By Daniel Wagner and Alison Fitzgerald
Center for Public Integrity
The 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 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 re-take 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
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.”
The Banking Caucus
The Center for Public Integrity reviewed political finance records; members’ voting records; public statements; and correspondence between Congress and financial regulators to identify the House’s unofficial banking caucus — the financial industry’s go-to lawmakers on the Financial Services Committee.
In addition to Hensarling and Garrett, the banking caucus includes Reps. Shelley Moore Capito, R-W.Va.; Sean Duffy, R-Wis.; Jim Himes, D-Conn.; Blaine Luetkemeyer, R-Mo.; Gregory Meeks, D-N.Y.; Ed Royce, R-Calif.; David Scott, D-Ga.; Steve Stivers, R-Ohio; and Ann Wagner, R-Mo.
The center of this alliance is Hensarling, a sharp-tongued Texan who learned his skills as a staffer for an iconic Lone Star State politician, former Sen. Phil Gramm. Hensarling has thick gray-brown hair and eyes that slant down at the corners, giving the impression that he’s on the verge of breaking into a boyish smile. Because of his ties to the House leadership, Hensarling leapfrogged senior members to become committee chair last year when Rep. Spencer Bachus, R-Ala., stepped down because of term limits set by House Republicans.
Operating with a strict, top-down style, Hensarling’s staff, with the help of lobbyists, orchestrates hearings, decides which proposals by regulators merit a letter from Congress and who should sign that letter, according to former committee staffers who have worked with him.
One subcommittee, for example, has spent months crafting a broad “indictment” of the Dodd-Frank Act. The chair of another drafted a letter to regulators and sent it directly to the American Bankers Association so the industry group could pressure other lawmakers to sign on.
Several members of the banking caucus have close ties to the financial industry predating their arrival in Congress, making them especially reliable in coraling cosponsors for a bill or signatures for a letter to regulators. Stivers, for instance, was the top lobbyist until 2002 for Bank One, where Jamie Dimon became CEO in 2000. (JPMorgan Chase & Co. bought BankOne in 2004 and made Dimon president; he became CEO of the world’s biggest bank a year later.)
Luetkemeyer’s family owns a community bank. He has a decades-old relationship with Camden Fine, the top lobbyist for small banks, and is sponsoring a package of rule changes sought by Fine’s organization. “Luetkemeyer is positioned and ready to fight for our industry,” a magazine published by the Independent Community Bankers of America proclaimed in 2011.
Capito, who chairs the subcommittee that oversees consumer lending and finance companies, is married to a banker who has worked for Wells Fargo and Citigroup. Himes spent 12 years at Goldman Sachs Group Inc. before joining a nonprofit housing group in 2002. He represents the tony New York suburb of Greenwich, Conn., which is home to some of the world’s largest hedge funds.
Others align with single industries. Royce, for example, has developed a near-symbiotic relationship with the credit union industry in the 21 years since he took office. He has raised more than twice as much from credit unions as any other lawmaker, and has sponsored at least 11 bills seeking to relax rules that frustrate the industry. Several sought to loosen limits on commercial lending by credit unions, a fight he pledged to continue in a Feb. 25 speech before 4,400 credit union employees and advocates at the Credit Union National Association’s annual conference in Washington. He filed the latest version of the bill on March. 13.
And several former staffers with ties to Hensarling or the committee are now working on the other side. Just as Hensarling rose to become committee chair, his chief of staff of eight years, Dee Buchanan, decamped to Ogilvy Government Relations where he lobbies for the American Bankers Association, insurers and a private equity firm. Former committee chief of staff Larry Lavender now lobbies at the firm Jones Walker for JPMorgan Chase & Co. and payday lending giant Cash America International.
The financial services committee is a crucial fundraising tool for both parties because companies with interests in its work generally have money to spend. In the mid-1990s, leaders began packing the panel to help their members bring in campaign cash, and membership swelled from 50 members in 1995 to 71 in 2009. Membership has since been trimmed to 61, but it’s still second in size only to Armed Services, which has 62.
Panel members raise more money for their election campaigns, on average, than those on any other House panel. In the two years ended in 2012, members raised an average of $2.6 million, according to data from the Center for Responsive Politics, edging out the powerful Ways and Means Committee.
“Members are encouraged by both Democrats and Republicans to spend every waking moment being on the phone asking for money, and the people you ask for money if you’re on the Financial Services Committee are lobbyists for financial interests,” said Miller, the former member.
Hensarling’s fundraising nearly doubled in 2012, after he became the highest-ranking Republican on the committee. He hosted a fundraising ski trip in February at the St. Regis Deer Valley resort that boasts uniformed “ski valets,” a “private ski beach” and a “split-level infinity pool.” His political action committee, The Jobs, Economy and Budget (JEB) Fund, took in $87,100 that month including $5,000 each from the Consumer Bankers Association, the Capital One Financial PAC, and the National Pawnbrokers Association PAC.
Financial interests recently hosted Scott at Johnny’s Half Shell and Himes at Sonoma, both swank Capitol Hill dining spots, according to copies of the invitations posted by the Sunlight Foundation. Meeks enjoys fundraising trips to Las Vegas and throws an annual Super Bowl party for big-ticket donors, according to the New York Post.
The Sunlight database includes invitations to fundraisers held on behalf of Garrett, Luetkemeyer, Meeks and Scott at the townhouse of Tim Rupli, a well-known lobbyist whose clients have included payday lenders and prepaid debit card companies.
Himes’ spokeswoman, Elizabeth Kerr, said her boss is not advocating for the investment industry. “The congressman doesn’t advocate for or against an industry. He advocates for the right law or regulation,” she said.
The financial sector spent $484.7 million in 2013 lobbying Congress, according to CRP. That includes about $3.6 million spent by groups representing consumer interests. Financial industry lobbyists outnumber those for consumer groups by at least 20 to 1, according to a report by The Nation magazine.
“I used to have 100 meetings with people from the financial sector to every three or four from consumer groups,” said Bart Chilton, who until last month was a commissioner at the Commodity Futures Trading Commission, which regulates derivatives.
When Congress and trade groups work together, the united front can overwhelm regulators, who depend on Congress for budget approval and can face embarrassing public excoriation if they defy lawmakers, according to a senior staffer for a financial regulator who has spent years working with Congress.