Frustrated by new rules, bank lobbyists are making their battle public
Banks have grown increasingly frustrated with their federal regulators and, in a break with tradition, have taken the fight public.
In an effort to overturn new regulations and challenge the legitimacy of regulators’ powers, bank lobbyists have added legal threats and public attacks to the more common lobbying efforts that once took place behind closed doors on Capitol Hill.
In recent months, trade groups representing banks of all sizes, including the American Bankers Association, the Independent Community Bankers of America and the Bank Policy Institute, have accused federal regulators such as the Consumer Financial Protection Bureau and the Federal Reserve of excessive oversight.
Cam Fine, former president of the community banking group, said the cultural shift that led to the lawsuits was remarkable. He said he could only remember being in court twice in his 18 years with the group.
“It almost took a cataclysmic event for an industry organization like mine to file a lawsuit in court,” Mr. Fine said.
Trade groups recently filed a lawsuit against the consumer agency over a new rule requiring banks to share data about their small business lending practices, and another about a new initiative to investigate them for possible discrimination. They have filed court papers in support of a constitutional challenge to the CFPB, which is pending in the Supreme Court.
They have threatened other lawsuits, including against the Federal Deposit Insurance Corporation, the Fed and the Office of the Comptroller of Currency over a recently completed implementation of the 1977 Community Reinvestment Act, and some analysts expect they will sue the Fed and other supervisors about the proposed tightening of capital rules.
Regulators say they are using powers they have long held to tackle specific problems in the sector, such as racial discrimination. And a crisis among mid-sized banks that led to the collapse of four lenders this year has made the need for stricter capital rules more urgent, they say.
“We won’t comment on specific regulations, but President Biden supports common-sense reforms to reverse the Trump-era weakening of oversight of large regional banks, strengthen our banking system and protect American jobs,” said Michael A. Kikukawa, a white House Speaker. “A safe and diversified banking sector – including healthy community and regional banks – is a source of strength for our economy.”
Lobbyists say the Biden administration has picked regulatory heads who are often unwilling to compromise or listen to their concerns. The lobbyists’ tactics are in stark contrast to how they behaved under the Trump administration, when regulators rolled back regulations so drastically that even the banking industry feared they were going too far.
But the public campaigns, which consumer interests fear could undermine the authority of regulators, are also a product of the country’s bitter political discourse. What was once handled quietly, out of public view, is now settled through knockout fights, said Mr. Fine, the former leader of the community bankers.
“We just didn’t think about it that way,” he said. “We would try to resolve it within the agencies. We would call on the agencies and we would sit down with them and we would meet with them over and over again to try to get them to change their rules, and often we would be successful.
The Independent Community Bankers of America, which represents about 5,700 community banks, is fighting a rule that would require lenders to provide regulators with demographic data on all small business loans — such as the borrower’s race and location — to determine whether banks are fair provide loans. In August, the organization joined a lawsuit filed by other trade groups block the rule.
The decision to “litigate government policy through the courts is not a trivial matter,” said Anne Balcer, the group’s chief lobbyist. According to her, it is rather a last resort in response to the “extraordinary” demands of the regulators, which the group believes are too onerous for small banks to meet.
Allison Preiss, a spokeswoman for the Consumer Financial Protection Bureau, said in a statement that regulators “carefully considered public feedback and made significant changes from the original proposal” before finalizing the small business lending rule, including “ simplifying and streamlining compliance for all.” institutions – especially smaller lenders.”
The industry groups have also conducted rigorous public influence campaigns.
When the Senate voted to repeal the small business credit data rule last month, the community banking association praised the move in a press release emailed to reporters, adding a public element to what would likely have been a series of quiet conversations with lawmakers . in the past.
In public posts, the Bank Policy Institute and the Financial Services Forum, which represent the largest banks, criticized proposed rules from multiple regulators, including the Fed, to tighten capital requirements. They have disapproved “excessive” changes and warned about “the upcoming $1.4 trillion tax on financial services provided by big banks.
Many observers believe that these public statements are the prelude to a lawsuit.
“It seems clear that a lawsuit is likely,” said Ian Katz, a financial policy analyst at Capital Alpha Partners, a Washington research firm, who said that even if the Fed tweaked the proposed rule before it was finalized, the changes would likely not be implemented. implemented. big enough to satisfy bankers. “They also feel they have strong procedural grounds on which to base a lawsuit.”
Jamie Dimon, the CEO of JPMorgan Chase, the largest U.S. bank, in September called the Fed’s proposal, which was made in consultation with other federal banking regulators, “extremely disappointing.”
By taking on regulators directly, lobbyists have adopted a playbook typically favored by outside interest groups, which are unregulated and often employ more aggressive strategies to effect change, including when President Donald J. Trump was in office.
“The Trump administration has really changed the tone and dialogue around regulation,” said Jesse Van Tol, chairman of the National Community Reinvestment Coalition, a group that pushes banks to do business in poor and minority communities and generally supports stricter regulation .
“Many of us who fought tooth and nail against anything that would happen during the Trump administration used similar tactics.”
Lobbyists have scored some victories. In September, a federal court ruled that the consumer agency does not have the authority to monitor banks for discrimination, and last year an appeals court ruled in a separate case that its financing structure was unconstitutional.
In an Oct. 26 ruling, a federal judge in Texas said small banks did not have to comply with the Consumer Bureau’s reporting rule for small business loans, while the Supreme Court addressed the issue of financing structure. Ms. Preiss, the CFPB spokeswoman, said the regulator “will continue to respond in court” to legal challenges to the rule.