In a high-stakes midterm election year, you wouldn’t think that conservative groups would be spending money to boost Senate Democrats.
But that’s exactly what Americans for Prosperity, an influential group funded by billionaires Charles and David Koch, just did. On Friday, the group made a digital ad buy thanking Sen. Heidi Heitkamp of North Dakota for her vote supporting a bill easing banking regulations and rolling back parts of the 2010 Dodd-Frank Act.
Though the bill has been cast as a way to help community banks out of onerous regulation, progressives like Massachusetts Sen. Elizabeth Warren have been outspoken about the dangers of easing stress tests of banks’ ability to survive an economic downturn — potentially enabling the same breakdowns that caused the 2008 financial crisis.
Still, many moderate Democrats said the bill was the best deal they could make in a Republican-controlled Congress. Lawmakers got to ease regulations on small and midsize banks, without changing the rules on larger ones like JPMorgan Chase, Bank of America, and Goldman Sachs.
Heitkamp wasn’t the only Democrat who co-sponsored and voted for the recent bill, brought up by Senate Banking Committee Chair Mike Crapo (R-ID). But as a member of that committee, she was one of its most ardent supporters among Democrats, attending the bill’s signing and defending it as a commonsense bipartisan measure to ease regulation on community banks.
Americans for Prosperity is a formidable political organization that typically works to elect Republicans to the Senate. The fact that the group is spending money on one of the most vulnerable Senate Democrats up for reelection in 2018 is startling. (AFP won’t say exactly how much money, but the group appears to have spent less than $100 so far, according to a Facebook estimate in a database of its digital ads.)
Here’s the ad AFP is running.
“This was a bipartisan effort made possible by lawmakers like Heidi Heitkamp, who put politics aside to work together,” said AFP president Tim Phillips in a statement. “While we don’t agree with Sen. Heitkamp on everything, particularly her vote against tax relief, we commend her for taking a stand against the leaders of her party to do the right thing.”
While Heitkamp and fellow red-state Senate Democrats Joe Donnelly and Jon Tester — who are all facing tough 2018 reelections — are only too happy to highlight areas where they’re working with Republicans and President Donald Trump, the Democrats’ 2020 field is dominated by progressive senators like Warren, Bernie Sanders of Vermont, and Senate Banking Committee ranking member Sherrod Brown of Ohio, who all staunchly opposed the bill and other deregulation efforts.
“Politically, it’s hard to see much upside to be associated with banks and deregulation and the possibility of another financial crisis,” said Mike Konczal, a fellow with the Roosevelt Institute. “If Democrats want to be competitive in red states and red areas of the country, they need a new playbook than just deregulating the financial sector and doing favors for corporations.”
What’s in the bill?
Heitkamp and her Democratic colleagues who voted for the bill have insisted they did so to provide relief to small community banks, but the bill’s opponents say it does plenty to relax the rules on larger institutions as well.
At the core of the Crapo bill is the assumption that the Dodd-Frank financial overhaul was overly aggressive and harmed smaller banks in attempting to rein in the larger financial institutions that caused the 2008 financial crisis.
The provision of the bill that has garnered the most attention is one that would raise the threshold at which banks are subject to certain federal oversight, including stress tests that measure a bank’s ability to withstand an economic downturn. Under current law, banks with assets of $50 billion or more are considered systematically important financial institutions (often referred to as SIFIs) and are therefore subject to stricter oversight from the Federal Reserve.
The Senate bill would increase the SIFI threshold to $250 billion. Banks with assets of less than $100 billion would be freed of current oversight requirements, and those between $100 billion and $250 billion would no longer be subject to tougher rules after 18 months, although the Fed could determine periodic stress tests and other tailored oversight measures. That would free up a lot of regional banks from the heightened regulatory scrutiny they face today, including BB&T, SunTrust Banks, Key Bank, and American Express. The bill could affect about two dozen banks in total.
All in all, 17 members of the Democratic caucus voted in favor of the bill — many of whom are up for reelection in 2018.
“Main Street businesses and lenders tell me that they need some regulatory relief if we want jobs in rural America,” said Tester, a Democrat facing a tough reelection battle in Montana this year, during a hearing about the bill. “These folks are not wearing slick suits in downtown New York or Boston. They are farmers; they are small-business owners; they are first-time homebuyers.”
But there’s no denying that both Tester and Heitkamp have been getting campaign contributions from banks — and not just from community-based ones.
Heitkamp has received more money from commercial banks than any other senator — $182,563 so far in 2018, according to OpenSecrets, including from Goldman Sachs. Indiana’s Democratic Sen. Donnelly is close behind with $152,109, while Tester has received $139,869.
“You can see the payoffs for having friends on both sides of the aisle when it comes to industry,” said Marcus Stanley, the policy director for Americans for Financial Reform. “When you’re on the banking committee, you become a target for industry lobbying. She’s been one of the more conservative members of the banking committee.”
The Democratic intraparty rift on this bill: whether to trust Trump-era regulators
Heitkamp, Tester, and others have pointed out that federal regulators still have the power to apply stress tests if they have concerns about them. But therein lies a big rift between Democrats when it comes to this bill: Progressives like Warren don’t trust federal regulators under the Trump administration to get the job done.
“They’re very skeptical of the ability of regulators to manage these banks,” Konczal said. “They’re worried that the regulators are captured by all the money that swirled around in this world.”
Warren herself has been capitalizing on the opposition to moderate Democrats’ votes, sending out a Senate fundraising email to her supporters calling Heitkamp’s and others’ votes “outrageous.” Heitkamp has made it clear that she doesn’t think much of that tactic.
“I think people in North Dakota don’t care what Elizabeth Warren thinks,” Heitkamp told the Atlantic’s Russell Berman in a recent interview. “I live in rural America, and she could say this about big banks or Wall Street bailouts — that’s certainly not what my community banks believe in North Dakota. I think it’s really unfortunate that she has misled people regarding this bill. I intend to go to the floor before this bill goes to final passage and correct the record.”
The Koch brothers agree with Heitkamp, and that’s likely to provide a boost in her race against North Dakota Republican Rep. Kevin Cramer in November — and Democrats need to defend a lot of tough Senate seats. But it also exposes a larger rift in the Democratic Party on consumer financial protection issues.
“I understand that red-state Democrats in 2018 are in a difficult state, but I think the way they overcome [this] is not by playing by this old playbook, which was already pretty rusty before the financial crisis,” Konczal said.