Wall Street’s Hopes for the New Congress Go From Not-So-Good to Oh Dear

(Bloomberg Businessweek) -- The House Financial Services Committee has long been a coveted gig for any member of the U.S. Congress—Democrat or Republican. The panel helps shape major economic policies but, more important for members perpetually up for reelection, it virtually guarantees access to campaign cash from the banks, hedge funds, and other financial companies keen to keep them happy.

As it seemed more and more likely that the majority would change in the new Congress, Wall Street began directing its political dollars toward moderate Democrats who might be able to counter liberals eager to draw Republican blood. For the first time since 2008, the securities and investment industry spent more on Democratic candidates—$61.1 million—than it did on Republicans, who received just $37.1 million in the midterm election cycle, according to the Center for Responsive Politics. Bankers were never optimistic that a Democrat-controlled House would pass legislation that would benefit them in any major way, but they figured there might still be opportunities for marginal victories on such issues as tweaking anti-money-laundering rules and easing some capital requirements, lobbyists said.

Their hopes faded significantly when the new membership of the Financial Services Committee was approved on Jan. 15. The prospective lineup of 34 legislators included eight new members from the Congressional Progressive Caucus, including freshmen and self-proclaimed democratic socialists Alexandria Ocasio-Cortez from New York and Rashida Tlaib of Michigan, in addition to long-serving firebrand Maxine Waters of California as chair. The ATM, as the finance panel has sometimes been known, appears poised for a radical change. “The House Financial Services Committee is no longer for sale to the highest bidder,” says Marcus Stanley, policy director of the left-leaning advocacy group Americans for Financial Reform. “The finance industry has gotten used to having a megaphone with this committee. Not anymore.”

The committee is one of the largest in the House and considered one of the most desirable assignments. But this year Democrats initially appeared to have trouble getting enough members to join, according to lawmakers, congressional staffers, and lobbyists. Many of those who did get a spot, including Ocasio-Cortez and Tlaib, have promised to refuse corporate donations. Waters of California has pledged an aggressive agenda that will include tougher oversight of regulators such as the Consumer Financial Protection Bureau, and more scrutiny of financial companies including Equifax Inc. and Deutsche Bank AG. But she’ll have to balance the competing demands of the new liberal firebrands with those of business-friendly moderates.

“This was known as the ‘juice’ committee. There is no more juice,” Waters said at a recent event sponsored by the liberal think tank Center for American Progress, where she also welcomed the more outspoken new members. “If you take a look at our new committee, you will see it is diverse. We have a lot of new people on the committee. People who have come have expressed in their campaign what they care about. That they care about looking out for families. They care about making sure that our big financial institutions are held accountable.”

The panel’s reputation for Wall Street coziness is one reason many Democrats have been turned off. Since the financial crisis, taking money from Wall Street has become a liability for some members of the party. Some moderate lawmakers who accept contributions have faced a backlash from colleagues and organizations on the left in advertisements and fundraising campaigns against them. In turn, some of the most liberal members of the party have found opportunities to raise money through small-dollar contributions from individuals and groups that want to stick it to Wall Street.

Another reason rank-and-file Democrats aren’t angling to join: Finance issues aren’t as sexy as they used to be. In the wake of the financial crisis, Democrats sunk their teeth into bills such as the 2010 Dodd-Frank Act. No longer. “I’ll be frank, the Financial Services Committee has a narrow bandwidth,” says Dan Kildee, who was a top-ranking Democrat on the finance panel before he left this year to join the Committee on Ways and Means, which handles higher-profile issues including trade and tax reform. “Some committees, the jurisdiction is in season. And sometimes, it’s not in season.”

Democrats were eventually able to recruit enough members by turning to their colleagues on the left, mainly freshmen. The strategy wasn’t only pragmatic. Some lawmakers, including Waters, and outside groups lobbied hard to make sure there were seats to counter the moderate influence that’s hampered past attempts at more aggressive reform. Helping their cause, House Speaker Nancy Pelosi promised the Congressional Progressive Caucus that 40 percent of the most important committees would consist of its members. “There are a number of new members of Congress who are particularly interested in confronting outsize corporate power,” says David Segal, executive director of activist group Demand Progress, who pushed to get more progressives on the committee. “The Financial Services Committee is a forum where they can do that.”

The challenge for Waters will be to balance the demands of these new left-leaning members with those of the moderates, many of whom have seniority on the committee and are eager to work with Republicans, including on legislation Wall Street supports.

Even as Waters recruited from the left, she reached out to the center. As chairwoman, it’s also her job to help members raise money—regardless of the source. “She understands we have a big tent in the party,” says Representative Josh Gottheimer, a moderate from New Jersey who recently met with Waters. “She has always been a dealmaker, and I think she will help us find common ground.”

Wall Street’s agenda, executives say, is pure defense. The private conclusion among lobbyists appears to be to keep their heads down and hope Waters trains her sights elsewhere. Michael Williams, who represents financial companies and has worked with the panel for years, says a lot of the fear about the committee is overblown. “What I tell my clients is, if you did not engage in any illegal activities, why be concerned about some congressional oversight?” he says. “It is a necessary part of the policy process and won’t kill you.”

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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