Wall Street banks and other parts of the financial sector spent close to $2 billion on lobbying and campaign contributions in the 2018 election cycle, a 36 percent jump from the last non-presidential campaign year, according to a new report released Tuesday.
Americans for Financial Reform, a left-leaning Wall Street watchdog, found banks and financial institutions dramatically increased their political spending as Congress debated, and then passed, legislation last year that rolled back several key industry regulations put into place by the Obama administration after the 2008 financial crisis.
The surge in Wall Street’s political spending came as commercial banks saw record profits, in part because the Republican tax law of 2017 also lowered their overall tax burden. Wall Street spent more during the 2018 midterm elections than it ever has on a non-presidential campaign cycle, the report found.
Critics say the glut in lobbying and campaign contributions show how Wall Street manipulates federal lawmakers to win an unfair advantage over legislation. Defenders of the banking law recently passed by Congress, including Democrats, have said they aimed to help smaller banks and credit unions and were not influenced by the campaign donations they received.
“The impact of all this money — again and again and again — is that it shapes the playing field. Wall Street and the financial industry get to shape the rules in ways that harm everyday people,” said Lisa Donner, the head of Americans for Financial Reform. “It has a fundamental impact on the way our economy works.”
Overall, financial sector companies and their employees gave about $922 million in the 2017 to 2018 campaign cycle, while also reporting about $957 million on lobbying — for a combined total of about $1.9 billion.
In March 2018, President Trump signed into law a bill offering a wide range of regulatory relief throughout the banking sector. The legislation, which passed the Senate with the support of 17 members of the Democratic caucus and the overwhelming majority of Republicans, eased regulations for banks with $50 billion to $250 billion in annual assets.
Supporters of the legislation argued it helped free up capital and ease unnecessary restrictions on small regional and community banks. They argued many of these smaller banks had been hurt by the overzealous regulations in the Dodd-Frank legislation signed by President Barack Obama in 2010 after the Wall Street crash, and needed regulatory relief to inject additional capital into rural or poorer communities.
Among those who received the largest contributions from the financial sector were Sen. Jon Tester (D-Mont.) and then-Sens. Heidi Heitkamp (D-N.D.) and Claire McCaskill (D-Mo.), according to the report. All three voted for the banking overhaul bill, but only Tester won his 2018 reelection bid.
“Tester answered the calls of Montanans to cut red tape on local community banks and credit unions in order to allow them to lend to families and small businesses in rural America," said Sarah Feldman, a spokeswoman for Tester. "This bill strengthened consumer protections and did virtually nothing for the largest Wall Street institutions.”
The financial sector poured millions of dollars into ensuring the passage of the legislation, with particularly large sums going to members of the Banking Committee who drafted it and ensured it was voted on by the full Senate, according to Americans for Financial Reform.
Some large banks — those with between $100 billion and $250 billion in assets — have already benefited from looser rules around “stress tests," periodic audits from federal regulators to see if the banks can survive an economic shock, said Gregg Gelzinis, a banking expert at the Center for American Progress, a left-leaning think tank. The legislation also removed other requirements for banks with between $100 billion and $250 billion in assets, including rules around how much they must hold in liquid assets.
Banks also benefited from the Republican tax law passed in 2017. This February, federal regulators said that more than half of banks’ $59.1 billion in net income for the fourth quarter of 2018 was due to changes from the GOP tax law. Income tax rates for the largest financial companies in the S&P 500 fell from 29 percent in 2017 to 19 percent in 2018, according to research by Howard Silverblatt, a senior industry analyst at S&P Global.
In January, a handful of U.S. banks recorded $111 billion in profits, crossing the $100 billion threshold for the first time ever in part due to the overall success of the American economy, according to reports by Bloomberg News and other publications. Banks have also faced criticism for increasing their bets on lucrative but dangerous loans, with the help of federal regulators and congressional Republicans.