"The [Senate] Banking Committee is certainly going to be taking a look at Dodd-Frank," said McConnell, who is widely expected to be the next Senate majority leader, in a Wednesday press conference. "I've called it frequently 'Obamacare for banks.'"
He continued, "The big guys are doing just fine under Dodd-Frank. The community bankers are struggling. I do think the Banking Committee will want to take a look at how much damage it's done to the little guys who had nothing whatsoever to do with the meltdown in 2008. I'd be surprised that the Banking Committee isn't going to look at it."
In other words, McConnell's big plan for bank policy seems to be calling the 2010 Wall Street reform law names and trying to dirty the public relations waters for bank reform advocates, like Warren, on vaguely populist grounds. Warren, an outspoken member of the Banking Committee, is known for pushing federal regulators to focus on the needs of ordinary Americans.
McConnell offered no detailed financial policy critiques on Wednesday -- a noted contrast to the specificity he delivered on Obamacare itself, vowing to attack the individual mandate and the medical device tax. By leaving those details up to the Banking Committee, he suggested he has no current plans to cut a deal with President Barack Obama on banking policy. At the same press conference, McConnell said he was already talking to the president about finding common ground on trade pacts and tax reform, which Obama also discussed at his own press conference.
None of this means that Dodd-Frank won't be under attack in the GOP-controlled Senate.
McConnell has long been legislatively allied with Wall Street. He voted to repeal the Glass-Steagall separation between traditional lending and risky securities trading in 1999. He voted to bail out the banks in 2008 and to release an additional round of bailout funds in 2009. The next year, he voted against Dodd-Frank. For the 2014 elections, he raised $6.4 million from the financial sector, more than double what he brought in from any other industry, according to the Center for Responsive Politics. Six of his 10 biggest donors for this election cycle were political action committees tied to large financial institutions, including JPMorgan Chase, Goldman Sachs and Citigroup.
Moreover, McConnell's comparison of Dodd-Frank to Obamacare doesn't track. The Affordable Care Act doesn't help big guys while hurting little guys; it provides poor people with free health care and subsidizes health insurance for middle-class people. But "Obamacare" polls poorly, so McConnell sought to tar Dodd-Frank with an unpopular moniker.
The senator also tried this populist angle: Big banks are doing great, small banks aren't -- therefore Dodd-Frank must be punishing small banks. And McConnell and his Republican colleagues are here to stand up for the little guy. It's an absurd critique that is built on two solid facts.
First, big banks are doing wonderfully. JPMorgan, for example, has posted profits of at least $5 billion in 12 of the 17 quarters since the passage of Dodd-Frank, with just one quarterly loss of a relatively paltry $400 million. In a weak quarter for JPMorgan, like the last three months of 2011, the bank still made $3.7 billion. These profits keep coming despite all of Dodd-Frank's new rules and despite the huge sums in legal bills and settlements that JPMorgan keeps paying out over misdeeds both before and after the financial crisis.
Such profits are evidence that Dodd-Frank isn't tough enough on big banks. In 2010, shortly after the law passed, then-Rep. Brad Miller (D-N.C.), who had written much of its new mortgage standards, spoke at a New York conference held by the Roosevelt Institute think tank. The conference was grappling with two basic questions: Would Dodd-Frank rein in the risky behavior that undermined the financial system in 2008, and how would people know if it was working? Miller's answer was simple: Banks had been making money by "cheating." If the law worked, then banks would make less money.
"President Obama in supporting the -- speaking out for financial reform -- said, 'Nobody should be against this unless your business practice depends on cheating people.' Or something like that. And I thought, 'That's the problem. Their business depends upon cheating people," Miller said.
As for the Dodd-Frank reforms, he said, "There is almost an assumption that there's no policy that is valid unless it's a win for everybody. And some have presented this as a win-win-win, a win for consumers, a win for the banks, the intermediaries, for the investors. The reality is, for [financial reform] to be successful, it has to be a win-lose-win situation."
Second, many community banks are having a hard time. The economy is still bad, which means small banks have fewer opportunities to make money from good loans. Median household income is stuck back at 1990s' levels, wages are stagnant, and households are carrying a lot of debt. That means fewer new mortgages and lower demand for businesses that might seek commercial loans.
Dodd-Frank isn't the villain, however. Community banks are exempt from or irrelevant to most of Dodd-Frank's rules. Small banks don't trade derivatives, so they aren't subject to the most complicated elements of that reform. They don't have proprietary trading operations, so they aren't subject to the Volcker Rule. They aren't subject to the more stringent capital requirements designated for big banks. They have to abide by new anti-predatory lending standards -- the basic banking business of determining whether a borrower can afford to take out a loan -- but they don't even get inspected by the Consumer Financial Protection Bureau.
Sen. Richard Shelby (R-Ala.), the next likely chairman of the Banking Committee, is skeptical of big bank power. He voted against the repeal of Glass-Steagall and in favor of a failed amendment from Sen. Sherrod Brown (D-Ohio) to break up the biggest banks. But Wall Street-friendly McConnell isn't likely to force his GOP caucus to vote on a bill that would anger so many wealthy donors.
Shelby may instead follow the lead of the House Financial Services Committee and spend a lot of time attacking the Consumer Financial Protection Bureau. The House has requested thousands of pages of documents from that agency and called innumerable hearings that have clogged the schedules of its leadership and staff. Republicans have accused the agency of everything from cutting off loans to minority borrowers to making outrageously lavish office renovations (neither charge is true).
But rhetoric matters. The 2014 exit polls showed that nearly two-thirds of voters believe the U.S. economic system favors the wealthy, while only about one-third believe it is "fair to most Americans." If Republicans wrest the populist mantle from Democrats on Wall Street reform, that could have substantial consequences for the 2016 elections and for financial policy in 2017 and beyond.
With Republicans controlling the Banking Committee in the next Congress, Warren and her allies, like Sens. Brown and Jeff Merkley (D-Ore.), won't be able to hold hearings to push their own pro-consumer priorities. They'll be playing defense, and lots of it.