They’re baaack: Big banks are flexing their lobbying muscle

Register now

Congress checked regulatory relief off its list earlier this year, delivering key reforms to community and regional banks. But now, attention in Washington is beginning to shift to another segment of the industry known more perennially for its lobbying prowess.

There’s been chatter for months that larger banks were seeking a change in strategy. Most prominently, two top trade associations representing the biggest institutions merged forces, and other groups have appeared to become more active. The focus of those efforts is starting to become more visible.

The country’s biggest banks are beginning to flex their muscles again.

A prime example: the push for the Federal Reserve to reconsider its capital surcharge for global systemically important banks, an additional capital requirement for the country’s eight largest banks.

While Fed officials have not indicated that they have any immediate plans to recalibrate the surcharge, the fight is one that solely affects the industry’s largest institutions — a constituency that has garnered little traction in policymaking circles in recent years.

It’s a sign, observers say, that the biggest banks are starting to reassert themselves, after absorbing much of the blame for the financial crisis a decade ago. While moving legislation through Congress is likely to remain an uphill battle given ongoing suspicion of Wall Street on both sides of the aisle, the banks are now raising the profile of key issues they would like President Trump’s regulators to tackle at the banking agencies.

“They’ve come out of the shadows,” said Camden Fine, president and chief executive of Calvert Advisors and the former head of the Independent Community Bankers of America. “They’re becoming more vocal, more aggressive, more strident about the issues that are top priorities to them.”

Legislation to benefit the biggest banks would likely still prove difficult. But in some notable cases even lawmakers are starting to feel more comfortable supporting initiatives to help Wall Street institutions — especially now that regulatory relief for smaller institutions has passed Congress. Republican lawmakers in the House and Senate have both recently sent letters to the Fed asking it to reconsider the capital surcharge, a move backed by the industry. And just last week, seven Republican senators asked the Fed to consider further tailoring prudential standards for those above the $250 billion asset threshold as well as for those with assets between $100 billion and $250 billion.

The shift can also be seen in the fight over the Volcker Rule, a ban on proprietary trading that mostly affects the biggest institutions. As reported by The Wall Street Journal, representatives from more than half a dozen of the biggest banks have raised alarms about regulators' proposed revision to the rule, which they argue could make compliance even harder. The biggest banks have largely opposed the Volcker Rule since its creation under the Dodd-Frank Act.

As larger banks seek to re-enter the public debate, they’re bolstered by the support of two industry groups that have recently been revamped: The Financial Services Forum, which now represents eight major banks, is under new leadership, and the Bank Policy Institute, which speaks for large and regional institutions, is the byproduct of a merger between The Clearing House Association and the Financial Services Roundtable. The two groups recently collaborated on a joint blog post about the capital surcharge.

“There is a desire to have more of a voice in the conversation,” said Barbara Hagenbaugh, executive vice president and head of communications for the Financial Services Forum. “We think it is important and appropriate to address the issues of unique importance to our members and to convey the vital role they play in the economy.”

And, indeed, the effort is shaping up to be broader than plans to roll back individual rules. It’s also about reasserting the role of megabanks in the financial system, reforming the narrative about Wall Street from the ground up, observers say. For example, both the Forum and BPI have published recent blog posts recasting bank earnings as beneficial for the broader economy — a response to critics who ask why the industry needs more relief at a time of record profits.

In a welcome message posted on the BPI’s website, CEO Greg Baer sought to cast the new group as focused on issues that affect more than the institutions that are members.

“We firmly believe that our advocacy serves the interests of bank customers: consumers who desire innovative products at competitive prices, and businesses who seek funding for their growth,” Baer said.

Of course, when it comes to advocacy in Washington, timing can be everything. It’s now been 10 years since the crisis, and Republican control of Congress and the White House gives big banks an opening to make their case before a more receptive audience than they could under the Obama administration.

“Ever since 2008, it’s been nonstop assault from the left and sometimes even from the right,” said Dan Crowley, a partner at the law firm K&L Gates. “Evidently, the big banks are fed up and seek to restore their traditional voice on such issues.”

“In trench warfare you don't want to stick your head up — that’s where the big banks have been over the last decade and they’ve been on the losing side of almost every significant policy battle,” Crowley added.

The question going forward is how effective the new strategy will prove to be — can the big banks remake their image? It will also be important to watch how these efforts impact broader industry debates, including reforms to the mortgage finance system and the Community Reinvestment Act, both issues in which the largest financial institutions have a huge stake.

Yet for critics, the uptick in advocacy — particularly efforts to soften capital and liquidity rules — represents a potential threat to financial stability and a return of the go-go days of the early 2000s.

Sheila Bair, former chairman of the Federal Deposit Insurance Corp., points to several wins the industry has already scored since the Trump administration took over. Big banks garnered a couple of limited victories in the regulatory relief law, and the Fed has proposed revising its enhanced supplemental leverage ratio, potentially allowing the big banks to release billions of dollars in capital. That’s on top of the more recent debates over the Volcker Rule and the capital surcharge.

“You open the gate even a little bit and the bank lobbyists will try to stampede right through the corral,” Bair said.

Bankshot is American Banker’s column for real-time analysis of today's news.

For reprint and licensing requests for this article, click here.