WASHINGTON — Republicans in Congress were uniting behind a call to repeal all or part of the 2010 financial regulatory overhaul. Since JPMorgan Chase announced its $2 billion trading loss earlier this month, that front has splintered.
Some are seeking investigations, with Sen. Mike Crapo of Wyoming among those calling on JP Morgan Chairman and Chief Executive Officer Jamie Dimon to testify, which he has agreed to do. Sen. Richard Shelby, R-Ala., the Banking Committee’s top Republican, said the loss emphasizes the need for capital standards for banks tougher than what the overhaul requires. Sen. Lamar Alexander, R-Tenn., says Congress has no business getting involved.
The divisions point to a party torn by instincts to fix problems as significant as the losses suffered by one of the nation’s biggest banks, by a tea party-backed faction that seeks to avoid any prospect of future bailouts, and by presumptive Republican nominee Mitt Romney’s stance that one bank’s loss was another investor’s gain.
“We need to get over the idea that every time a bank fails or has a problem that Washington’s job is to bail it out or fix it,” Alexander said.
Congressional Republicans may not be able to resolve their differences on this issue, said Michael Franc, vice president of government relations at the Heritage Foundation, a Washington-based research group that favors small government. While most Republican lawmakers oppose strict regulation, more are becoming as suspicious of big banks as they are of big government, he said.
“One of the dynamics that’s emerged in the Republican Party over the last decade or so is a growing populist feel,” he said.
As Republican lawmakers split over their response to the JPMorgan loss, Democrats are unified on their message: that the trading loss underscores the need for tougher regulation of banks.
“It’s one of those things that’s clear that they were betting like you would do at the crap table in Las Vegas and they bet the wrong way,” Senate Majority Leader Harry Reid, D-Nev., said of the company’s loss this week. “That’s fine if they did it with their own money, but the problem is, the way Wall Street’s been working, is that heads they win, tails we lose.”
JPMorgan Chairman Dimon, who disclosed the loss last week, told shareholders there was no justification for the “egregious mistakes” by the biggest and most profitable U.S. bank. In two lawsuits filed this week in Manhattan federal court, shareholders sued the bank and Dimon over the loss. He agreed Thursday to testify before the Senate Banking Committee as it concludes hearings on regulatory changes in June.
Days after the bank’s loss was disclosed, Romney weighed in. The former Massachusetts governor said business losses are part of “the way America works” and urged caution in adopting new rules in response.
“I would not rush to pass new legislation or new regulation,” Romney said.
The matter puts Republicans in the position of deciding whether to take action that will affect an industry that is a top donor to the party. Congressional Republicans are campaigning, with the election less than six months away, to keep control of the House and win a majority in the Senate now governed by Democrats, 53-47.
Campaign contributions from the banking industry were almost evenly split in the 2008 presidential election year, when Republicans reaped 54 percent of industry donations, according to the nonpartisan Center for Responsive Politics. That improved for Republicans in 2010 as they sought to win control of the House. In that year, commercial banks donated $9 million to federal candidates in the 2010 election cycle, 61 percent of the total to Republicans.
JPMorgan’s political action committees donated $829,000 to candidates, parties and political action committees between Jan. 1, 2011, and March 31, 2012, up from $459,000 in the period two years earlier, Federal Election Commission records show.
Since the announcement of the loss, Republican lawmakers have moved in different directions, with most calling for a closer examination of what happened before tightening rules.
“You have to get all the facts on the table,” said Sen. Johnny Isakson, R-Ga. “We’ve passed a plethora of laws and regulations. I think we let it settle out before we overreact.”
Rep. Tom Cole, R-Okla., said he favors hearings “to make sure there is not a culture and attitude that is threatening the stability of the entire system.”
Meanwhile, a few congressional Republicans including Shelby are making the case that tougher capital standards are needed beyond what is in the Dodd-Frank regulatory overhaul.
“I would certainly be in favor of starting to raise capital requirements to make sure banks are secure,” said Sen. Ron Johnson, R-Wis. “Then the taxpayer won’t have to back it up.”
He said that doesn’t mean the government should break up big banks. “If the markets determine that’s the best way to go, that’s fine,” Johnson said.
Others are urging the government not to get involved, particularly because JPMorgan’s solvency isn’t in question.
“Nobody has said that what happened created any kind of a risk that bank couldn’t handle,” said Sen. Saxby Chambliss, R-Ga., who said regulators can handle the matter with the tools they have. “The CEO had to respond to shareholders. There was no tax money at risk.”
One Republican seeking re-election this fall has struck out on his own path. Sen. Scott Brown, R-Mass., sent a letter to Dimon this week, telling him he should “impose financial penalties” on employees responsible for the trading loss.
“It has been very frustrating to watch the continuing volatility in our financial markets, and this $2 billion loss, while painful, provides a good opportunity for JPMorgan to prove that compensation practices have truly changed since the 2008 financial crisis,” Brown wrote to Dimon in a letter dated Thursday.
Brown, one of three Senate Republicans who voted in favor of the 2010 financial regulatory law, is seeking re-election in a close race against Democrat Elizabeth Warren, who advised President Barack Obama in setting up the Consumer Financial Protection Bureau.
The differing responses among Republicans suggests there may not be enough votes in Congress to make any big changes to the regulatory overhaul. Jaret Seiberg, a policy analyst at Guggenheim Securities’ Washington Research Group, said it may take one more “big financial scandal” to galvanize Republicans around the notion of breaking up big banks, he said.
“When push comes to shove, the risk here is that you give momentum to the break-up-the-bank faction,” he said.
Cole said Republicans were slow to discuss the JPMorgan trading losses because “we’re obviously not for Dodd-Frank, most of us voted against it.”
Still, he said, “people in both parties have been cautious about commenting, in part, nobody knows if there is another shoe to drop out there. It caught people by surprise.”
With assistance from Jonathan D. Salant, James Rowley and Lisa Lerer in Washington.