designed, they were not meant to be a mechanism for fiscal stimulus. Not even close. What they were intended to do was to provide a very temporary backstop that would allow our capital markets to function properly.

As you may recall, back in March, capital markets completely froze up. You couldn't issue debt even as a very creditworthy borrower. Investors couldn't put cash to work. You couldn't get price indications. You couldn't sell securities if you had them. The markets had frozen because of the tremendous uncertainty caused by the shutdown.

Really frankly, just the announcement of the authority to create these facilities began to allow the markets to come back. Since then, the markets didn't just come back, they have come back, setting all-time records. So we have long since ... resumed our position [with] the world's biggest, most liquid capital markets. We have all-time record issuances of corporate securities across the credit quality spectrum. We have huge issuance by municipalities. We have big draw-downs on credit lines with banks. So the fact is the private capital markets are working again. They have been working for months now.

Are there potential setbacks we could have for our economy in the medium or near term? There always are. That is not a reason to have a permanent, new facility for the Fed to interfere with private capital markets. So we can have a discussion about what additional COVID relief/stimulus legislation people want to discuss. But that's a very separate discussion from: Extend the 13(3) facilities and trying to morph them into something they were never intended to be.

Which polices related to fintech or cryptocurrencies would you like the committee to address?

The first answer is I don't have a bill that I'm about to unveil in this [fintech] space. But I think that there's been some fascinating innovation happening here. There are other countries that are moving ahead as well.

The way I think about this is the U.S. has some enormous advantages that come with being the world's reserve currency, and the currency that people use as a flight to safety and quality as the medium of exchange for so much international business. But our payments system still operates in antiquated ways ... certainly, with respect to international transactions, which are slow and expensive.

I want to make sure that new technologies and innovations especially in fintech are able to proceed, but they proceed in a way that does not threaten our existing payment systems, doesn't jeopardize the smooth functioning of our payment systems, doesn't diminish our ability to control our own monetary policy. That's the big challenge. … How do we take advantage of the ability to make payments that are faster, cheaper, more efficient, more flexible, give us more information, while at the same time preserving the advantages that we have with our current arrangement?

I would also point out that the Chinese have a digital currency that they've already deployed in several cities. They're not there not sitting back and waiting. We should be aware of that as we think this through.

Would you consider working on cannabis banking legislation with ranking member Brown?

I am open to working with my colleagues on how we could enable businesses that are operating legally in their respective states to be able to have ordinary banking services. I think that's something we should work on.

You have opposed legislation to require new companies to report true owners, which would shift that burden away from banks. Is there anything that can be done to the bill to gain your support?

It's an ongoing conversation. I'm willing to continue that conversation. I am sympathetic to the burden on banks. I'm not enthusiastic about creating a huge new burden on all business. So it's a work in progress.

Brown has expressed an interest in helping the unbanked through FedAccounts. Others have explored collaborating with the Postal Service to expand banking access. What do you think Congress should do to expand access?

I think the best way that we can reach people who are underbanked are … continue to encourage innovations. It could be that new products, new players will provide services to the underbanked that will help them access banking services.

It is also the case that we have made it very, very difficult to launch new community banks. Community banks have historically operated in niche markets and very small localized markets. We've made it so expensive to comply with regulation that it's hard for banks sometimes to expand into areas that are underserved.

But the idea that we should have the government go into the banking business, that does not strike me as a good idea.

What should Congress do to facilitate reforms to the country's housing finance system?

I think it would be helpful if we had an agreed upon blueprint for how we're going to go forward. How do ... [Fannie Mae and Freddie Mac] get recapitalized? How do they get spun off? How do we modify the role that they played historically? How do we have lots of competition in the mortgage finance space and not have it massively dominated by just a couple of government-sponsored players?

There's been some good work done on this in this area by Chairman Crapo. And before him, [former Republican Sen.] Bob Corker and [Democratic Sen.] Mark Warner. So I think this is one of the great challenges ahead of us. It's very doable. It would have to be bipartisan, in any case, but I look forward to working with [Federal Housing Finance Agency Director] Mark Calabria and my colleagues to find the path forward.

Some members of Congress have considered legislation requiring FASB to stop the implementation of CECL. Would you consider this legislation in committee?

Yeah, I'm deeply skeptical about CECL. So I'm open to considering how we find relief from this burden.

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