What the Midterms Mean for Community Banks

by Brian Malcom, Waller

It is finally over. No more robocalls. No more yard signs. No more poorly-produced television commercials. The midterms are behind us. A few results are still being counted, but the landscape is clear. Democrats will have a majority in the House, and Republicans will have a majority in the Senate. But what does this mean for community banks?

In the past two years, the Republicans controlled the House, the Senate and the White House. Because of this, Republicans pushed an aggressive legislative agenda and sought to provide relief from regulatory burdens for community banks, along with tax cuts. Community banks can expect that the Democrats will seek to halt those efforts in the 116th Congress and position themselves to renew regulations in the 117th Congress. Time will tell whether the Democrats will actually have the courage to undo the tax cuts.

The Republicans retained their hold on the Senate, so there will be little change in the way of leadership. Those changes will come in the chairs of certain committees. Current Banking Committee Chairman Sen. Mike Crapo (R-Idaho) is the favorite to take control of the Senate Finance Committee, so long as Sen. Chuck Grassley (R-Iowa) remains as the chair of the Judiciary Committee. Sen. Orrin Hatch’s (R-Utah) retirement will leave that chair vacant. If Sen. Mike Crapo makes this move to run the Senate Finance Committee, a community banker will likely take the helm of the Senate Banking Committee: Sen. Pat Toomey (R-Pennsylvania). Sen. Toomer was a founder of Team Capital Bank, a community bank in Bethlehem, Pa. before becoming a U.S. Senator.

With Sen. Toomey at the helm, the Senate Banking Committee would likely continue its push to decrease the regulatory burden for community banks, but the divided Congress would make meaningful changes less likely. Sen. Toomey favors reforms to the Dodd-Frank Act, wants to make it easier for businesses to grow capital, and wants to limit some of the powers of the FDIC and the CFPB. Sen. Toomey’s goals should be welcomed and supported by community bankers, and they are in line with the goals of the GOP as a whole. Bipartisan support for any of these goals, however, will likely not happen in the upcoming Congress.

Bipartisan support for some issues seems unlikely for the Senate Banking Committee, but the parties may work together on non-partisan issues. The remaining Democrats on the Senate Banking Committee will likely be more outspoken in their opposition to regulatory reforms. Sen. Sherrod Brown (D-Ohio) will likely continue to oppose any attempts to reform Dodd-Frank. Both parties will likely continue to support legislation that curbs money laundering, terrorist use of financial networks, enterprise reform, and reforms to the Bank Secrecy Act. It is not clear whether the cannabis industry will be a partisan issue for the Senate Banking Committee, but legislation relating to cannabis banking will likely be considered during this upcoming Congress.

Republicans took a big hit in the House. Democrats picked up more than more than 29 seats and may pick up more still. In January 2019, Democrats will be in the majority for the first time since 2011. This means there will be more noticeable changes in the House. Rep. Nancy Pelosi’s leadership team will likely take the helm, although there could be some change regarding who is at the top. Some Democrats are calling for new leadership, and some Democrats are happy to let Pelosi take over again.

Notably, the House Financial Services Committee will see new leadership and have a large number of new members. Rep. Maxine Waters (D-Cal.) will likely be the chair of the committee, and will seek to enact a far more liberal agenda than her predecessor through the committee. There is ample evidence to suggest that Waters will oppose any effort at regulatory reform for the banking industry, and she may even seek to enact new regulations. Waters favors increased regulatory oversight for the banking industry. Banks can expect increased regulatory activity for this committee for at least the next two years.

Banks should only expect bipartisan support for non-partisan issues, like Bank Secrecy Act reform, data security, and anti-money laundering. Moderates from both sides of the aisle will likely agree to move on these issues. Partisan issues will likely not get much traction in the 116th Congress.

Brian J. Malcom is a partner at Waller in Birmingham. Top banks and financial institutions seek his counsel in all areas of litigation, including contract disputes, trust and fiduciary litigation, consumer claims, and bond and warrant claims. Brian was profiled in 2017 by the Birmingham Business Journal as one of Birmingham’s Rising Stars of Law. He was also named a Top Attorney for Banking Law in 2018 in Birmingham Magazine’s annual peer-reviewed survey.