10 years after bruising Dodd-Frank fight, is bipartisanship returning?
WASHINGTON — The Dodd-Frank Act nearly 10 years ago marked a dramatic shift toward partisanship in the crafting of federal banking policy. But more recent legislative debates offer hope of a more collaborative future between the two parties, observers say.
Only a handful of Republicans supported the sweeping package of post-crisis regulatory reforms, which became law on July 21, 2010, in the then-Democrat-controlled Congress.
Anger over the 2008-9 mortgage crisis fueled Democrats' unified support for tougher banking rules, while the GOP united around concerns of government overreach. Those themes dominated the two banking committees for much of the past decade, as partisanship helped slow other bills such as reform of the government-sponsored enterprises.
But since moderate Democrats joined Republicans to support a targeted rollback of certain Dodd-Frank provisions in 2018, many see the partisan freeze on banking legislation starting to thaw. They note banking provisions in recent coronavirus rescue bills, and proposals to reform anti-money-laundering and cannabis banking rules as examples where members of both parties are working together.
“It’s encouraging that the two parties are now working in a bipartisan way on banking legislation that will help the economy grow," said Rob Nichols, president and CEO of the American Bankers Association. The 2018 regulatory relief package, and the AML and marijuana banking bills "are at least three pieces of legislation over the last four or so years that the two parties have worked in a bipartisan way,” he added.
After months of tense debate, Dodd-Frank passed along mostly party lines. With Democrats holding a wide majority in the Senate, only three Republican votes were needed in the chamber to approve the conference committee report, sending the bill to President Barack Obama's desk.
Over the ensuing eight years, as the GOP gained control of Congress — with slimmer majorities — and later the White House, debates over banking legislation were mostly driven by partisan tensions.
Republican initiatives to roll back or repeal Dodd-Frank were defeated by Democrats in the minority. Likewise, since Democrats regained the House in 2018, many financial reform priorities promoted by more liberal lawmakers have been dead on arrival in the GOP-controlled Senate.
“It’s pretty partisan. Not always, not on every issue, but a lot of it,” said Sen. Richard Shelby of Alabama, who was the top Republican on the Senate Banking Committee when Dodd-Frank passed.
Before the 2008 crisis and efforts to pass Dodd-Frank, major banking bills tended to be non-partisan. The Gramm-Leach-Bliley Act in 1999, which enabled commercial and investment banks and securities firms to consolidate, was named for three Republicans but was signed into law by President Bill Clinton, a Democrat. Three years later, the chief authors of the Sarbanes-Oxley Act were the then-Republican chairman of the House Financial Services Committee and the then-Democratic chairman of the Senate Banking Committee.
“Dodd-Frank, because it was such a crushing battle, did inject more partisanship into the financial services committees that I didn’t witness in the past,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.
Before Dodd-Frank, a lawmaker's position on a banking-related bill was likely influenced more by his or her region of the country than political affiliation, said Aaron Klein, who served at the Treasury Department when the 2010 law was enacted.
“From the end of the Second World War, all major banking bills, both regulatory and deregulatory, were largely bipartisan, but they did have geographic differences,” said Klein, a fellow in economic studies at the Brookings Institution.
Former lawmakers and congressional aides involved in Dodd-Frank negotiations said other factors at the time contributed to the rancorous tone. The legislative discussions followed the passage of the sweeping and also partisan health care reform law known as Obamacare.
“The right wing was sort of expressing their unhappiness and they also decided … they really had to stop Obama forward,” said Barney Frank, D-Mass., the former House Financial Services Committee chairman who helped write the law with former Senate Banking Committee Chairman Chris Dodd.
“Chris Dodd has always been the guy who likes to be bipartisan, and he began working in the Senate to do it in a bipartisan way," Frank said. "He was again very disappointed when the Republicans told him, ‘No we can’t cooperate.’ ”
Amy Friend, senior adviser at FS Vector, who was chief counsel of the Senate Banking Committee when Dodd-Frank passed, said that partisan tensions over the financial crisis affected the Dodd-Frank negotiations.
"I think that sort of anger over the financial crisis spilled over into Dodd-Frank and post-Dodd-Frank, and created a lot of partisan divisions within the Congress and it became a partisan exercise to attack Dodd-Frank,” Friend said.
Shelby said his opposition to Dodd-Frank was not due to an unwillingness to work with the Obama administration, but rather a disagreement over policy that couldn’t be reconciled. He cited the Consumer Financial Protection Bureau’s single-director structure as a point of contention.
“I opposed a lot of issues myself during the Obama era, but I’d never close my eyes to anything, because if they’ve got a good proposal, we ought to evaluate it,” Shelby said. “Dodd-Frank was very partisan. It was Democratic legislation, inspired a lot by" Sen. Elizabeth Warren of Massachusetts. "And I thought it was an overreach. I still do."
Dodd acknowledged that the CFPB drove a partisan wedge in the legislative negotiations.
“I think if I had dropped the consumer protection bureau … I think there would have been other Republicans,” Dodd said.
To be sure, members have reached across the aisle over the past decade to try to move substantial financial services bills.
On reforming the GSEs Fannie Mae and Freddie Mac, bipartisan bills have been introduced by members of the Senate Banking Committee. But the proposals have collapsed over issues such as Democrats' insistence that affordable housing support be maintained, or concerns from some Republicans that government involvement in the housing market restricts private competition.
“Democrats had been viewed as being more supportive of the role Freddie and Fannie played in affordable housing and the government guarantee and the backstop,” said a financial services lobbyist who spoke on the condition of anonymity. “It became easy to Republicans to point the finger at Fannie and Freddie and say that they were the cause of the crisis.”
Some observers say a good amount of the congressional energy since Dodd-Frank has been spent on relegislating the law.
Shelby, who after Dodd-Frank became chairman of the Banking Committee, and former Financial Services Committee Chairman Jeb Hensarling, R-Texas, both mounted bills to substantially weaken the law. Those efforts were nonstarters with Democrats, but some across-the-aisle support would have been needed to gain legislative traction.
On Shelby's Dodd-Frank Repeal Act of 2011, “I don’t even remember industry groups trying to weigh in," the financial services lobbyist said. "It was clearly a partisan messaging sort of bill."
On the House side, Republicans advanced other measures aimed at weakening the law. Hensarling advocated for the Financial Choice Act, which would have gutted the Consumer Financial Protection Bureau, repealed the federal government’s authority to backstop a failing financial institution and repealed the Volcker Rule’s ban on proprietary trading.
And while the Financial Choice Act was not a complete repeal of Dodd-Frank, the legislation passed the House entirely along party lines.
“The Choice Act was an intentionally partisan messaging document,” said Dan Crowley, a partner at K&L Gates. “Until very late in his chairmanship, Hensarling seemingly chose to continue the messaging rather than to legislate fixes to Dodd-Frank. There was bipartisan agreement on how to fix many of them.”
The partisanship has not only affected legislation, but it has affected how Congress has viewed the regulators in charge of implementing provisions of Dodd-Frank.
As recently as 2018, when CFPB Director Kathy Kraninger was nominated by President Trump, the Senate approved the nomination entirely along party lines.
“I would say that there still is kind of a partisan lens that is focused on what the regulators are doing now,” said Friend. “Are they giving too much relief? … I think you are seeing a partisan view in what the bank regulators are doing. That hasn’t gone away."
But lately there are hints of bipartisanship emerging.
The clearest sign were the negotiations over the 2018 reg relief package. With most Democrats opposed to any substantive changes to Dodd-Frank, Banking Committee Chairman Mike Crapo focused discussions on certain discrete changes that could draw support from moderate Democrats.
Gaining approval from Democrats on the Senate Banking Committee who faced tough reelection races in the 2018 midterm elections was instrumental in enacting Crapo's bill, known as S 2155. All Senate Republicans and more than a dozen Senate Democrats agreed to pass S 2155.
“It is clear that financial services, bank regulation has gone from a regional issue to a partisan issue. But what is also clear is that when anything gets changed either by adding to or subtracting from the regulatory burden, it still does require it to be bipartisan like ... in S 2155," said Ed Mills, a policy analyst with Raymond James.
Frank argued that the debate about Dodd-Frank has become "less partisan because there is a consensus that we’re not going to make any major changes" to the law.
“I think the banks have evolved in the sense that it turns out not to be as terrible as some of them thought," he said.
Meanwhile, the most recent legislative efforts have centered on bills with bipartisan backing. Members from both parties have championed AML reform, including steps to ease banks' obligation to identify "beneficial owners" of financial accounts, and legislation making it easier for banks to serve cannabis businesses.
However, both measures face resistance from important constituencies. The cannabis bill has yet to win over GOP leaders in the Senate who oppose easing federal restrictions on marijuana sales, while some GOP lawmakers have also been slow to support the beneficial ownership bill because they fear it will add burden for small businesses.
Mills said partisanship around banking policy has eased somewhat as financial institutions have been able to weather the coronavirus pandemic.
"The fact that the banks are an area of strength in this financial crisis is a really welcome development, but I think a lot of Democrats would use that as an excuse as to why Dodd-Frank worked,” he said.