The Senate may not flip but Banking Committee is poised for shake-up

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WASHINGTON — With Republicans close to holding Senate control, the status quo of a divided Congress is likely to remain in place even with a new president. But the Senate Banking Committee is poised for a leadership shakeup.

If the GOP wins just one of the Senate runoff elections in Georgia, it will hold the majority. In that scenario, Sen. Pat Toomey will likely chair the Senate Banking Committee, with current Chairman Mike Crapo, R-Idaho, expected to lead a different panel.

While Crapo has championed several industry causes — including the 2018 regulatory relief package — Toomey, a former banker, is seen as an even fiercer defender of the free market and a louder opponent of government intrusion. An early issue in Toomey's chairmanship could be whether Congress extends Federal Reserve pandemic relief programs, including the Main Street Lending Program. The Pennsylvania Republican has already indicated he wants the programs to expire at yearend.

“Clearly Toomey would like to end the emergency authority granted to the Fed and Treasury to assist medium-sized businesses,” said Ed Mills, a policy analyst at Raymond James. “If that’s the first fight, that could certainly be a partisan fight from the get-go, especially if a Biden-chosen Treasury secretary is about to get access to that funding.”

Observers said Toomey could forge deals with Sen. Sherrod Brown, D-Ohio, on bipartisan issues such as cannabis banking reform. But if Toomey gets the gavel, many predict starker partisan differences between the two lawmakers than exists under Crapo. (If Democrats win both Georgia Senate races and seize the majority, Brown is then expected to become chairman. It is unclear who the Republicans' ranking member would be.)

Observers caught a glimpse of the stark ideological differences between Sen. Sherrod Brown, D-Ohio, and Sen. Pat Toomey, R-Pa., who could soon chair the Senate Banking Committee, during a hearing with Fed Chairman Jerome Powell.
Observers caught a glimpse of the stark ideological differences between Sen. Sherrod Brown, D-Ohio, and Sen. Pat Toomey, R-Pa., who could soon chair the Senate Banking Committee, during a hearing with Fed Chairman Jerome Powell.

Toomey's staunch free-market views could clash with the comparably progressive views of Brown, according to some analysts.

"It’s going to take on a new somewhat confrontational tone compared to what was a subdued and largely respectful relationship between the chairman and the ranking member,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.

Toomey's statements in recent hearings calling for the Fed's emergency lending facilities to be wound down set up a potential clash with Democrats when the new Congress gets to work in January. He is also expected to conduct tough oversight of regulators appointed by Biden, and push back against progressive regulatory reforms advanced by the new administration.

Former staffers and industry observers say that Toomey will likely be a backstop against a Democratic proposal, for example, requiring banks to conduct stress tests for climate change, as well as other proposals resulting in higher regulatory burdens.

“His first reaction is not to look to the government for answers,” said a financial services lobbyist who spoke on the condition of anonymity. “It’s probably not even his second response either.”

Before he came to Congress in 1999, Toomey's non-political career included a stint at Chemical Bank, a predecessor to JPMorgan Chase, where he worked on currency swaps. He later was involved in derivatives at Morgan, Grenfell & Co., before it was acquired by Deutsche Bank. He has also served as president of Club for Growth, a conservative organization and super PAC focused on cutting taxes, free trade and deregulation.

“Coming from a position of being the president of Club for Growth at one point, I think he looks at the powers and the scale of some of these independent agencies and questions the growth of their powers and the influence over the financial sector and the economy,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.

Observers got a glimpse of the stark ideological differences between Toomey and Brown at a June Senate Banking Committee hearing with Fed Chairman Jerome Powell.

In his opening statement, Brown spoke about a need for policymakers to address racial inequities in the economic system. “Whenever we try to fix it, the people who created and perpetuate that system, people who have no problem intervening in the market to save corporations and the white men who run them say, ‘Oh no, we can’t have government meddling in the economy,’" Brown said. "Let's be clear: governments always intervene in the economy. It's only been a question of who it's intervening on behalf of? Corporations, the wealthy, the privileged, or the people who make this country work?”

As Brown was speaking, Toomey was caught on a hot mic saying in reference to the Ohio Democrat's comments, “He is so shameless.”

Still, industry representatives and former congressional staffers say there is room for common ground between the two senators. Some believe they could strike a deal on legislation to make it easier for companies to go public.

“[Toomey] has had a longstanding interest in improving our capital markets for emerging growth companies, private companies, identifying opportunities to improve our securities laws,” a former Republican staffer said.

And it is possible that Toomey would be more open to working with Democrats on legislation that would enable banks to serve cannabis businesses in states that have legalized the substance.

“There might be a slight easing of the view of cannabis banking at least from Senator Toomey, particularly after these elections where more and more states have legalized cannabis and you are going to have billions of dollars from the cannabis industry in multiple states now,” said Merski. “The reasonable approach of being able to bank those dollars, I think we are going to see a little bit more opportunity there with Senator Toomey.”

Since Toomey recently announced that he is not running for reelection in 2022, the senator could be in a better position to cut deals with Democrats.

“My gut is that Senator Toomey is liberated from the burdens of reelection and so he is liberated from many political considerations at this point,” said Milan Dalal, managing partner at Tiger Hill Partners and a former Democratic Senate staffer. “So you are going to see Senator Toomey follow his conscience and do what he thinks is right.”

The former Republican Senate staffer said Toomey may try to forge more agreements on legislation than his critics expect.

“There is no question that he has deep-rooted principles and a lens through which he views policy issues that come before the Banking Committee,” the former staffer said. “But I think we’ve seen evidence that he is more pragmatic than some of the portraits that have been painted of him.”

But Boltansky noted that a potentially fraught relationship between Toomey and Brown would be a departure from the current Senate Banking Committee leadership, where Crapo and Brown had some degree of “personal affinity,” despite their policy disagreements.

“I know that Toomey and Brown do not have that same degree of personal relationship,” Boltansky said.

Mills agreed that while “Brown and Crapo could disagree without being disagreeable, ... it will be a slightly greater challenge" between Toomey and Brown.

Toomey’s limited government ideology was evident in his previous opposition in to reauthorizing the Export-Import Bank, even as a number of Republican senators attempted to work with Democrats to reuthorize the bank. The bank was finally reauthorized in late 2019 to Toomey's dismay.

Toomey “was very out front in the opposition to reauthorization,” said Graham Steele, director of the Corporations and Society Initiative at the Stanford Graduate School of Business and a former aide to Brown.

The senator also helped lead GOP efforts during the Obama administration to reverse a Consumer Financial Protection Bureau guidance restricting indirect auto lenders.

The differences between Toomey and Brown could come to a head if Congress considers additional coronavirus stimulus legislation.

Toomey has said that the Fed's emergency lending facilities, including the Main Street Lending Program and the Municipal Liquidity Facility, should end when they are set to expire next month. Democrats have pushed to extend the facilities, as well as for broader fiscal stimulus.

"This series of programs did their job," Toomey said at a recent hearing. "The private sector is providing the capital that's needed. It's now time to terminate these programs, which is exactly what was contemplated by the [Coronavirus Aid, Relief and Economic Security Act]."

Toomey would also have the ability to block Biden from nominating progressive policymakers to lead financial regulatory agencies, but a former staffer who worked on financial services issues for Toomey said the senator will likely facilitate Biden’s nomination process if the incoming administration picks qualified individuals.

“If somebody is qualified for the position even if he doesn’t agree with him or her, he will put the nominee through,” Toomey’s former staffer said. “I was with him when Obama was president. … He didn’t like to vote ‘no’ unless there was a really good reason.”

Toomey and Brown could clash on an industry-backed proposal reforming anti-money-laundering requirements that Crapo and Brown agreed to support as a potential amendment to a defense spending bill.

The legislation would require businesses to disclose their true owners to the Financial Crimes Enforcement Network at the point of incorporation, shifting that burden away from banks.

If that legislation is not passed this year, it would face an uphill battle with Toomey as the top Republican on the Senate Banking Committee. He has stated his reservations about the legislation. His former staffer said the senator likely wouldn't take up the legislation as chairman because he is concerned that “it also may have the unintended effect of making it more difficult for private companies to raise capital.”

The financial services lobbyist said there could be also be a fight brewing between Democrats and Republicans over banking policy proposals related to climate change. Democrats in the House and Senate have been pressing federal regulators to do more to address financial risks associated with climate change.

“To the extent Democrats on the committee want to pass some sort of ‘banking industry climate change’ legislation, I think from Toomey’s perspective, he thinks the banks can already do that,” the financial services lobbyist said. “They are in the business of writing loans and getting paid back for their money. They are not going to write a loan or a mortgage on a house that’s sitting at or below sea levels that’s going to be flooded within the term of the loan. And I think that’s a different perspective than maybe Senator Brown would take.”

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Election 2020 Pat Toomey Sherrod Brown Senate Banking Committee Coronavirus Cannabis AML Climate change