U.S. midterm elections brought a degree of sweet payback for banks miffed about financial reform and President Barack Obama’s populist rhetoric. Their campaign dollars helped fund huge Republican gains. But the new Tea Party-infused GOP will present as many challenges as opportunities.
Wall Street certainly made its displeasure clear to Democrats. During the 2008 campaign, Goldman Sachs — through individuals and its political action committees — gave 25 percent of campaign cash to Republicans. This time around, it was 59 percent. JPMorgan went from 40 percent to 52 percent and it was the same story, more or less, for Citigroup and Bank of America Merrill Lynch.
So what kind of return on investment might they expect? The House Financial Services Committee will now be run by Republicans who all thought Dodd-Frank considerably overreached. Any new attempts to regulate away banking profits and limit the size of institutions will be non-starters. The GOP also will have a greater ability to influence technical tweaks to the legislation and strictly oversee the regulators writing the rules. Both should moderate the reform’s impact, if only at the margins.
Greater Republican numbers in both chambers should also keep the dying White House bank tax proposal at bay. In the Senate, one of the Democrats most responsible for tougher derivatives rules, Blanche Lincoln of Arkansas, lost her re-election bid. And the likely new Senate Banking chairman, South Dakota’s Tim Johnson, is thought to be better for the industry than was his predecessor, Chris Dodd.
But the GOP tidal wave swept in Tea Party-backed candidates who think banks should have been left to fail in 2008. They’ll probably pressure colleagues to take Fannie Mae and Freddie Mac off government life support, a notion which won’t cheer the many banks that think fully privatizing housing finance is a risky proposition. And lenders may be hard-pressed to find support from the Washington newcomers if the economy should go south again.
Banks have complained all year they have no friends left in Congress. Tuesday’s election may not have changed the situation as much as they had hoped.