• Wall Street gets little on its Washington wish list in 2015
  • Industry had lobbied over broker rules and lender supervision

Last December, Wall Street won its biggest lobbying victory since the financial crisis when lawmakers agreed to roll back costly derivatives rules imposed on the biggest banks. This week as Congress prepares to leave Washington, the industry emerged from the legislative scramble not only empty handed, but with their collective pockets picked of some $7 billion as well.

What a difference a year makes.

Virtually nothing on the banking wish list, which included preventing the Labor Department from imposing tough rules on brokers and winning relief for mid-size lenders from extra Federal Reserve oversight, was included in the $1.1 trillion spending bill released Wednesday. Those failures were compounded by an even bigger loss earlier this month when lawmakers sliced a program that gives banks cash payments for keeping funds at the Fed. Republicans led an effort to take that money to pay for new highway and bridge projects, underscoring banks’ pariah status.

The losses don’t augur well for financial firms that have been seeking to regain some of the power they lost in Washington after being blamed for fueling the 2008 economic collapse, according to interviews with lawmakers, lobbyists and industry executives. Nor are any gains expected next year when the politics surrounding the 2016 elections are likely to slow Congress’s work to a near standstill.

“Pre-crisis, the banks usually had a reserved spot to put a star on the Christmas tree,” said Stephen Myrow, managing partner of Beacon Policy Advisors, an independent Washington research firm. “Now they are fighting with everybody else just to get an ornament on.”

Political Compromise

One reason banks failed to get what they wanted is that members of the House Freedom Caucus, made up of Republicans who are strident small-government conservatives, don’t support the bill that funds most federal agencies. As a result, Speaker Paul Ryan needed to secure votes from some Democrats to avoid a government shutdown. That gave Democrats unusual power to block measures they didn’t like.

Lenders were most upset over the loss of $7 billion that is part of the annual dividends they receive for holding stock in Fed regional banks. One of the most stunning aspects, according to lobbyists, was that the decision to tap banks to help pay for the $305 billion highway bill came courtesy of Senate Majority Leader Mitch McConnell. Wall Street’s typical adversary, Massachusetts Democratic Senator Elizabeth Warren, didn’t even have to get involved.

After it became clear that Congress was eying Fed payouts to banks for infrastructure projects, JPMorgan Chase & Co. helped lead a campaign to find an alternative solution. JPMorgan presented a revised plan, which entailed using a different pot of Fed money, to McConnell personally in a meeting on Capitol Hill, said two people familiar with the matter who asked not to be named because the talks were private. To banks’ dismay, McConnell ultimately decided to use both.

“While the Senate had many options for funding the highway bill, Senate Democratic leadership nixed nearly all of them,” McConnell’s spokesman Don Stewart said in an e-mail. JPMorgan spokesman Andrew Gray declined to comment.

After the setback, SunTrust Banks Inc. balked at hosting an annual holiday party sponsored by a coalition of regional banks that’s typically attended by members of Congress, their staff, the media and lobbyists.

Mini Hamburgers

Other regional banks scrambled to find a new venue, ultimately moving the party from a historic SunTrust branch located across the street from the Treasury Department to the Washington Nationals baseball stadium on the other side of town. Instead of the usual upscale fare, attendees dined on mini hot dogs and hamburgers.

A SunTrust spokeswoman declined to comment.

Industry pleas went unheeded in other policy fights as well.

Wall Street has spent more than five years trying to stymie the Labor Department regulation, which would require brokers who handle retirement accounts to put investors’ interests first. Despite industry arguments that the plan will increase costs and limit choices for small investors, lawmakers refused to address the rule in the spending bill.

Financial firm proposals to rein in the Treasury-led council of regulators and change the funding for the Consumer Financial Protection Bureau were also dead on arrival.

Loosening Oversight

Regional banks such as SunTrust, PNC Financial Services Group Inc. and Capital One Financial Corp. lost their main battle to raise the asset threshold for being deemed a systemically important financial institution, a label that subjects lenders to tough capital requirements and stricter Fed supervision. Had the banks successfully inserted a measure in the spending bill, billions of dollars may have been freed up to increase payouts to shareholders.

Democratic Senators Mark Warner of Virginia, Heidi Heitkamp of North Dakota, Jon Tester of Montana and Joe Donnelly of Indiana supported increasing the threshold to $100 billion from $50 billion. Senate Banking Committee Chairman Richard Shelby, an Alabama Republican, objected because he didn’t believe the change would have provided relief for enough banks.

“Democrats continue to reject any meaningful reforms to reverse the damage done by over-regulation,” said Shelby, who proposed legislation earlier this year that would have raised the threshold to $500 billion.

If there is a silver lining for banks this year, it was that they racked up a few victories thanks to Washington’s regulatory agencies. Just hours after lawmakers released the spending bill Wednesday, the Commodity Futures Trading Commission approved a rule that will allow Wall Street to escape billions of dollars in additional collateral costs on derivative trades.

Still, the financial industry lacks the political capital needed for major legislative wins, said Jaret Seiberg, an analyst at Guggenheim Securities.

“There’s still a ton of populist anger over the financial crisis,” he said. “No member of Congress wants to be tagged as pro-Wall Street.”

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