Amid roiling partisan rancor over the Republican tax plan, bipartisan agreement broke out on an unlikely front Tuesday: Easing bank regulations.
Four Democrats joined with Republicans on the Senate Banking Committee to advance rolling back Dodd-Frank restrictions imposed on the industry in the wake of the 2008 financial crisis. The measure targets its relief to small and midsize banks. But moderate and liberal Democrats on the banking panel engaged in some tense exchanges throughout the all-day markup.
“We actually are giving some breaks to the biggest banks in the country, including Wells Fargo,” Sen. Sherrod Brown (Ohio), the panel’s ranking Democrat, said at one point. “All I say to my colleagues is don’t walk out of here saying, ‘Oh we didn’t touch any of the regulations for the largest banks.’ You did. This bill does. Fix it, and I won’t say that anymore.”
Brown was addressing Sen. Heidi Heitkamp (N.D.), one of four moderate Democrats on the committee — three of whom face reelection next year in states that President Trump carried. Those senators cut a deal with Sen. Mike Crapo (R-Idaho), the panel’s chairman, last month after months of talks between Crapo and Brown collapsed. To protect the compromise they hammered out, the moderate Democrats joined Republicans in opposing wave after wave of amendments from the more liberal members of the committee.
The resulting specter of Democrats split on a core economic issue points to a more profound problem confronting the party as it struggles to refashion its message ahead of the 2018 midterms. Most Democrats think they have a potent case to make that Trump’s GOP pulled a bait-and-switch on voters by promising populism and delivering a cascade of breaks to financiers (read my colleagues John Wagner and Juliet Eilperin on how Trump is governing like a traditional conservative). But some of the most vulnerable Democrats, members the party needs to protect to reclaim control of Congress, are complicating leaders’ push to handcuff Republicans to Wall Street by appearing to side with the unpopular industry at key moments.
Of the Democratic split Tuesday, Sen. Elizabeth Warren (D-Mass.) — a panel member who had a score of amendments rejected — told me, “What it undercuts is our credibility that we understand what went wrong in 2008 and that we are committed even in the face of powerful lobbying interests — that we remain committed to regulating these giant banks.” She registered her frustration throughout the day by tweeting her amendments as she offered them, then following up to note how many Democrats joined with Republicans to sink them:
Amendment #60, which prohibits deregulation of banks that fire whistleblowers, failed, 7-16. Four Democrats voted with the Republicans against it. #BankLobbyistsAct— Elizabeth Warren (@SenWarren) December 5, 2017
And here was the press secretary for Sen. Mark Warner (D-Va.), one of the Democratic moderates, responding to a Warren tweet:
Democrats said at the beginning of this hearing that they would be forced to vote against MANY amdts they would otherwise support, because any changes, even those we agree with, will blow up the bipartisan deal https://t.co/J3EHOSSEZO— rcohen (@rcohen) December 5, 2017
The division on display Tuesday recalled the dynamic among House Democrats that played out in June when that chamber was considering a Republican proposal to gut Dodd-Frank. When the bill reached the floor, instead of offering amendments that would put vulnerable Republicans on the spot, Democrats agreed to drop their proposed changes. The strategy aimed to keep the focus on the GOP’s bill. But it also resulted from an agreement House Minority Leader Nancy Pelosi (D-Calif.) negotiated with business-friendly moderates to hold back liberal proposals that could have forced them into an awkward position.
That bill passed the House but went no further. The measure the banking panel considered Tuesday was the Senate's answer to it.
At the heart of the bill is a proposal to lift the threshold for tougher regulatory scrutiny from those banks with at least $50 billion in assets to those with at least $250 billion. By escaping the designation for so-called systemically important financial institutions, the firms would face “periodic” instead of annual stress tests by the Federal Reserve. Those in line to benefit include State Street, Credit Suisse, BB&T, SunTrust, Barclays, Ally Financial, and American Express (see a full listing of banks ranked by size here, courtesy of the Wall Street Journal). The bill also relaxes the capital cushions that Bank of New York Mellon, State Street and Northern Trust have to maintain.
Banks with assets between $50 billion and $100 billion would enjoy their exemptions immediately, while those between $100 billion and $250 billion would have to wait 18 months. The Senate proposal would also free banks with less than $10 billion from the Volcker Rule, which bans firms from making certain kinds of risky investments for their own gain.
Reuters's Pete Schroeder on the kabuki that played out in 538 Dirksen over the course of the seven-hour markup:
Senate Banking markup so far:— Pete Schroeder (@peteschroeder) December 5, 2017
- Liberal Dem offers amendment
- Republicans and moderate Dems oppose
- Amendment defeated, bill remains unchanged.
Rinse and repeat.
Considering the crammed year-end calendar, the measure isn’t likely to hit the floor before next year. It’s prospects then aren’t clear.
Nine Democrats have signed on as cosponsors — including Sen. Tim Kaine (D-Va.), Hillary Clinton's 2016 running mate — meaning it could meet the 60-vote threshold to advance. But Senate Minority Leader Chuck Schumer (D-N.Y.) hasn’t yet given an indication of whether he intends to try to rally his members against it. Warren said she intends to talk to him about it, and “I can guarantee you I will put up a fight.”
Moderates on the panel defended the measure as an imperfect but necessary compromise to promote lending in underserved areas. "This is going to allow working families to be able to get loans to be able to buy homes… This is going to allow small businesses to be able to expand, and this is going to allow entrepreneurs to be able to get the money to start up businesses," Sen. Jon Tester (D-Mont.) said. "That is the reason we did this — and I can tell you, for no other reason."
Dennis Kelleher — president and CEO of Better Markets, a Wall Street critic — dismissed the argument. "Lots of Democrats in Congress think banks need relief? Give me a break," he wrote in an email. "Regulatory relief for bankers is the most important issue in the country and merits the very first bipartisan action in the Senate? That’s insane. Democrats need a real economic program that helps the vast majority of Americans who are struggling from paycheck to paycheck, with little in savings and nothing in retirement."
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— Treasury watchdog sees rising risks. Bloomberg's Sarah McGregor and Liz McCormick: "The U.S. agency that analyzes threats to financial-market stability is waving a red flag about elevated stocks and bonds. Overall, the risks to financial stability remain in the 'medium range' and the system is far more resilient than a decade ago during the financial crisis, according to Treasury’s Office of Financial Research, an oversight body that was created by the post-crisis Dodd-Frank reforms. But vulnerabilities have emerged in the past year amid too much borrowing.
'Although our overall assessment is moderate, market risks are high and rising from the potential for a sudden drop in the prices of assets in financial markets, particularly the stock markets and bond markets,' the agency said in its annual report to Congress on Tuesday. 'Such a decline could exploit vulnerabilities from excessive leverage, when resources are too low in relation to investment exposures.'"
Trump plans to slash the agency. WSJ's Ryan Tracy: "The Trump administration has told employees of the U.S. Office of Financial Research to expect deep budget and staffing cuts, according to people familiar with the matter, the latest example of its efforts to undo policies put in place under former President Barack Obama. Senior officials at the Treasury Department delivered the news to OFR employees at a Nov. 30 meeting on the 10th floor of the agency’s headquarters in downtown Washington, according to people who attended. It was the strongest indication yet of the Trump administration’s plans for the OFR [.]"
— Warren lone vote against Powell. Bloomberg's Randy Woods: "Federal Reserve Governor Jerome Powell, facing a Senate committee vote on his nomination to become the central bank’s chairman, won strong bipartisan support that suggests he’ll sail through the full Senate. The Senate Banking Committee voted 22-1 on Tuesday in favor of Powell’s nomination. The lone no vote was [Warren], who voiced concern before the tally was taken that he’d weaken financial regulations."
— California tweakin'. The Post's Mike DeBonis: "Top House Republicans said Tuesday they were exploring changes to their tax plan that would lower tax bills for Californians and others who pay high state income taxes — including by allowing Americans to deduct some state income tax payments from what they owe in federal taxes. House Ways and Means Chairman Kevin Brady (R-Tex.) told reporters Tuesday that tax writers are looking at a number of ways to give relief to residents of high-tax states. One would involve opening up the property tax deduction, capped at $10,000, to state and local income and perhaps sales taxes. Others would involve expanding eligibility for the child tax credit to more affluent households or simply rearranging the individual tax brackets so taxpayers pay lower rates.
But making any of those work within the larger plan could be difficult. Brady said all of the options cost “significant” amounts of revenue, and the overall plan cannot cost more than $1.5 trillion over the coming decade. “It’s got a pretty big figure to it,” he said of the potential expanded deduction. House Majority Leader Kevin McCarthy (R-Calif.) said that he, too, favored expanding state and local tax deductibility, and also said he hoped the House bill’s limit on the deductibility of mortgage interest would be raised. The House bill excludes deductions of interest on loans larger than $500,000; the Senate bill keeps the current $1 million threshold intact."
— Brady: Scrap the AMT. Reuters's David Morgan: "Brady said lawmakers are determined to eliminate the alternative minimum taxes (AMTs) on corporations and individuals that the Senate bill retained. '“House members ... feel strongly that the House position should be to repeal permanently both the individual and the corporate,” said Brady."
— WSJ tax calculator. The Journal teamed up with the Penn Wharton Budget Model to produce this online tool that will calculate how you fare under the House-passed bill.
— Riddled with glitches. Politico's Brian Faler: "Republicans’ tax-rewrite plans are riddled with bugs, loopholes and other potential problems that could plague lawmakers long after their legislation is signed into law. Some of the provisions could be easily gamed, tax lawyers say. Their plans to cut taxes on 'pass-through' businesses in particular could open broad avenues for tax avoidance.
Others would have unintended results, like a last-minute decision by the Senate to keep the alternative minimum tax, which was designed to make sure wealthy people and corporations don't escape taxes altogether. For many businesses, that would nullify the value of a hugely popular break for research and development expenses. Some provisions are so vaguely written they leave experts scratching their heads, like a proposal to begin taxing the investment earnings of rich private universities’ endowments. The legislation... doesn’t explain what’s considered an endowment, and some colleges have more than 1,000 accounts...
'The more you read, the more you go, "Holy crap, what’s this?"' said Greg Jenner, a former top tax official in George W. Bush’s Treasury Department. 'We will be dealing with unintended consequences for months to come because the bill is moving too fast.'"
— Trump wants it even faster. Politico's Nancy Cook and Aaron Lorenzo: "Trump has told congressional leaders he’d like the final deal on tax reform to move even faster than the Dec. 22 goal they’ve set, according to White House officials. 'We want it to proceed as quickly as possible, and we’ve communicated that to the Hill in a lot of ways,' said Marc Short, White House director of legislative affairs. 'There are not a lot of outstanding issues remaining, and we’re not looking to open up Pandora’s box.'... The White House would like to ensure the lawmakers negotiating a compromise on the House and Senate legislation... do not veer off the main differences between the two bills, Short said... He added that the White House hasn't given up on winning the support of Sen. Bob Corker of Tennessee, the lone Senate Republican to vote against the tax bill that passed 51-49 early Saturday morning."
— It's very unpopular, per two new polls. WSJ's Richard Rubin: "Two new polls have bleak news for the GOP tax plan. Just 29% of voters approve of the plan while 53% are opposed, according to a Quinnipiac University poll. Independents break against the plan, 54% to 27%. Among people making $50,000 to $100,000, just 35% approve. The one group that approves: Republicans, 67% of whom support the overhaul. Just 6% of Democrats do...
Most poll respondents said they thought the wealthy would be the biggest beneficiaries and that it wouldn’t lead to economic growth and job creation, countering the GOP’s arguments for the measure. Voters now say Democrats can do a better job handling tax policy, 47% to 39%, according to Quinnipiac. The Gallup poll found similar levels of support, with just 29% in favor of the tax plan. Independent voters, according to Gallup, oppose the plan, 56% to 25%. Among Republicans, 70% approve. Just 7% of Democrats do."
— Once again: Banks benefit. Bloomberg's Laura Keller: "The Republican tax bill is good news for big banks. At least, it will be once the initial pain wears off. JPMorgan Chase & Co. expects a fourth-quarter 'adjustment' of as much as $2 billion largely driven by the firm’s unremitted overseas earnings facing taxation, Chief Financial Officer Marianne Lake said Tuesday at an investor conference. Bank of America Corp. Chief Executive Officer Brian Moynihan said his firm would also take a hit, having to decrease the value of its deferred tax assets. 'If something gets enacted this year, there would be an adjustment in the fourth quarter; for us, that would be negative and not small,' Lake said. 'But as you move forward, depending on when the tax cut comes in, we would benefit from the lower rate.'
The proposed bill was a big topic at the year’s last major banking conference, and executives were more positive on the long-term effects of the bill -- both for them and their clients. Wells Fargo & Co. CEO Tim Sloan said the changes could add another half a percent to gross domestic product, while Moynihan said corporate clients are telling the bank they’ve been waiting for certainty on tax changes so they can decide on long-term capital expenditure plans."
But commercial real estate wins. NYT's Patricia Cohen and Jesse Drucker: "After a frenzy of congressional action to rewrite the tax code, salesclerks and chief executives are calculating their gains. Business was treated with the everyone’s-a-winner approach that ensures no summer camper goes home without a trophy. Some got special prizes. Cruise lines, craft beer and wine producers (even foreign ones), car dealers, private equity, and oil and gas pipeline managers did particularly well. And perhaps the biggest winner is the industry where President Trump and his son-in-law, Jared Kushner, made their millions: commercial real estate.
House and Senate Republicans, in their divergent bills, both offered steeply reduced rates to corporate giants, partnerships and family-owned firms across the board. But when it came time to eliminate special breaks or impose tighter standards, real estate was generally excused from the room. Most businesses were hit with new limits on deductions for interest payments, but not real estate. Most industries lost the ability to defer taxes on the exchange of similar kinds of property, but not real estate. Domestic manufacturers and pharmaceutical companies lost some industry-specific breaks, like the tax credit for so-called orphan drugs, in exchange for lower rates."
— CEOs finally raise their hands. WSJ's Sarah Chaney: "Leaders of America’s largest companies expressed strengthening confidence in plans to ramp up capital investment and ultimately productivity over the next six months, contingent on Congress’s ability to pass tax reform. Chief executives’ plans for capital investment rose to their highest level since the second quarter of 2011, according to the Business Roundtable’s fourth-quarter survey of CEOs. Jamie Dimon, chairman of the Business Roundtable and chief executive of J.P. Morgan Chase & Co., said business confidence in economic growth is dependent on actions from economic policy makers. 'To continue this momentum, it is critical that we enact pro-growth tax reform that will level the playing field for U.S. business to be globally competitive,' Mr. Dimon said."
— Bridgewater CEO: Rich people will move. Ray Dalio, via LinkedIn: "As state and local tax rates and debts rise because there are shortfalls that can’t be narrowed, it is financially smart for high income taxpayers to escape these taxes and debt burdens by moving to lower tax and less indebted locations, so they do. As they do, property values decline, further raising the costs of staying in the high SALT location... Also, the reduced population of higher income and higher spending folks leads to reduced spending in these locations, which further depresses the high SALT economies."
— Shutdown threat looms. Politico's Jennifer Scholtes and Sarah Ferris: "House Republican leaders have promised conservatives that they won't grant concessions to Democrats to get enough votes for a stopgap spending bill — gaining GOP support but also raising the specter of a government shutdown later this month. GOP leaders in the House tentatively decided Tuesday morning to hold tight on their plan to fund the government through Dec. 22, bucking calls from conservatives to move the deadline to Dec. 30.
Still whipping to ensure sufficient GOP support, leaders pushed off a Rules Committee meeting and final floor action by a day, with House passage on the two-week patch now expected Thursday. Government funding runs out on Friday. Those intraparty talks will drag into Wednesday, after a huddle on Tuesday afternoon among House Speaker Paul Ryan, conservative holdouts and defense hawks ended without a resolution. A final decision isn’t expected until Wednesday morning, after another last-minute meeting by the House Freedom Caucus."
Conservatives back to wreaking havoc with spending. The Post's Paul Kane: "Since the spring, House Republicans have lived through a relatively calm seven months, a period lacking the drama and infighting that have come to define their majority. That came to an abrupt end Monday night, when members of the Freedom Caucus tried to grind progress on tax legislation to a halt.
These hard-right conservatives had no quarrel with the tax plan — they almost all voted for it — but they were looking for a hostage to grab and knew that this one would get everyone’s attention. Their real target is the 2018 spending bill for federal agencies, along with a clutch of other must-pass items that conservatives oppose.
Members of the Freedom Caucus have been down this road before. They believe year-end packages turn into massive Christmas trees littered with colorful add-ons. This week’s rebellion was meant to remind House Speaker Paul D. Ryan’s leadership team how little faith the conservative wing has in it to negotiate a good deal."
— Flake writes a check to Jones. The Post's Sean Sullivan: "Sen. Jeff Flake (R-Ariz.) has said he would support a Democrat over embattled Republican Senate nominee Roy Moore in Alabama. Now, Flake is putting his money where his mouth is. On Tuesday, the Arizonan tweeted a photograph of a $100 check he wrote to the campaign of Moore’s opponent, Democrat Doug Jones. 'Country over Party,' reads the caption."
See it here:
— Royce for Financial Services. Morning Consult's Anna Gronewold: "Rep. Ed Royce is among several senior House Financial Services Committee Republicans who could make a serious play for the chairman’s gavel coming open in January 2019 — if Republicans hold the majority and Royce survives what’s likely to be the toughest race of his career in the Southern California district he’s long dominated. Observers say Royce — who currently chairs the House Committee on Foreign Affairs — might be a less ideological Financial Services head than outgoing Chairman Jeb Hensarling, who has presented himself as a free market purist. The Texas Republican, who was elected to his first term in 2002, plans to retire from the House in early 2019.
Royce has worked with Democrats to expand lending authority for credit unions and to put them on an equivalent status with banks, rendering him at odds with some of the panel’s Republicans. Royce would have to clear hurdles both within Congress and back home to win the post. Other strong candidates for the chairmanship include Deputy Whip Patrick McHenry of North Carolina, whose district has a heavy banking industry presence. Financial services lobbyists say GOP Reps. Bill Huizenga (Mich.), Blaine Luetkemeyer (Mo.), Frank Lucas (Okla.), Pete King (N.Y.) and Sean Duffy (Wis.) are also names to closely watch."
— Mueller going to Trump's bank records. White House press secretary Sarah Huckabee Sanders denied it Tuesday, but among others, the FT confirms: " Deutsche Bank has begun sending information about its dealings with Donald Trump to US investigators probing alleged Russian interference in the 2016 US presidential race following a subpoena by Robert Mueller, the special counsel heading the federal inquiry.
A person with direct knowledge of the German bank’s actions told the Financial Times the production of Trump-related documents had begun several weeks ago. 'Deutsche could not hand over client information without a subpoena,' said a second person with direct knowledge of the subpoena. 'It’s helpful to be ordered to do so.' The move is a signal Mr Mueller’s probe may be moving beyond contacts made between Mr Trump’s campaign and Russian officials and into the billionaire’s business dealings while heading the Trump Organization before entering politics."
— The durability of Pence-in-the-dark. CNN: "New revelations about Michael Flynn's lies to the FBI are laying bare Vice President Mike Pence's in-the-dark strategy when it comes to Russia's election meddling, raising new questions about whether he could have been left in the dark as he has argued for nearly a year. Advisers have long insisted that Pence was unaware Flynn spoke to then-Russian Ambassador to the US Sergey Kislyak about a new set of US sanctions on the day they were announced last December.
But court filings unsealed last week, paired with new details about President Donald Trump's own knowledge of events, indicate a wide circle of advisers were aware that Flynn raised the issue when he spoke by phone to Moscow's envoy -- even as Pence reportedly remained in the dark. The new questions raised by special counsel Robert Mueller's investigation signal what could be a pivotal moment in Pence's careful calibration of trying to keep a safe distance from the Russia probe even while maintaining his credibility for being left out of the loop by the West Wing."
— Mulvaney curbs the CFPB. NYT's Jessica Stilver-Greenberg and Stacy Cowley: "The defanging of a federal consumer watchdog agency began last week in a federal courthouse in San Francisco. After a nearly three-year legal skirmish, the Consumer Financial Protection Bureau appeared to have been victorious. A judge agreed in September with the bureau that a financial company had misled more than 100,000 mortgage customers. As punishment, the judge ordered the Ohio company, Nationwide Biweekly Administration, to pay nearly $8 million in penalties.
All that was left was to collect the cash. Last week, lawyers from the consumer bureau filed an 11-page brief asking the judge to force Nationwide to post an $8 million bond while the proceedings wrapped up. Then Mick Mulvaney was named the consumer bureau’s acting director.
Barely 48 hours later, the same lawyers filed a new two-sentence brief. Their request: to withdraw their earlier submission and no longer take a position on whether Nationwide should put up the cash. It was a subtle but unmistakable sign that the consumer bureau under Mr. Mulvaney is headed in a new direction — one that takes a lighter touch to regulating the financial industry."
— CVS <3 FTC. Reuters: "It is uncertain who in the U.S. government will carry out an antitrust review of CVS Health Corp’s deal to buy health insurer Aetna Inc but the drugstore company is likely hoping the potentially more lenient Federal Trade Commission gets the nod, antitrust experts say. The Justice Department’s Antitrust Division and Federal Trade Commission share the job of reviewing mergers to make sure they don’t hurt consumers, but sometimes it comes down to a coin toss as to who reviews a deal that involves both agencies’ areas of expertise... 'If I were the parties, I would try to steer it to the FTC,' said Fiona Schaeffer of the law firm Milbank, Tweed, Hadley and McCloy. She described CVS’s plan to buy Aetna as 'eminently approvable' by either agency because critics would be unable to come up with a convincing theory to show the deal will harm consumers."
Nice work if you can get it: Per the WSJ, outgoing Aetna CEO Mark Bertolini stands to reap $500 million if the deal closes. The windfall would come from a cushy exit payment and a bump in the value of the stock and rights he owns.
From The Post's Kevin Schaul and Kevin Uhrmacher: "Can Democrats win back the House in 2018? It'll be tough:"
- The Information Technology and Innovation Foundation will hold an event on National Competitiveness in the Global Economy.
- The Senate Special Committee on Aging holds a hearing on “America’s Aging Workforce,”
Fact Check: Does the Senate tax bill really offer a tax break for private jets?:
Late-night comedians react to President Trump's endorsement of Roy Moore for Alabama's U.S. Senate seat:
‘I was a victim of childhood sexual abuse’: CNN host Don Lemon shares his story:
Tracee Ellis Ross talks about the Hollywood sexual harassment scandals on Jimmy Kimmel Live: