'It Can't Get Any Worse': Why Banks Are Making a One-Sided Political Bet

WASHINGTON — In a sign of how angry many bankers are after the passage of Dodd-Frank, the industry is backing Mitt Romney and the Republican National Committee by a nearly 2-to-1 margin through political donations in the 2012 campaign.

Though some may see it as a political risk — especially given that President Obama is still considered the favorite in this race — bankers argue they see only upside, and little potential backlash, from their support of the president's rival.

"There are a lot of bankers who feel that it can't get any worse," said Howard Headlee, president of the Utah Bankers Association, who has formed a political action committee. "What more can this administration do to our industry? Are they going to be more hostile than they are, more critical than they already are, impose more regulatory burdens than they already have?"

There are several reasons why the industry's strategy may be valid. Obama has already passed a major financial-reform law, so it's hard to imagine that he'll try to pass another overhaul.

And while perceptions vary widely about how much pain the Dodd-Frank Act is causing the banking industry, there is little doubt that a second-term Obama will fiercely defend the law, no matter how much money he raises from bankers.

The possible benefits of supporting Romney, meanwhile, are obvious. A Romney administration would support policies more favorable to banks than Obama would in his second term.

Furthermore, it is unlikely that the banking industry, which plays such a key role in the U.S. economy, will get shut out of the policy-making process if Obama wins in the way that a smaller industry might. Conversely, it is not clear whether bank industry support for the president's re-election effort would yield many concrete benefits.

"The problem for bankers is that even if they give money to Obama, they probably are not buying anything other than courtesies that don't mean much in terms of policy," said Larry Sabato, director of the University of Virginia Center for Politics.

The banking industry's strong backing of Romney in 2012 marks a sharp reversal from four years ago.

In 2008, commercial banks and their employees gave $3.4 million to Obama and $2.4 million to Republican nominee John McCain, according to data from the Center for Responsive Politics, though the RNC raised about $1 million more from commercial banks than the Democratic National Committee did.

Looking more broadly at contributions from the entire financial sector, Obama's advantage in 2008 was larger. He raised $42 million from the sector, compared with $31 million for McCain. For Obama, that $11-million advantage has turned into a $10-million deficit in 2012, according to campaign-finance records.

The banking industry's distaste for Obama reached the point recently where a Goldman Sachs executive joked publicly that the firm has banned its employees from supporting the president's re-election campaign, prompting CEO Lloyd Blankfein to make clear that Goldman employees can give to whomever they want.

The reasons for the industry's shift away from Obama are complicated — a mix of hard-headed calculation and a more emotional response to the president's public criticism of banks.

Headlee, a Romney supporter whose family has been connected to the Romneys since the 1960s, when his father held a high-ranking position on George Romney's presidential campaign, expressed the frustration that many bankers feel with President Obama.

"We're at the heart of the community, we're at the heart of the economy," Headlee said. "And they seize at opportunities to attack banks, and then they wonder why the economy is struggling."

Ralph "Chip" MacDonald, an industry lawyer at Jones Day, shares the view that banks risk little by supporting Romney.

"What do they have to lose at the moment, since the administration has been so vocal in criticizing the financial services industry?" he asked.

Cornelius Hurley, director of the Center for Finance, Law & Policy at Boston University, is not very sympathetic to the complaints of bankers, arguing that financial reform should have gone farther than it did. Still, he said that following the passage of Dodd-Frank, the industry has strong reasons to turn its back on Obama.

"We're not even halfway through the rulemaking," Hurley said, "and it's clear that the banking industry's profits aren't going to be what they were."

Blair Bowie, who works on campaign-finance issues for the U.S. Public Interest Research Group, which advocates for tough financial reforms, agreed that the banking industry is being rational in its support of Romney.

She expressed doubt that if banks were to support Obama, there would be much impact on his second-term policies.

"What it says more to me is that the financial industry wants Mitt Romney in office," Bowie said.

This year's contribution patterns mark a return to historical partisan norms, with 2008 looking like an outlier. Campaign-finance records from the last six presidential elections show that the contest four years ago was the only time that commercial banks gave more money to the Democratic nominee.

It is more unusual, though, for the banking industry to back an underdog candidate for the White House. The best recent analogy to this year's election may be the 1996 contest, when banks backed Republican challenger Bob Dole over incumbent Democrat Bill Clinton.

The analogy is imperfect, since financial policy was less prominent in the 1996 campaign than it figures to be this year, and Clinton had drawn far less ire from the banking sector than Obama has.

But it's hard to see any negative fallout for the banking industry from its backing the eventual loser in 1996. During Clinton's second term, he signed two important pieces of financial deregulation — the Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000 — both of which had strong support from the banking industry.

It remains to be seen whether bank industry contributions will begin to even out as November approaches. Interest groups frequently contribute to the campaigns of both their friends and enemies, but for the banking industry, that strategy may be unnecessary this year.

"Failing to make a choice and playing both sides of the street can also have adverse consequences," Sabato said. "Life is full of gambles, and bankers are betting that they will be better treated by Republicans. Surely on that score, they are correct."