Negotiation in the News: How Congress got to “yes” on new banking rules

A rare bipartisan deal passes both houses.

By — on / Dealmaking

It’s hardly news that in the U.S. Congress, bipartisan dealmaking has been virtually nonexistent for years. That’s why it was newsworthy when Democrats and Republicans came together to negotiate changes to the Dodd-Frank law, which tightened regulations on banks and other firms following the 2008 financial crisis.

Accounting for the opposition

After President Donald Trump took office, many Republicans hoped to make sweeping changes to Dodd-Frank, which they believed had put a stranglehold on bank lending. “We expect to be cutting a lot out of Dodd-Frank,” Trump himself said in a February 2017 White House meeting with business leaders, “because, frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money.”

But because 60 votes would be needed to modify Dodd-Frank in the Senate, Democratic support was essential. A gutting of the law was unlikely, yet some moderate Democrats in “red” states were eager to loosen rules that they said were preventing their rural constituents from securing loans. “Too big to fail has become too small to succeed,” Democratic Senator Heidi Heitkamp of North Dakota complained to the Wall Street Journal.

With approval from Trump, Republican Senator Mike Crapo, chair of the Senate Banking Committee, and Gary Cohn, then director of the National Economic Council and a former Goldman Sachs executive, agreed in private to seek modest changes to Dodd-Frank focused on cutting regulations on small lenders and exempting more regional lenders from stricter rules, according to the Journal.

Banking on a compromise

Over the months that followed, in negotiations with key senators, Crapo rejected controversial proposals, such as restructuring the Consumer Financial Protection Bureau. To win over Democratic bill sponsors, he compromised, such as agreeing that only banks with fewer than $10 billion in assets would be granted relief from mortgage underwriting standards, according to the Journal.

After Senator Sherrod Brown, the top liberal Democrat on the banking committee, said he wouldn’t vote for the bill, Democratic senators Heitkamp and Jon Tester strategized on finding new co-sponsors over beers at her home on Capitol Hill, dividing up Democratic names on a napkin, the Journal reports.

Two weeks later, on November 13, Crapo announced a bipartisan deal reached by 18 senators: nine Republicans, eight Democrats, and one independent. The summary agreement raised the threshold at which large banks would automatically face strict stress tests and other rules from $50 billion to $250 billion in assets. In addition, the agreement eased mortgage rules for small lenders, simplified their capital requirements, and released them from a proprietary trading ban.

With the support of 16 Democrats and one independent, the bill passed the Senate on March 14, 2018, in a 67 to 31 vote, attracting criticism from liberal Democrats such as Massachusetts Senator Elizabeth Warren.

A bipartisan moment

Next up: getting the bill through the House. In a meeting with lobbyists, House Financial Services Committee chair Jeb Hensarling, who had secured passage of a broader overhaul of Dodd-Frank in June 2017, complained the Senate bill was too weak and urged them to push senators to negotiate new deal terms. But banking groups, eager to loosen restrictions on small banks, favored quick passage of the existing bill, according to the Journal.

With the weeks and months ticking by, the White House grew impatient as well. “This [bill] is not a fine wine,” Cohn reportedly said to House majority leader Kevin McCarthy. “It’s not getting better with time.” Trump reportedly called Hensarling and said, “Jeb, I want the bill now,” the Journal reports.

Hensarling ultimately agreed to a vote on the existing bill after securing a promise from Senate majority leader Mitch McConnell for a vote on a separate banking package before the 2018 midterm elections. On May 22, the House voted 258 to 159 to approve the legislation. The bill leaves in place most of Dodd-Frank’s major provisions, including broad authority for the government to respond in a crisis and curbs on derivatives.

“Could it have done more? Sure,” Representative French Hill told the Journal. “But Senator Crapo should be congratulated for producing a bill in these partisan times.”

4 keys to working with the opposition

1. Identify like-minded “opponents.” Instead of viewing your opposition as a monolith, explore whether certain members on the other side may be interested in working with you on a deal.

2. Keep the size manageable. When many people need to sign off on an agreement, negotiate with a subset of their representatives, if possible.

3. Be open to compromise. Getting some of what you want is better than getting nothing at all, so probe for areas where your interests overlap and focus on small wins. You may be able to achieve broader gains at a later date.

4. Capitalize on momentum. Recognize when stakeholders are anxious to do a deal, and leverage their impatience.

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