NEW YORK - The angry pitchfork brigade bent on breaking up the nation's largest banks now includes unlikely members George Will and Peggy Noonan. Republicans at times outflank liberals in their zeal to downsize financial giants. And CPAC hosted a session at its convention on the threat posed by mega-banks.
But turn down the bipartisan Beltway static, and the true signal is clear: There is virtually no chance any significant piece of legislation will pass Congress that would meaningfully reduce the size of the nation's biggest banks or restrict their activities.
It's true the recent rise in break-up-the-banks fever could embolden regulators to get a little tougher in final Dodd-Frank rules, expected later this year. And a strange bedfellows, left-right coalition is now pressing for more dramatic action.
Still, there's nothing on the horizon likely to satisfy those who say the biggest banks -- led by JPMorganChase, Citigroup, Wells Fargo and Bank of America -- continue to pose a systemic threat to the U.S. economy.
Here's why: The White House has no desire to reopen any part of Dodd-Frank and believes too-big-to-fail will soon be a closed chapter. To admit otherwise would be a huge political walk-back. Some Republicans have warmed to the idea of bank breakups, but they're nowhere close to agreement on how to do them. And the Democrats most associated with the idea, including Sen. Elizabeth Warren (D-Mass.), remain highly polarizing figures not likely to create a broad legislative coalition.
"It's a populist cause at the moment coming from the further reaches of each party," said Tony Fratto, a former George W. Bush White House and Treasury official.
Even some of the biggest proponents of breaking up the banks acknowledge that while public support for their efforts is growing, the political dynamics still don't favor them. At least not yet.
"I don't think it's inevitable that we break up the banks, but I do still think it's likely," said Sen. Sherrod Brown (D-Ohio), who plans to introduce legislation later this year with Sen. David Vitter (R-La.) to limit bank size. "It may not happen in six months. It may not even happen in a year."
Brown said the contents of his bill remain "very much in flux" but are likely to include higher capital requirements than even those contemplated by international regulators in Switzerland and a higher fee on "systemically important" institutions. Brown said he could get upwards of forty votes for the bill.
But financial industry lobbyists and senior officials on both sides of Capitol Hill and in both parties believe the number will be significantly lower.
They also say any other legislative efforts to cut down on bank size or repeal and replace parts of Dodd-Frank -- such as toughening the section that purports to end the prospect of bailouts -- have very little chance of success. "Cooler heads will prevail," one senior Hill Republican said.
Fratto, as managing partner of Hamilton Place Strategies, has been part of a financial industry effort to beat back the idea that big banks enjoy unfair advantages over smaller financial institutions. Those include the presumption of a federal bailout despite the Orderly Liquidation Authority intended to wind down failing banks and so-called "living wills" that are part of Dodd-Frank's effort to forestall future bailouts by forcing big institutions to have a clear road map for their own demise.
"These populist movements often have a difficult time gathering the center," Fratto said. "But I don't discount it because the cost of breaking up the banks would be so high and because populist movements sometimes succeed. We banned alcohol, after all."
Fratto and several industry lobbyists, who asked to speak anonymously due to the unpopularity of defending big banks, said there were enough political actors with a stake in defending Dodd-Frank -- including the Treasury Department, the White House and many Democrats on the Hill -- that fresh efforts to reduce bank size would likely fail.
Treasury officials pointed to recent remarks from Secretary Jack Lew in which he told Bloomberg's Peter Cook that Dodd-Frank ended the bailout era. "We now have a set of provisions in place which is working to a great extent. It's not fully implemented. We need to finish implementing it," Lew said.
A senior White House official told POLITICO the provisions of Dodd-Frank mean no large bank will ever be bailed out again, and new capital standards mean the system is already significantly safer.
Republican opponents of the law, meanwhile, don't even agree on which parts to attack.
Some Republicans want to focus on just the portion of Dodd-Frank that purportedly ends bailouts. Many others are still pushing for a full repeal of the landmark financial reform law, something that has no chance of happening.
Insiders say there could be symbolic votes on amendments attached to non-binding resolutions that demand bank breakups. But those won't amount to anything.
"There are lots of little flowers blooming here, but none of them have formed a bouquet yet," said one Beltway lobbyist closely following the issue.
The political dynamics could shift abruptly, though, if there's another big bank flub -- one akin to JPMorgan's $6 billion loss on the "London whale" trades.
Even staunch defenders of the industry, who believe further bank regulation would hurt the U.S. economy and make American firms less competitive globally, admit another embarrassing episode at a large federally insured institution would push the break-up-the bank effort from the fringe to the center.
"Things could change very quickly on this," said one bank lobbyist who now spends nearly all his time fighting the argument that the U.S. should break up its biggest banks.
Proponents of dramatic reforms -- such as reinstating the Glass-Steagall wall separating commercial and investment banking -- are ready to pounce on any opportunity.
"The odds against [breaking up the banks] right now are great, but those odds can change dramatically and quickly," said Dennis Kelleher, CEO of the aggressive pro-reform group Better Markets. "These banks really are one major blow up away from a massive political shift."
Meanwhile, there is a segment of Washington that believes the theatrics on Capitol Hill over breaking up the banks is merely stage craft. The real goal, they say, is to embolden regulators to be tough in the implementation of final rules in Dodd-Frank, especially regarding the extent to which federally insured banks can engage in lucrative -- and potentially risky -- trading with their own capital.
Many banks say they have already stopped this kind of activity and become less dangerous -- and less profitable -- because of it. But reform advocates want to be sure there are no ways for the banks to get around the rules in the future.
And banks are also closely watching the Federal Reserve as it considers new rules that could significantly toughen capital requirements for the biggest institutions and offer relief to smaller community banks that say their large competitors operate with unfair advantages, including cheaper costs of funding.
"They are not going to force the biggest banks to break up," said Jaret Seiberg, who monitors the industry for Guggenheim Washington Research Group. "But they will continue to ratchet up the pressure on these mega banks with capital surcharges, unsecured debt requirements, limits on capital distributions and sharp restrictions on mergers and acquisitions activities."
For now, the focus is more on regulations than legislation. But that, too, could change. Many industry insiders note that the politics could turn against the big banks if more Republicans decide they need to rebrand themselves as populists not in the back pocket of Wall Street or the banking industry.
One senior industry lawyer noted that George P. Bush, son of former Florida Gov. Jeb Bush and a rising star in the GOP, recently posted to his Facebook page a story about the speech Dallas Federal Reserve President Richard Fisher gave to the CPAC convention calling for new rules to break up the big banks.
"Well said by the President of the Dallas Fed: Too-Big-to-Fail Banks Are 'Crony' Capitalists," Bush posted.
"The banks really do need to be concerned," the lawyer said. "When mainstream Republicans are reflexively anti-bank with voters, we are just one or two incidents away from a complete collapse of support for the industry's position."
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