Banker-Turned-Congressman Will Have Influence on House Panel

WASHINGTON — Former banker John Delaney may just be a freshman congressman in the House of Representatives, but his industry experience could make him an important commodity as key financial services bills come up for vigorous debate.

Delaney, a Maryland Democrat who co-founded the commercial lender CapitalSource, is already diving deep into the policy weeds as he settles into a seat on the House Financial Services Committee. High on his list of interests is the complex issue of reforming U.S. housing finance, and specifically establishing a system no longer reliant on government intervention.

"We don't really have a vision for housing finance for this country going forward. We're still operating under the old model — in fact with the government playing all too big a role," Delaney, who beat out longtime GOP incumbent Roscoe Bartlett, said in an interview with American Banker. "We have to start creating a framework for the private markets to be greater participants in the mortgage markets. And I think banks can play a really important role there."

Delaney may be listened to on the committee more than a first-term congressman otherwise would, because of both his financial and political background. In a divided Congress, a Democrat and fan of private markets, who has banking experience to boot, could emerge as an important player in committee negotiations.

"Delaney immediately takes an outsized role given his experience in the industry," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. "[Financial Services Committee Chairman Jeb] Hensarling has a much more free-market view of what the future of housing finance market should look like, but I believe that he's willing to step towards the center, and in order to get a bill out of the House they're going to need more moderate Democrats.

"Delaney has the capacity to be more of a dealmaker to define the centrist middle of the committee."

To be sure, Delaney was not a banker by birth. Now one of the wealthiest members of Congress — who describes a more humble upbringing in a working-class family as the son of an electrician — Delaney calls himself "an entrepreneur that happened to become a banker."

Not too long after graduating from Georgetown University law school, he took his first step into business when he bought a small health care company in 1989.

"It was myself and a partner — we just wanted to get into business, and there was a little tiny company for sale in the Washington Post for $15,000," he said. "And the price was right."

He went on to establish a finance company for healthcare providers in 1993, took the company public and sold it several years later. He co-founded CapitalSource in 2000, and also was an organizer of BancAlliance, a community bank loan cooperative.

After CapitalSource operated for several years without a bank charter — instead relying on other financial institutions for funding — the company made the leap in 2008 when it established CapitalSource Bank after purchasing the then-troubled Fremont Investment & Loan.

Delaney said the decision was hastened as the financial crisis began affecting some of CapitalSource's creditors.

"We kept lending through the cycle, but a lot of the people who lent money to us, some of the bigger financial institutions, really stopped lending," said Delaney, noting that JPMorgan Chase was an exception among the big banks. "Literally, they were getting money in one hand, and they were cutting off their borrowers with another. I saw that first hand."

Former colleagues say Delaney's business approach will serve him well during legislative maneuvering.

"His ability to come up with genuinely complex solutions to negotiations and get both sides to agree was incredible," said Steven Museles, who worked with Delaney at the company. "He just has a unique ability to understand what motivates the parties to a negotiation. … And once he understands both sides and thinks of a solution, he's incredibly persuasive."

Delaney said he wants to take a wait-and-see approach with respect to implementation of the Dodd-Frank reform law.

"We have a lot of implementation to do, and then we have to understand how it all works and continue to make adjustments," he said. "These things are really living regulations. You don't pour the concrete to never look at it again."

Yet he added that, while he supports the law overall, he still sees issues with it, and believes policymakers can address risks in the industry through other means.

"Is Dodd-Frank perfect? No. I generally believe you're better off requiring more capital and having a more straightforward regulatory regime, because I think capital solves a lot of problems," Delaney said.

But he is clearer about wanting a more limited government role when it comes to the housing system.

Specifically, Delaney said, it is time for the nation's financing system to part with the government-sponsored enterprises Fannie Mae and Freddie Mac.

"I don't think we have to keep the GSEs. … It was a very unusual business model that proved not to be successful," he said. "A lot of what the GSEs do and what other parts of the government do is they provide financing for people to buy and sell multi-family housing. I actually don't think that's a role for government, for example. I think the private markets can do that just fine. In fact, I think the government is crowding out banks from participating in some of those markets."

He also has ideas for policies to boost the private sector in other industries, not just banking.

"The big issue we face today as a country is competitiveness. We have to make our private sector more competitive so we can create good jobs. And to do that government does have to place a role," he said. "But you have to also understand how the private sector works. Because government is not going to create jobs, but it can create an environment through education, immigration reform, energy policy, being fiscally responsible, building infrastructure. We can create an environment where the private sector can be more successful. And so I think I can bring those two things together and hopefully it will be additive."