The one banking bill Congress might actually pass next term

Conventional wisdom says that it’s going to be a tall order to pass banking legislation next term, but there just might be a key exception.

One measure to watch will be a legislative fix for banks with customers in the legal marijuana business. While success is certainly not guaranteed, a narrow safe harbor for financial institutions in states where cannabis is now permitted is beginning to draw wide support from industry officials as well as from lawmakers on both sides of the aisle. As chatter picks up, such a provision could find its way to passage in what may be an otherwise deadlocked term.

“As long as this issue is framed as a targeted and technical fix intended to clarify states’ rights, I think it has a path to passage in the next Congress,” said Isaac Boltansky, a policy analyst at Compass Point Research & Trading, who puts the odds of seeing a targeted safe harbor approved at around 75%.

Of course, there will still be hurdles. With Congress divided next term, Republicans and Democrats will need to come to an agreement on what exactly a pot banking fix might entail and how comprehensive a potential carve-out should be. Should legislation, for example, address the steep compliance costs banks face in this market due to requirements that they file suspicious activity reports for state-licensed businesses?

“It's hard to think of an issue that ought to be an easier, bipartisan slam dunk than cannabis banking, but there are a couple of significant obstacles,” said Aaron Klein, a fellow at the Brookings Institution.

Klein noted, for example, that if the political debate turns from addressing specific business concerns to a broader fight over the legality of pot at the federal level, that’s likely to make a targeted fix significantly more difficult. It’s also unclear whether the vocal minority of mostly Republican lawmakers who strongly oppose marijuana legalization will block more targeted efforts from passage.

Lawmakers on the banking committees in both chambers will also be busy with impending deadlines — including the reauthorization of the Export-Import Bank and the Terrorism Risk Insurance Act and likely more work on the federal flood insurance program — that could take time away from debating pot banking and other industry initiatives. Yet these bigger measures, along with other major legislative packages focused on government spending and the debt ceiling, could also prove to be a vehicle for more targeted items, such as a pot banking fix, that can be tacked on as policy riders.

Interest in the topic is beginning to tick up as more states legalize marijuana in some form. Rep. Maxine Waters, D-Calif., who is expected to take over as chairman of the Financial Services Committee next year, told The Wall Street Journal last week that political discussions on this issue are “inevitable.” Federal Reserve Chair Jerome Powell and Comptroller of the Currency Joseph Otting have also raised concerns about the problems facing financial institutions in recent months. The resignation of Attorney General Jeff Sessions — who previously revoked Obama-era guidance that offered some protections to businesses operating legally in the marijuana industry — may also bode well for continued discussions.

“I'd certainly put it in the issues-to-watch category,” said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association. “We're hopeful the topic will get a fair discussion, because it's simply not going to go away.”

At the same time, there’s already been some groundwork laid in recent months. Sens. Elizabeth Warren, D-Mass., and Cory Gardner, R-Colo., introduced a bill this summer — which was then endorsed by President Trump — that would authorize states to write and enforce their own laws with regard to marijuana, codifying the Obama-era guidelines that Sessions reversed. Legislation by Reps. Ed Perlmutter, D-Colo., and Denny Heck, D-Wash., would block federal regulators from issuing enforcement actions against financial institutions banking marijuana businesses in states where it is legal. Companion legislation has also been introduced in the Senate. That plan has also been backed by the Independent Community Bankers of America.

There’s “a real opportunity” next term to move legislation offering a pot safe harbor for banks, Perlmutter recently told Politico.

With Republicans controlling the Senate and Democrats in charge of the House next term, observers aren’t expecting a lot of big, comprehensive banking packages like the regulatory relief bill signed into law earlier this year. But that doesn’t mean legislation can’t happen — if the industry keeps its eyes on narrow fixes.

Bankshot is American Banker’s column for real-time analysis of today's news.