Through much of the campaign, major Wall Street banks have nursed visions of a Republican majority capturing control of the Senate and then weakening regulations imposed following the financial crisis of 2008.
The financial services lobby had hoped the end of the Democratic majority would spell the demise of various constricting provisions of the Dodd-Frank reform bill, which limits speculative activity. As banking trade groups poured campaign contributions into key Senate races in support of Republicans, they especially sought to weaken the newly formed Consumer Financial Protection Bureau.
But as it becomes clearer that Republicans are likely to remain the minority in the Senate, leaving the key committees in Democrats' hands, the banking lobby is reckoning with a discomfiting reality: Dodd-Frank is probably here to stay, and the fledgling consumer protection bureau is likely to endure. In short, for Wall Street and its well-compensated army of lobbyists, the election of 2012 is already shaping up as a lost opportunity.
In the House, where Republicans already hold sway, the Financial Services Committee and its likely incoming chairman, Rep. Jeb Hensarling of Texas, had signaled their intent to press legislation that would scale back major components of Dodd-Frank in ways that could greatly benefit a variety of industry players. Now, such bills appear consigned to fresh gridlock.
The banking lobby's primary target has been the Consumer Financial Protection Bureau, an entity created to regulate potentially risky mortgages, credit cards and other loans and to police abusive practices.
"The CFPB is the biggest unknown cost in Dodd-Frank and the one that's going to be borne by the largest number of businesses," said Peter Wallison, former general counsel to the Treasury Department during the Reagan administration and currently a fellow at the conservative-leaning American Enterprise Institute. "Many of the rest of the regulations in the bill will be borne only by the biggest businesses or by individual sectors, like the mortgage industry, but the problem with the CFPB is that it's going to be imposed on thousands of smaller businesses."
If Republicans took the Senate, Sen. Richard Shelby of Alabama, currently the ranking member on the Senate Banking Committee, would be in line to chair that powerful body. Shelby has made it clear that adding Republicans to the CFPB's senior leadership, giving Congress the power to fund -- or defund -- the bureau, and delaying new regulations by requiring complex cost-benefit analyses are all at the top of his agenda.
Speaking in July of this year at the U.S. Chamber of Commerce, the nation's largest business advocacy group, Shelby described how he would change the CFPB in 2013 if he were to chair the Banking Committee: "First, replace the single director with a board to oversee the bureau ... second, subject the bureau to the congressional appropriations process ... [and] third, establish a safety-and-soundness check for the prudential financial regulators ... [to] help ensure that excessive bureau regulations do not needlessly cause bank failures."
These measures and others were contained in Shelby's proposed Financial Regulatory Responsibility Act, a 2011 Republican-backed response to Dodd-Frank that was dead on arrival in the Democratic-controlled Banking Committee. In a telling indicator of the bill's hopeless odds, the largest banking industry trade group, the American Bankers Association, told The Huffington Post that it has yet to take a position on the legislation.
But according to Wallison, a staunch critic of Dodd-Frank, each of Shelby's planned changes would benefit the financial sector, starting with the notion of turning the CFPB's single director into a commission. "Whenever you turn one of these bureaus into a commission, you're going to have people on it with different perspectives, and that frequently means that many regulations that would otherwise be imposed are reduced in importance or impact on regulated industries," he said.
In 2011, the refusal by Shelby and his fellow GOP senators to confirm President Barack Obama's nominee, Richard Cordray, to lead the CFPB ultimately drove Obama to give Cordray a controversial recess appointment in early January 2012.
Should Republicans fail to take over the Senate Tuesday, the banking industry's missed opportunity to change Dodd-Frank could be compounded by what lies ahead.
The financial sector has already poured more money than any other industry into the campaign coffers of Republican candidates this year, helping to fund a historic number of negative ads. Those same millions could come back to haunt them if the candidates they backed lose, while Democrats who favor even stronger financial regulations win those tight races deemed crucial to protecting the Democratic majority in the Senate.
In Massachusetts, Harvard professor-turned-Democratic Senate candidate Elizabeth Warren, the architect of the CFPB, maintained a narrow lead in polls Tuesday over her rival, Republican Sen. Scott Brown. Warren has called for a "new Glass-Steagall," saying in July 2012 that her legislation would aim to "separate high-risk investment banks from more traditional banking ... [and] reserve Wall Street's ability to take risks without threatening people's retirement accounts and life savings."
And in Ohio, Democratic Sen. Sherrod Brown, a proponent of capping individual banks' debt as a portion of the gross domestic product, was ahead of Republican challenger Josh Mandel in polls, but only by single digits.