The Best of Times for Worst-Case Scenarios

Can a worst-case scenario keep getting worse? When it comes to the Senate Banking Committee, which has considerable power in regulating the industry, this is how many in the business see it.

The current problem goes back to the creation of the U.S. Consumer Financial Protection Bureau (CFPB), which was founded after the passing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which in turn was prompted by the financial crisis at the end of the last decade. The very idea of a single governmental body with jurisdiction over banks, credit unions, securities firms, mortgage-servicing operations and debt collectors was bad enough, but what really elevated the issue to worst-case status was the driving force behind the agency: academic and policy advocate Elizabeth Warren.

The issue became so contentious that it led to furious lobbying on both sides of the aisle and even an all-star reunion of ‘Saturday Night Live’ alumni reprising their impressions of U.S. Presidents (with a cameo from Jim Carrey) to prod the current occupant of the White House into backing the bureau. It worked, kind of: the CFPB did come to life but without Ms. Warren.

Worst case averted? Not quite. The ousted champion publicly mulled a run for the Senate herself, causing major heartburn among her critics—a presence in the Senate could give her more power than she would have had as director of the CFPB. When she tossed her hat in the ring, many banking heavyweights threw their support behind her opponent, incumbent Senator Scott Brown. It didn’t work—she won by a big margin, and the industry began to fear the worst.

Actually, as discussed on this blog, the only thing worse than her being in the Senate was her landing a seat on the U.S. Senate Banking Committee, a plum assignment not often given to freshmen senators. Again, that’s exactly what happened. To the surprise of absolutely no one, she has since led the charge against lax enforcement of banking regulations.

So it can’t get any worse, can it? Think again.

Senate Banking Committee Chairman Tim Johnson (D-S.D.) recently announced his retirement. No, Sen. Warren does not have the seniority to get the job, but guess who might: Sen. Sherrod Brown (D-Ohio). This has given inside-the-Beltway types a lot to worry about. If it really does happen, banking lobbyists might have some busy days ahead.

For the record, this is far from a done deal.  First of all, nothing is going to change until after the next election, which is not till November 2014, nearly two years from now.  If there’s a change in direction and Republicans take over the Senate, as sometimes happens in off-year elections, then all this will be moot anyway.

Moreover, even if the Democrats retain control, Sen. Brown is actually fourth in line for the chairmanship. But as has been noted, the current ranking member, Sen. Jack Reed (D-R.I.),  might have his eye on the top spot at the Senate Armed Services Committee, another position that will be vacant next fall. The next in line, Sen. Charles Schumer (D-N.Y.), gets much of his campaign support from Wall Street, and the one after him, Sen. Bob Menendez (D-N.J.), has many financial services professionals in his constituency. In other words, it’s not impossible.

So are we at worst-case levels?

There’s no question that  Sen. Brown has been a harsh critic of what he perceives as industry excesses—he has publicly railed against the ‘too big to fail’ trend, which he sees partly as the result of thirty-seven banks merging thirty-three times. In particular, as he points out, “In 1995, the six biggest US banks had assets equal to 18% of GDP. Today, they are about 63% of GDP.” It also probably doesn’t help that he won big in the most recent elections after many in the industry supported his opponent.

But perhaps that’s the problem.

The reality is that there isn’t a constant, inexorable march toward greater regulation and harsher penalties—governmental pressures ebb and flow with the times, and even  administrations thought to be unfriendly have led to boom times for banks nationwide (anyone remember the ’90s?). Going all-in against specific candidates and office-holders, even if it helps avert short-term problems, hurts the industry in the long term.

Rather than bracing against an endless series of worst-case scenarios, working furiously against critics and throwing money at losing campaigns, it might be more beneficial to step back, take a breath and reach across the aisle. We have a sharply divided government because the nation itself is sharply divided, and in some ways this is exactly how it’s supposed to work.

Constantly picking sides (especially the losing side) doesn’t help anyone.  Regardless of who runs the CFPB, the Senate, or the Banking Committee, it’s categorically not a worst-case scenario. We need to work with whoever is there, and if that means we have to alter some basic operating practices, then that’s what we’ll do. We’ve done it before, many times, and will again.

In fact, embracing change rather than fighting it might just make us stronger. And wouldn’t that be for the best?

Written by Staff