‘COVID, COVID, COVID’: Pandemic set to dominate ’21 banking agenda on Hill

WASHINGTON — As the coronavirus continues to exact a heavy toll on the nation, bankers can expect lawmakers on the House and Senate banking committees to maintain their focus in 2021 on mitigating the economic effects of the pandemic.

To be sure, the legislative agenda for financial services will be significantly affected by Tuesday’s critical runoff elections for the two Senate seats from Georgia, which will determine if the Republicans or Democrats control the chamber. But regardless of the outcome, observers say the pandemic will likely consume the majority of lawmakers’ attention in the new year.

COVID-19 “really turned the priority list upside down in March,” said James Ballentine, executive vice president for political affairs and congressional relations at the American Bankers Association. “Certainly there were issues that we were pursuing. … Not that we and Congress can’t walk and chew gum at the same time, but it required a real myopic focus on addressing what was going on with the world and how the banks could help.”

The industry may continue to pursue non-pandemic legislative priorities, such as a bill making it easier to provide banking services to marijuana businesses and further reforms to the anti-money-laundering framework. And banks will have a vested interest in the Senate confirmation process for regulators chosen by the incoming Biden administration.

In 2020, banks did win notable regulatory relief in Congress’s pandemic relief packages, most recently in provisions related to troubled debt restructurings and the compliance deadline for the Current Expected Credit Losses accounting standard.

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But bankers’ wish lists will likely take a backseat to continued debates about pandemic relief programs like the Paycheck Protection Program. And with the nation focused on vaccination programs and the alarming virus caseloads and death rates, banking policy generally will likely be low on Congress’s and the Biden administration’s agenda.

In 2020, banks did win notable regulatory relief in Congress’s pandemic relief packages, most recently in provisions related to troubled debt restructurings and the compliance deadline for the Current Expected Credit Losses accounting standard. And the industry’s biggest legislative victory was reform of shell-company rules — shifting beneficial-owner reporting requirements away from banks — in a defense authorization bill.

But the focus on the pandemic in the new year means bankers probably won’t win more sweeping reg relief from Congress in 2021. That said, they also likely will avoid any new regulations imposed by lawmakers, even if Democrats seize the Senate majority.

If lawmakers are able to enact any meaningful change in financial policy, it would likely have to be on reforms with support from both parties.

“I think it stands to reason that whatever is done will have to be done on a pretty broad bipartisan basis,” said Sam Whitfield, senior vice president of congressional affairs at the Consumer Bankers Association. “I don’t think the filibuster is going to be threatened. You are still going to need 60 votes. There’s still going to be incredibly tight ratios in the committees. If anything it hopefully forces people to work more closely together.”

Regardless of the outcome of the Georgia Senate elections, neither party will hold a substantial majority in the chamber.

Meg Tahyar, co-head of the financial institutions group at Davis Polk & Wardwell, said the financial services sector likely isn’t at the top of President-elect Joe Biden’s to-do list.

“I don’t think that financial regulatory legislation is going to be high on the agenda,” Tahyar said. “I think no matter what the results are of the Georgia Senate races, it seems to me that the Biden administration, that their attention is elsewhere — on the economy, on fiscal, on climate. I just don’t see them using a lot of political capital on financial regulatory reform.”

What’s unclear is whether Congress will continue to advance economic stimulus legislation and increase funding for pandemic relief programs, such as the Small Business Administration-managed PPP.

Congress will also be dealing with new nominations to financial services posts within the Biden administration. The outcome of the Senate elections will likely determine whether Biden will be able to nominate progressive policymakers to serve at the financial regulatory agencies.


After Congress passed legislation to funnel roughly $900 billion into the economy to contain the fallout from the coronavirus pandemic, bankers will likely be in a wait-and-see mode for additional stimulus measures.

“When we think about the year ahead, the items on the agenda list will be COVID, COVID, and COVID,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “I think everything will be driven by the ongoing response, oversight of the response, and the arch of the recovery thereafter.”

The most recent stimulus legislation includes $284.5 billion in PPP funding for first- and second-time borrowers, $20 billion for the Economic Injury Disaster Loan advance program, $25 billion in emergency rental assistance and $12 billion in funding for community development financial institutions and minority depository institutions.

There could be more money on the way if Democrats win the Georgia Senate races. But Republican control of the chamber could mean the end of economic stimulus in response to the pandemic.

If Republicans maintain control of the Senate, Sen. Pat Toomey of Pennsylvania is poised to become chair of the Senate Banking Committee. In late 2020, Toomey led GOP calls for the Fed to shut down congressionally funded lending facilities that had been launched in response to the pandemic.

“Republicans have no stomach for another COVID-19 bill,” said Dan Crowley, a partner at K&L Gates. “They held their nose on this one. Pat Toomey tried to shut off the use of the discount window to fund liquidity facilities seemingly because he is fearful that if the Democrats had the ability to do whatever they want, they would run that program for purposes other than to avoid economic catastrophe.”

If Democrats gain control of the Senate, Sen. Sherrod Brown of Ohio will head the Banking Committee. In either scenario, Rep. Maxine Waters, D-Calif., will hold the gavel on the House Financial Services Committee.

Regardless of the outcome of the Georgia elections, Ballentine said bankers may have to wait until later in the new year to get another round of coronavirus-related relief.

“We obviously will continue to work extremely proactively on another round of funding for COVID relief,” Ballentine said. “And I think that’s an appropriate place for Congress to place its attention. … Whether that’s the first six months of the year or nine months of the year, that will be our focus — to help consumers and small businesses to help get through this crisis.”

No matter which party controls the Senate, Congress will likely hold oversight hearings to examine the PPP, the Fed’s remaining emergency lending facilities, and other pandemic relief programs. The Coronavirus Aid, Relief, and Economic Security Act, enacted last spring, created the Congressional Oversight Commission to examine pandemic relief spending.

“You are going to also see oversight on the pandemic programs, the PPP and [Main Street Lending Program], and I think you will see that happening through that commission that has been created,” Tahyar said.

Boltansky said that if Toomey chairs the Senate Banking Committee, he will likely continue to push to limit the Fed’s power.

“If Toomey is the chair, we will see a more pronounced focus on oversight, which will of course include the Federal Reserve 13(3) facilities and any attempts to institute new programs,” Boltansky said.

Bankers will likely continue to push to streamline the PPP loan forgiveness process.

“That has been one of the biggest focuses for CBA ever since the CARES Act passed and it will continue to be to make sure the implementation of that and rulemaking and guidance that is done by SBA and Treasury that we are communicating to the Hill how it is going, what is needed,” Whitfield said.

No ‘pie-in-the-sky’ reforms

As a presidential candidate, Biden had issued policy documents including progressive reforms to break up the biggest banks and establish a postal banking system. The prospect of Republicans’ controlling the Senate or the possibility of a slim Democratic Senate majority mean that those ideas won’t see the light of day.

Democrats will gain the majority in the Senate if they win both Georgia seats, whereas the GOP will retain the majority only if it wins one of the seats.

“I don’t think that there is anything that’s pie-in-the-sky that happens,” said Ian Katz, a director at Capital Alpha Partners. “There was talk about breaking up big banks or a real crackdown on private equity. I don’t think that two more votes in the Senate changes that. I still think that you have a number of conservative or moderate Democrats that won’t go along with breaking up the big banks.”

Biden’s proposal to reform the credit reporting system and create a public credit reporting agency may also be dead on arrival, especially if Republicans control the Senate.

“There is legislation that would in our opinion possibly weaken the underwriting process,” Whitfield said. “The dispute resolution process that already exists at the credit bureaus works pretty well.”

Some bankers have also worried that the Biden administration could impose tax increases, erasing the sharp cuts in the corporate rate resulting from the tax reform law pushed by Trump.

Tax changes are not off the table if Democrats control the Senate, even with their slim majority. But a Republican Senate would maintain the status quo.

James Lucier, managing partner at Capital Alpha Partners, said that while the Biden campaign initially proposed raising the corporate income tax rate to 28% from 21%, Democrats could pass a smaller tax hike if they win control of the Senate.

“You have to remember that Republicans enacted the Tax Cuts and Jobs Act with only 51 votes under reconciliation rules,” said Lucier. “The Dems will have 50 votes plus the VP [if they win the majority] to support a concurrent budget resolution with tax reform instructions and the tax reform itself. There is an awful lot they could do with that, but I doubt they would be able to enact Biden’s full tax reform proposal from the campaign.”

Whitfield said that bankers may also push for smaller legislative reforms, such as updates to the Electronic Signatures in Global and National Commerce Act.

“What we need is a streamlined process for consumers to receive electronic communications from their lender,” Whitfield said. “Right now it is really just sort of a cumbersome effort.”

Confirmation hearings

Biden already announced his intention to nominate former Fed Chair Janet Yellen to serve as his Treasury secretary, one of several appointments affecting economic and financial policy that will require Senate confirmation.

Many expect Biden to act quickly to replace Consumer Financial Protection Bureau Director Kathy Kraninger in the new year. He could aso appoint a new comptroller of the currency, especially if Congress does not act in time to confirm Brian Brooks, Trump’s nominee and the current acting head of the Office of the Comptroller of the Currency.

Observers say a Democratic Senate, even with a slim majority, would give Biden much more flexibility in nominating progressive policymakers.

“I do think where [a majority in the Senate] helps Democrats mainly is on some of these confirmations,” said Katz. “That’s when you see a closer adherence to the party lines. You can get everybody to fall in line. If they do get those 50 seats plus the vice president breaking a tie, I do think you have a better chance of getting a more progressive pick into government, whether it’s at the CFPB or OCC.”

Tahyar said Congress will likely use hearings to try to influence the regulators on rulemakings.

“Congress in its oversight role can have a pretty big influence on the agencies’ regulatory agenda; that is where I see the most action,” Tahyar said. “Oversight and advice and consent at the Senate level is where they are going to have influence.”

Will Congress ever remove legal obstacles to pot banking?

The Republican Senate has been the main roadblock for banking industry-backed legislation to make it easier for financial institutions to serve marijuana businesses in states where the substance is legal. But the new Congress could make progress on cannabis banking reform regardless of which party controls the Senate.

The House in 2019 passed the Secure and Fair Enforcement Banking Act, which would prohibit federal financial regulators from penalizing institutions that serve state-compliant cannabis businesses.

While Democrats in the Senate have supported the measure, the current Senate Banking Committee chairman, Sen. Mike Crapo, R-Idaho, has poured cold water on the idea.

However, Toomey has indicated that he is sympathetic to the banking industry’s interest in serving businesses that comply with state laws.

“I do think that the SAFE Banking Act is near the top of the list for bipartisan legislation,” said Crowley, the K&L Gates partner. “It already passed the House with half of the Republican conference supporting it. … I think it’s going to happen for the very simple reason that the current situation is unsustainable. You can’t have state-legal businesses operating in cash without causing other problems.”

If Democrats win control of the Senate, the SAFE Banking Act would likely garner enough votes in both chambers to pass Congress. But Boltansky warned that any marijuana banking effort could be accompanied by a broader discussion about full legalization of pot, which is more controversial.

“It’s about more than banking, it’s about economic justice and social equality,” Boltansky said. “The banking issue might have some broad bipartisan consensus around it, but when you talk about pot, you’ve got to deal with some of the broader socioeconomic issues that don’t have as much consensus.”


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