Banking could be bipartisan again. No, really
WASHINGTON — In the third week of a partial federal shutdown, the financial regulatory community was greeted with even more evidence of the government’s dysfunction: a Federal Reserve Board nominee pulling her name from consideration.
Brookings Institution fellow Nellie Liang had faced some Republican pushback after the Trump administration nominated her for the Fed board in September. A former official at the central bank, Liang helped develop post-crisis regulatory policies. Facing the prospect of needing to be renominated, she told Politico that she was pulling out “because [of] the likelihood of a prolonged process.”
More broadly, Washington is at a standstill. President Trump’s insistence that Congress provide funding for a border wall, the Democrats’ rejection of his request and the ensuing shutdown have all fed a sense of inertia.
And yet, separate from the extreme polarization, the 2019 financial services policy agenda includes individual legislative items — such as reforming anti-money-laundering rules and data security requirements — that seem relatively doable. That is, if they don’t get pulled into the partisan fray.
In the past, financial policy debates avoided the political storms of their times. The 1999 deregulatory law known as Gramm-Leach-Bliley was authored by three Republicans in Congress and signed by a Democratic president. Sarbanes-Oxley, the 2002 accounting reform law responding to the Enron scandal, was spearheaded by a Democratic chair of the Senate Banking Committee and Republican chair of the House Financial Services Committee. Even the passage of housing finance reform in 2008 involved a Republican Treasury secretary cutting a deal with House and Senate Democrats.
It wasn’t until the next big legislative debate, over what became the 2010 Dodd-Frank Act, that banking bills became fiercely partisan. In many respects, much like health care reform, the two parties continue to be at odds over Dodd-Frank to this day. The polarization will only be exacerbated this year with a divided Congress, casting even more doubt on whether lawmakers get anything done.
Yet if one peels away from the noxious political environment of 2019, certain pending legislative proposals offer some hope of a return to a less partisan banking policy agenda.
Take AML, for example. A House bill to reform the Bank Secrecy Act was headed for passage by the House Financial Services Committee last year, but was tabled after its sponsors stripped a proposed requirement for companies to disclose the beneficial owner at the time of incorporation. Four senators — two Democrats and two Republicans — began discussing an alternative bill late last year that would include a beneficial-owner provision.
While law enforcement officials have raised concern about changing the reporting thresholds for banks to flag suspicious transactions, there appears to be substantial bipartisan agreement that the current AML regime needs an update.
Another policy item with the potential to avoid partisan distraction is data security. The recent massive data breaches have led lawmakers to introduce proposals from establishing a federal data breach notification standard to imposing fines on companies that have their systems breached. The latter is likely to have Republican opposition, and jurisdictional issues over which congressional committee is responsible for data security have slowed legislative progress. But improving cybersecurity protocols is not a partisan issue.
Members of both parties similarly support legislative reforms to enable legal marijuana businesses to seek financial services, as well as a package of capital-formation changes — mostly benefiting startup companies — known as JOBS Act 3.0. The Senate failed to bring up the package last year, but the House passed it almost unanimously, with support from the current new Democratic chair of the Financial Services panel, Rep. Maxine Waters of California.
From a policy perspective alone, all of these issues offer the promise of bipartisan compromise, where there are broad areas of agreement across the aisle.
Of course, that says nothing about politics. There seems to be enough bad will in the capital to kill any bill. Democrats, especially those with their eye on 2020, are unlikely to back legislation that they perceive will unduly help big banks, and Republicans may be unwilling to settle for legislation that they believe does not go far enough in relieving regulatory burden. And nothing can happen until the government reopens.
But the past year offered a glimmer of hope with the enactment of the first significant reg relief package since the crisis. The targeted bill unwinding portions of Dodd-Frank was not the repeal of the law many in the GOP favored, and a majority of Democrats in Congress strongly opposed it. Yet enough Republicans got together with enough Democrats to turn a legislative proposal into a law. The same could happen again.
Bankshot is American Banker’s column for real-time analysis of today's news.