Rep. Maxine Waters (D-Calif.) speaks at the 2018 California Democrats State Convention in February. (AP Photo/Denis Poroy)
Some big bank chiefs are waking up to a headache this morning.
The House Democratic takeover likely means Rep. Maxine Waters (D-Calif.) will seize the gavel of the House Financial Services Committee. And industry insiders expect her to subject certain firms to painful scrutiny while also throwing a wrench into the Trump administration’s deregulatory push.
Wells Fargo, with its litany of consumer abuse scandals, tops the list of megabanks in line for rough treatment under the committee’s hot lights. Waters issued a report last year that called for shuttering the bank. (The bank's troubles have continued to mount, and it acknowledged Tuesday it had improperly foreclosed on 545 homeowners.) Waters has introduced legislation (“The Megabank Accountability and Consequences Act”) requiring bank regulators to dismantle any big firm found to have repeatedly harmed consumers.
Other companies are likely to find themselves newly in the committee’s sights. Among them: Equifax, the consumer credit company that exposed the data of up to 148 million people in a data breach last year, and Deutsche Bank, which supplied hundreds of millions of dollars in loans to the Trump Organization when other banks turned it down. “Waters has requested — and as the committee head could subpoena — records that could dislodge closely held details of Deutsche Bank’s relationship with the Trump Organization,” my colleague Karoun Demirjian writes. “The German bank lent Trump more than $400 million during a decade-long real estate buying spree that began in 2005, largely through its private wealth management office, not the commercial banking division that typically handles real estate.
A key question for these firms is whether the attention will amount to more than a public drubbing. “A lot of this is headline risk, but they have to prepare to handle that and make sure it doesn’t spiral into real regulatory or legal concerns,” says Jason Rosenstock, a partner at the lobbying firm Thorn Run Partners.
The legislative threat facing these companies is tempered by the fact that Senate Republicans aren’t likely to support punitive measures emerging from the House — and President Trump can always wield his veto pen.
That said, Capital Alpha’s Charles Gabriel wrote in a recent note, Trump “can’t be counted to lean against any populist anti-bank wave if it gains velocity (particularly of the bipartisan nature) in the Senate. Nevertheless a one-chamber, House-led/Democratic attack on Wells and other banks is unlikely to do much more than further accentuate the better treatment being afforded mid-sized banks.”
The logo for Wells Fargo appears above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)
Waters has built a national profile over the past two years as an anti-Trump firebrand, but Washington veterans recognize her as a practiced dealmaker. “People are using this refrain that she’s a very skilled legislator,” one banking lobbyist tells me. Politico recently noted her “surprising willingness to work across the aisle and with industry groups,” in a profile that featured praise from Republicans on the committee and some leading industry lobbyists.
“I believe in hearing a range of views on the issues before the Committee, which are complex,” Waters said in a statement. “I have always maintained an open door policy, to hear the priorities and concerns of all stakeholders, including representatives of the financial services industry, as well as advocates. I look forward to continuing to work with Members on both sides of the aisle on sensible solutions to benefit hardworking Americans and strengthen our nation's economy.”
Beyond zeroing in on some financial services heavyweights, look for Waters to push back against the Trump team’s broader effort to ease rules on the industry. And as Capital Alpha’s Ian Katz notes, she wouldn’t need to move legislation to accomplish the task. Rather, Waters could slow the progress regulators are making toward rolling back industry restrictions simply by keeping their inboxes full with requests to testify, answer questions and supply documents. “One impact that has been a little understated and maybe not fully appreciated is that when she calls up regulators, that takes a lot of bandwidth for those agencies to prepare for hearings,” Katz says. “If you have a pretty big to do list like they do at the Fed, that can really slow you down.”
The Trump administration now has installed nine of the ten financial regulators, Compass Point’s Isaac Boltansky notes, arguing the “regulatory relief agenda will continue no matter the outcome of the election.” But he also added a Democratic majority “could slow the deregulatory agenda through hearings, subpoenas, and public pressure.”
And Rosenstock raised the prospect of Waters borrowing from the GOP playbook and seeking to attach policy riders limiting Trump’s regulatory rollback to must-pass spending bills.
“I think everyone's nervous,” the other banking lobbyist said. “We remind clients all the time: if Democrats are in charge, they should be very wary of escaping without any wounds. Banks are everybody’s favorite boogeyman — and pay-for, and they should be very worried about both of those.”