Meet the Banking Caucus, Wall Street's Secret Weapon in Washington

By Daniel Wagner, The Center for Public Integrity

05 May 14

he lawmakers were at an impasse.

More than two hours into a meeting of the House Financial Services Committee last month, the members were bickering over two versions of a bill designed to ease a new regulation that affected banks, part of the sweeping 2010 overhaul of financial laws known as the Dodd-Frank Act.

The dispute? Whether to give the banks everything they asked for, or whether to give them even more.

Rep. Scott Garrett, R-N.J., asked to postpone a final vote so he could contact “stakeholders,” code for the bankers who wanted the change. Then Rep. Jeb Hensarling, R-Texas, the committee’s ambitious chairman, attempted to retake the discussion with what passes for a joke in the oxygen-starved air of the wood-paneled hearing room in the Rayburn House Office Building on Capitol Hill.

“Occasionally we have been accused of trying to undermine aspects of Dodd-Frank,” Hensarling said with a chuckle. “I hope we’re guilty of it.”

Hensarling was being modest. With a 29-person committee staff, dozens of congressional colleagues and legions of lobbyists lined up to beat back any attempt to impose new discipline on the industry, the 56-year-old from Dallas is well on his way to achieving that goal.

Bankers’ best friends

Every business sector has its friends in Washington. Financial companies — from the biggest megabanks to small payday lenders — have some of the best.

Less than six years after a massive financial crisis drove the U.S. banking system to the edge of collapse, leading to a $700 billion government bailout and a recession that destroyed as much as $34 trillion in wealth, bankers and lawmakers are working in concert to undermine Dodd-Frank, an 849-page law designed to prevent another failure.

There are more than 2,000 lobbyists for financial firms and trade groups and many are spreading money around Washington, enlisting like-minded members of Congress to write letters, propose legislation, hold hearings and threaten agency budgets as they pressure regulators to ease up on banks.

Regulators say they try to treat input from lawmakers like that from anyone else.

However, “there are all these other factors, like the budget, like the fact that they can call you up to testify, and they can make your life pretty miserable,” said the former head of one regulatory agency who asked not to be identified, as did many of those contacted for this story.

The campaign is working. While Hensarling’s committee can’t move legislation on its own — the Senate Banking Committee supports Dodd-Frank — the House panel can work its will in other ways. And it has. Almost four years after Dodd-Frank became law, community banks face lower capital standards than originally proposed and are therefore more likely to fail; fewer derivatives traders have to register with regulators and they face lower hurdles in booking trades than they otherwise would have, partly undermining the law’s aim to make this corner of the financial system more transparent; and big banks may soon have a green light to keep investing in potentially risky securities that regulators tried to limit.

In the current election cycle, employees and political action committees of financial companies have donated nearly $149 million to congressional candidates, more than any other industry, according to data compiled by the Center for Responsive Politics. That’s more than two-and-a-half times the $57 million donated by the health care sector, the second-most-generous industry.

“It’s an exceedingly rich industry with a lot at stake,” said Brad Miller, a member of the House financial committee from 2003 until he left office in 2013 and currently a lawyer with the firm Grais & Ellsworth. With lawmakers under constant pressure to raise money, Miller said, deep-pocketed lobbyists “don’t have to worry about having access to members, because all you have to do is wait for the phone to ring — and you don’t have to wait very long.”