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A Project of The Annenberg Public Policy Center

Senate Majority PAC Not Telling Whole Story

A Democratic ad says former Sen. Scott Brown “delivered” for “big banks” in the Senate, citing two legislative changes he sought that benefited the industry. But the ad lacks important context: Both changes were to the Dodd-Frank Wall Street Reform and Consumer Protection Act — a bill that President Obama called “the toughest financial reform” since the Great Depression — and that bill could not have passed without Brown’s vote.

Brown was one of only three GOP senators to vote for Dodd-Frank, which was vigorously opposed by lobbyists for banks and securities firms.

Obama and then-Sen. Christopher Dodd, the Senate sponsor of the bill, praised Brown at the time for helping to pass the bill into law. “During the debate on Wall Street reform, Scott Brown has demonstrated how bipartisanship is supposed to work,” Dodd said on the day Brown announced he would vote for it.

Did Brown Save Banks $19 Billion?

The Senate Majority PAC, a Democratic super PAC created to “protect and expand the Democratic majority in the Senate,” started running the ad in Manchester, N.H., on Jan. 9, according to the Campaign Media Analysis Group, a unit of Kantar Media. The ad seeks to dissuade Brown from running again for the U.S. Senate — this time from New Hampshire. Brown sold his home in Massachusetts and is purportedly considering running for Senate from New Hampshire against Sen. Jeanne Shaheen.

The narrator in the ad starts by saying, “When Scott Brown was the senator from Massachusetts, the Boston Globe reports, he ‘delivered’ for Wall Street, saving big banks $19 billion in taxes.” The Boston Globe did say that in a May 2, 2012, story and Brown’s actions did result in some savings to banks — but not $19 billion.

Here’s what happened: The Senate on May 20, 2010, passed its Dodd-Frank bill in a 59-39 vote with the support of just four Republicans, including Brown. The bill at the time did not include a $19 billion tax on banks, but that changed after the Congressional Budget Office said the Senate bill as passed would increase deficits by $19.7 billion. In response to the CBO report, the conference committee formed to reconcile the differences between the House and Senate versions of the bill added a $19 billion tax on banks. Brown and two other Republicans who voted for Dodd-Frank objected to the tax, according to a June 30, 2010, story in the Boston Globe, and Rep. Barney Frank, the House sponsor of the bill and a member of the House-Senate conference committee, came up with an alternative.

“Frank, who had worked closely with Brown throughout the negotiations, then came up with a new provision that would pay for the legislation through increased fees paid to the Federal Deposit Insurance Corp., and by using savings from an early termination of the 2008 bank bailout fund,” the Globe wrote in a July 13, 2010, story.

Ending the TARP program early would generate $11 billion in savings that would be applied to pay for Dodd-Frank, and the rest of the $19 billion in cost would be covered by imposing higher FDIC fees on banks and credit unions with more than $10 billion of assets, according to a June 30, 2010, story by the American Banker, a trade publication that covers the banking and financial services industry. Jim Chessen, the chief economist at the American Bankers Association, told the American Banker it was “a tax by another name, plain and simple.”

In March 30, 2011, testimony, CBO Director Douglas W. Elmendorf estimated that the increased fees would cost banks and credit unions about $6 billion from 2010 to 2020. In a blog post the day after Elmendorf’s testimony, the ABA said Dodd-Frank “is likely to result in nearly $27 billion in new private-sector fees, assessments and premiums,” including the $6 billion in increased FDIC fees.

So, the ad’s claim that Brown saved “big banks $19 billion in taxes” is wrong by billions of dollars — at least $6 billion, if the CBO estimate turns out to be correct, and maybe more. The ABA told us that the CBO estimate actually underestimates the impact, because assets have grown faster than expected since 2011. The ad also ignores the other billions in new fees imposed by the law.

Brown and the Volcker Rule

The ad also says that Brown “wrote legislation helping big banks make risky investments.” That claim also involves a provision of Dodd-Frank — not separate legislation, as the backup material provided by the Senate Majority PAC itself makes clear.

As with the bank tax, Brown’s objections to the sweep of the so-called Volcker rule in the bill resulted in a compromise that cleared the way for final passage of Dodd-Frank.

Here’s what happened: A key provision of the Dodd-Frank legislation is the Volcker rule — which is named after Paul Volcker, a former Fed chairman and Obama economic adviser who proposed it. The rule places restrictions on certain banks and financial firms on proprietary trading — that is, it limits the ability of financial institutions to invest their own money in stocks, bonds and other products for their own profit. The Volcker rule was part of the Senate bill that passed on May 20, 2010, but Brown voted for the bill only after he received assurances that the final version would protect Massachusetts-based financial institutions.

On June 24, 2010, the House-Senate conferees reached an agreement that limited such investments to 3 percent of a bank’s capital — rather than ban them outright — a compromise designed to win Brown’s support, as reported by McClatchy in a story headlined “Obama hails sweeping revamp of financial regulation.”

McClatchy, June 25, 2010: Under the compromise Dodd first announced Thursday, deposit-taking commercial banks could still invest in hedge funds and private equity funds, but their participation in these high-risk funds would be limited. Banks could own no more than 3 percent of such funds, and the investment couldn’t exceed 3 percent of the bank’s capital.

The move to allow some bank investment in hedge funds was intended to win support from Sen. Brown, the Massachusetts Republican, according to an industry official who requested anonymity because of proximity to the negotiations. Brown, one of four Republicans who supported the broad Senate bill, sought flexibility for Boston-based bank State Street, which has asset-management funds that could be affected by the restrictions.

Dodd said he sought to balance the need to limit risky betting by banks and the need of banks to hedge some of the risks they face in their lending business.

“We tried to strike a balance,” said Dodd.

Obama immediately praised the compromise for clearing the way for the bill to win final approval.

Obama, June 25, 2010: [W]e are poised to pass the toughest financial reform since the ones we created in the aftermath of the Great Depression. Early this morning, the House and Senate reached an agreement on a set of Wall Street reforms that represents 90 percent of what I proposed when I took up this fight.

Business Roundtable, an association of CEOs that includes financial companies, opposed the conference report. It issued a June 29, 2010, press release that said: “We believe the efforts of the House and Senate conferees have veered off course, and will have dire consequences for U.S. global competitiveness, long-term sustainable economic growth and job creation.”

Brown announced on July 12, 2010, that he would support the revised bill. His support, along with Maine GOP Sens. Susan Collins and Olympia Snowe, gave the Democrats the votes they needed to pass Dodd-Frank. The Boston Globe quoted Dodd as praising Brown for his bipartisanship.

Boston Globe, July 13, 2010: Dodd yesterday hailed Brown for reaching across the aisle.

“During the debate on Wall Street reform, Scott Brown has demonstrated how bipartisanship is supposed to work,’’ Dodd said yesterday in a statement. “When he had concerns about the bill, he worked with members of both parties to see that they were addressed. There are too many people in the US Senate who think this job is about just scoring political points. Scott Brown has demonstrated he knows how to roll up his sleeves and get things done for Massachusetts and the country.’’

On July 15, 2010, Dodd-Frank passed with 60 votes, the bare minimum it needed to get to Obama’s desk.

On the day it passed, Obama thanked the “three Republican senators who put politics and partisanship aside today to vote for this bill.” The American Bankers Association issued a statement saying it was “very disappointed” with the bill and predicting it would cause “years of uncertainty” for the industry.

The Senate Majority PAC is certainly within its rights to criticize Brown for weakening Dodd-Frank, if that’s the group’s opinion. But the ad doesn’t make that point or even mention the bill. Instead, it provides criticism with no context, which may confuse New Hampshire voters more than inform them.

— Eugene Kiely