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Wall Street braces for gavel hand-off

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Wall Street is bracing for change atop a powerful Senate committee in the next Congress.

Depending on the outcome in November, the gavel of the Senate Banking Committee will fall to either Democratic Sen. Sherrod Brown (Ohio) or Republican Sen. Richard Shelby (Ala.).

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Each senator has sparred with large financial institutions, so lobbyists are expecting there to be friction no matter which party triumphs in the midterms.

“There is no perfect chairman. There is no perfect ranking member. The industry is not looking for that type of chairman, but the industry is looking for [someone] who will make their positions known, but are willing to compromise,” said one banking lobbyist who asked not to be identified. “I don’t think you have that in Brown or Shelby.”

The banking gavel is guaranteed to change hands in January because the current chairman, Sen. Tim Johnson (D-S.D.), is retiring at the end of his term.

Senate Republicans are slightly favored to win the majority, and Shelby has made clear he wants to lead the Banking panel if they succeed.

If Democrats manage to hold the Senate, Sen. Chuck Schumer (D-N.Y.) and Jack Reed (D-R.I.) would be in line to take over for Johnson, but neither is expected to take the job — meaning Brown, a more liberal member, would take the reins.

Both outcomes would be tough for the financial industry to swallow.

Shelby and Brown have criticized the big banks as being “too big to fail,” and Brown has partnered with Republican Sen. David Vitter (La.) on legislation that would force banks to hold more capital in order to guard against bailouts.

Still, while big banks are wary of the gavel hand-off, the change is unlikely to spur major legislation affecting the financial sector, given the ideological gulf between Republicans and President Obama on policy.

“It’s hard to imagine President Obama and [House Financial Services Committee] Chairman [Jeb] Hensarling in the Rose Garden signing a Banking bill,” said Sam Geduldig, a financial services lobbyist and partner at Clark Geduldig Cranford & Nielsen. 

Still, the Banking Committee chairman could inflict pain on Wall Street by dragging executives to the hearing room.

Shelby — who was once a Democrat — is aligned with the financial industry on many issues, including concerns about the power and structure of the Consumer Financial Protection Bureau. Still, he has a populist wild streak when it comes to the big banks.

“There’s history with Shelby,” said the banking lobbyist. “The easiest way to classify it is that Sen. Shelby has a history of being somewhat difficult to work with on issues on banking or otherwise. I think he takes pride in that.”

Brown, likewise, isn’t always at odds with the financial industry, and maintains close relationships with community banks, credit unions and insurance companies. 

His office regularly holds meetings with consumer advocacy groups and financial institutions, said spokeswoman Meghan Dubyak. Outreach to the financial services industry “has been regular, rather than recent,” she said.

Consumer watchdogs take comfort in the uneasiness that K Street has with Brown. Though likely to agree with Brown’s policy prescriptions more often, groups such Public Citizen, a Washington-based group, also work with Shelby’s office.

Bartlett Naylor, a financial policy advocate at Public Citizen, formerly led the banking panel’s investigations team and knew Shelby as a Democrat.

“I find him approachable as well as his staff,” he said. “I think he’s interested in policy. His policy positions are reasonable — I disagree with many of them, but he makes a credible case.”

Shelby is “jaundiced against the size of big banks. I believe he is concerned with lack of penalties against the megabanks,” he adds. “To say he’s not a friend to Wall Street, we applaud that.”

Some lobby firms are already staffed with former Brown and Shelby aides, giving them a leg up on the coming transition.

Brown’s K Street network includes Rhod Shaw at Alpine Group, who served as Brown’s chief of staff until 2000, William Jawando at the Raben Group and Roberta Downing, who handles policy issues for the American Psychological Association.

Alumnae of Shelby’s office include former legislative staffer W. Ryan Welch, who is a vice president and partner at Forbes-Tate; G. Stewart Hall, a chairman at Crossroads Strategies, and Abby McCloskey, the program director of economic policy at the American Enterprise Institute, a conservative think tank. 

Industry lobbyists stressed that they are ready to work with whoever ends up leading the Senate committee, but a look at campaign donations compiled by the Center for Responsive Politics shows that some might be closer to the Alabama senator.

While Shelby’s donors include American Express, JP Morgan Chase, Morgan Stanley, Wells Fargo and Goldman Sachs, most of the financial giants have yet to contribute to Brown, records show.

That runs counter to K Street’s usual practice of donating to influential lawmakers, even ones who might largely disagree with a client, in order to facilitate a relationship. 

One financial lobbying group said it has money set aside to give to Brown, but hasn’t had the chance because the senator hasn’t held many fundraising events, likely because he isn’t up for reelection until 2018.

"You can't just blow into [Brown’s] office with a $5,000 check" and expect to start a relationship, said a lobbyist at the trade association.

A Democratic lobbyist who asked to remain anonymous added: “If you’re all of the sudden going to play the ‘Sherrod-Brown-might-be-chairman game,’ it will be seen for what it is.”