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How Big Banks, Ranchers, and Unions Found a Common Foe in Biden Regulators

From left: Wells Fargo CEO Charles Scharf, Bank of America CEO Thomas Moynihan, JPMorgan Chase CEO Jamie Dimon, Citigroup CEO Jane Fraser, State Street CEO Ronald O'Hanley, BNY Mellon CEO Robin Vince, Goldman Sachs CEO David Solomon and Morgan Stanley CEO James Gorman, are sworn-in at a Senate banking committee hearing on “Basel III Endgame” on Dec. 6, 2023. Credit - Saul Loeb—AFP via Getty Images

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When a member of Congress loses re-election and is trying to figure out what turned voters away, their position on an arcane bank regulation doesn't usually come up. But a deep-pocketed lobbying effort is working overtime to make a handful of powerful lawmakers fear such a scenario could be their future.

Stranger still, the campaign may be working, as an unlikely and uneasy coalition is coming together on the Hill to shut down an effort to require big banks hold more cash to ensure the country avoids another Too Big to Fail moment.

It’s a battle that’s pitting liberal stalwarts like Sen. Elizabeth Warren against Wall Street-minded Democrats, rural state lawmakers, civil rights leaders, and consumer groups. And it’s why NFL fans in a few targeted markets saw TV ads talking about something known among financial insiders as Basel III Endgame.

"Families, seniors, farmers, and small businesses are already struggling to make ends meet,” says one such ad. “Washington needs to scrap Basel III Endgame and start over.”

The core of this expensive and esoteric dogfight comes down to this: should some banks have to keep more cash reserves to ward off insolvency? After three banks failed last year, interest in making sure the surviving institutions could weather unexpected challenges rose, leading to a revisiting of a framework published back in 2010 in response to the 2008 financial crisis. (It’s worth noting that the Basel III Endgame would not have saved any of these institutions but still serves as a good bump up in the headline hierarchy.) The ideas have been around since Congress passed the Dodd-Frank financial reforms of 2010, but the implementation of them were slow-walked at first then delayed because of the Covid-19 pandemic.

As expected, banks are almost universally opposed to the tighter controls. But the weariness extends beyond Wall Street. Of the 356 substantive comment letters sent to regulators, 347 of them were negative. And, of those naysayers, almost 9-in-10 came from voices outside of the banking sector, according to an analysis from a law firm keeping close tabs on the proposal.

A lot of the opposition—and the bulk of the public messaging powering it through a campaign-styled effort—notes that increased cash reserves means less money available for loans to small businesses and homebuyers. Essentially, keeping cash parked in bank vaults means it’s going to be tougher and more expensive to buy a new tractor for the farm or send investment into green-energy projects. That dynamic has made internal politics tricky for Democrats, and the banking industry has been hardly circumspect about playing off these tensions heading into an election year when five Democratic seats on the Senate Banking Committee—including the chair—are in cycle.

On the other side, with a paltry nine letters, is the argument that reducing risk would lead to more lending because there would be fewer threats to institutions. But it’s worth noting that among those signing onto that pitch is Sen. Sherrod Brown, the Democratic chairman of the Senate Banking, Housing, and Urban Affairs Committee. Rep. Maxine Waters, a California Democrat and the former chair of the Financial Services Committee, also has backed the requirements, arguing that opposition to them only stands to enrich bank execs.

And it’s not even all banks. The rule would apply to financial institutions with more than $100 billion in collective assets, and smaller ones that specialize in trading assets. Community banks would be exempt, and the rule wouldn’t kick in until July 2028—the last year of the next presidential term.

But that position isn’t exactly a popular one, at least in the record so far.

Federal Reserve Chairman Jerome Powell—an Obama, Trump, and Biden appointee—has testified to Congress that he has seen the arguments that tilt overwhelmingly against the current proposals and is open to changing them to build a better coalition. That sentiment has met welcome audiences along Wall Street, K Street, and Main Street alike.

For its part, Treasury has remained intentionally on the sidelines of the debate. Secretary Janet Yellen—herself a former Federal Reserve chair—has refused to take a position in public.

But among Democrats, the pressure campaign is clearly trending in a single direction thanks to a seven-figure political blitz from the nation’s largest banks, including ads that aired during NFL games and the State of the Union speech coverage.

The ads are meant to build pressure, not just on Brown and his particularly tricky re-election in Ohio this year, but also on Banking panel members from farm states like Sens. Jon Tester of Montana, Bob Casey of Pennsylvania and Jackie Rosen of Nevada. At the same time, Banking panel member Bob Menendez, who is simultaneously under indictment and seeking another term, is seen as a reliable ally of Wall Street while his colleague on the committee, Warren of Massachusetts, could not be further from that ideological space.

What comes to the fore in this debate is a rare schism among Democrats about what the party stands for. While most Democrats have rallied on commonalities like stronger worker protections and reproductive rights, this banking proposal is less clear cut. While hating on the greedy banks and bashing capitalism plays well with the animated and very-online progressive movement, the fact remains that so much of what powers the broader economy is reliant on that system that prizes easy and reliable access to capital.

Take, for instance, the unlikely opponents who sent letters to the feds about their concerns—much of which was coached and coordinated behind the scenes.

Black-owned business groups have joined the discussion, arguing that an increase  in capital-holding needs will hurt communities of color starting or expanding their efforts. “The Black community has faced disproportionate challenges when seeking access to capital and resources, making it even more critical to take their unique circumstances into account when making policy decisions that affect their operations,” the head of the Grand Rapids, Mich., Area Black Businesses group wrote. In Virginia, Richmond Mayor Levar Stoney, a Democrat seen as a rising star in the party and a candidate for Governor next year, wrote in opposition with similar worries, especially if the nation were to face another pandemic that requires quick and broad access to loans.

Elsewhere, the Columbus/Central Ohio Building and Construction Trades Council and its 18,000 unionized tradesmen are opposing the move because it could force infrastructure projects to scale back if the cost of borrowing cash rises. Similarly, the American Clean Power Association—made up of some of the biggest names in emerging tech and legacy energy suppliers alike—warned that the new requirements could cut investments by as much as 90% from some pockets of the market. The American Council on Renewable Energy also cited the reduced appeal of such investments with a potential cost of $20 billion in planned renewable tax-equity investments this year alone.

And powerful agribusiness coalition that includes the cattlemen, pork farmers, grain producers, and dairy professionals all signed on against the effort: “We are very concerned that any contraction in the availability of clearing services will have a disproportionate impact on agricultural end-users that are far outside the major financial centers, especially smaller entities such as grain elevators and family farms. We urge you to modify the proposals so that they do not disincentivize banks from providing this important service to their customers.”

The naysayers also includes the massive public-employee pension systems of California, Wisconsin, and Ohio. If all of the opposition were coming from the biggest banks, or even the banks plus major financial players like insurer Nationwide, the National Association of Realtors, and Hilton Hotels, Democrats might have had an easier time pushing past it; the underlying coalition of disparate groups, however, makes this a bit trickier, especially in an election year.

Which is precisely the point. The proposed changes may be grounded in solid preventative policies, but the coalition afoot is going to be tough for regulators—especially those nominated by Democrats—to ignore. (They are, of course, officially immune to pressure, even from the Senators who confirmed them or the White House that nominated them, but political neophytes don’t regularly survive a grilling from Banking panel pros when billions are at stake for their biggest campaign donors. Their bosses are even more politically savvy.)

Democrats studying their electoral maps this year, from state legislatures to President Joe Biden’s re-election, are not eager to see unions, retirees, Black entrepreneurs, farmers, the Green New Deal types, and Wall Street all lined up against one of the most under-appreciated changes under consideration right now. Leaders of the Democratic coalition have looked at the polls and knows they’re in trouble—and so do the powerful lobbying voices looking to derail anything that could ding their bosses’ bottom line.

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Write to Philip Elliott at philip.elliott@time.com.