Will Dodd-Frank reform get entangled in shutdown politics?

WASHINGTON — In the current political environment, the idea that a dozen senators from the minority would join Republicans to support a limited bill to ease certain Dodd-Frank Act restrictions seems unusual.

The brief government shutdown, setting up another budget battle in weeks, combined with the immigration debate and a variety of inter- and intraparty squabbles, does not bode well for bipartisan progress on substantive legislation.

Yet analysts still believe the coalition of GOP supporters and moderate Democrats backing Senate Banking Committee Chairman Mike Crapo's regulatory relief bill will hold. Some, however, say the charged political atmosphere may hold up passage of the legislation. Progressives, meanwhile, are heaping pressure on Democrats to drop their support.

“We still believe it will pass Congress. But acrimony in other areas isn't helpful, and we're watching that closely," said Ian Katz, a director at Capital Alpha Partners. "Passage gets more difficult if the bill hangs around without any action while the parties fight about other issues.”

Some industry watchers in Washington were surprised last week when — before the shutdown came and went — Mark Calabria, Vice President Mike Pence’s chief economist, pegged the chances of Crapo's bill passing before the midterm election at less then 50%. The reason, he said, is other priorities such as infrastructure spending taking precedence.

“The reality is, where is it going to be in the queue and will [Congress] get to it before” the midterm elections, said Calabria, who noted he was not speaking on behalf of the administration.

But others quickly shot down the notion that the bill could be held up, and there have been no signs of support waning for Crapo's bill.

Four moderate Democrats on the Banking Committee — Jon Tester of Montana, Heidi Heitkamp of North Dakota, Joe Donnelly of Indiana and Mark Warner of Virginia — negotiated the bill, which is seen as a compromise to enact limited changes acceptable to both sides. Eleven Democrats, plus Angus King, I-Maine, support the bill.

Calabria "is right to point out that there are ... other priorities being discussed in D.C., but … there is bipartisan agreement and there is clearly enough votes to get over the filibuster and it is a high priority for Congress and industry,” said Ed Mills, an analyst at Raymond James. He added, "You don’t lose a lot of bets by saying something is going to take longer than expected in D.C."

Others said a vote on the Crapo bill occurring later on the calendar than originally planned might be the extent of fallout damage from the shutdown.

“The biggest impact [of] the budget and immigration battles is [a] delay in timing,” said Brandon Barford, a partner at Beacon Policy Advisors. “To the extent that this takes all the oxygen out of the Senate going into February and maybe into March, that pushes back the disposition and, I think, passage of the bill from the full Senate, which would then trigger some sort of reaction from the House.”

The bill could also become more of a political target for Dodd-Frank's most ardent supporters as Crapo's legislation waits to be called up by Senate Majority Leader Mitch McConnell, R-Ky.

The progressive campaign group Rootstrikers, for instance, is calling on the 11 Democrats and King, who caucuses with the Democrats, to drop their support and for Democratic leadership to push for an open process where amendments to the bill could be considered.

“If you are on the wrong side of this bill, especially if you are a Democrat, there is going to be a political cost to that,” said Kurt Walters, campaign director at Rootstrikers.

During the bill’s committee markup, the four moderate Democrats that supported the bill along with the panel's 12 Republicans resisted allowing any substantive changes to the bill to be voted on despite pressure from both sides to add amendments. The strategy ensured that the agreement would remain intact.

But the bill could also become a proxy for other intraparty tensions. Democrats that ultimately voted to reopen the government after the recent shutdown have faced angry criticism from their base, upset that they did not fight harder to help recipients of the Deferred Action for Childhood Arrivals program, so-called Dreamers.

“The Democratic base is already incredibly angry with Senate Democrats for caving in the shutdown fight and leaving Dreamers in the lurch,” Walters said. “For the next major Senate action to have 12 Senate Democrats teaming up with Trump and Senate Republicans to help dismantle President Obama's legacy-defining financial reforms would be unforgivable.”

However, many of the bill’s Democratic supporters are running for re-election in states that were carried by Trump in 2016 and are looking to prove that they can pass business-friendly bipartisan legislation.

“It is in their best interest electorally to pass something,” Barford said. “Everyone wants to go into the summer where the campaign season gets into full swing with achievements.”

The deal that was struck by Crapo and the four committee Democrats was the result of years of negotiations. Despite a potential perception that the bill benefits politically toxic Wall Street, in reality it does very little to help the biggest banks.

But observers said the onus also falls on Crapo not to allow his caucus to push for more dramatic reforms, which could hurt the bill's chances.

"It is also going to depend on what amendments are going to be offered — where Republicans are going to take that bill too," said Karen Shaw Petrou, managing partner at Federal Financial Analytics. "Crapo is going to have to hold his side as well. It’s better positioned than most bills, but anything that goes to the floor now faces a circular firing squad.”

McConnell pointed to the bill during a December press conference as one of the few areas where Democrats and Republicans could come together and said he would like to pass the bill soon.

“Chairman Mike Crapo has come up with a revisitation of Dodd-Frank to give some relief to smaller financial institutions, who were ... sort of the collateral damage of Dodd-Frank,” McConnell said. “That's an item I'm almost certainly going to call up.”

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