In examining the causes of the global financial crisis of 2007 and 2008, one of the more obscure issues researchers identified was the accounting practices used by banks that caused them to not hold large enough capital cushions. Almost universally, banks had been using accounting standards that only factored incurred loan losses when determining how much money they should set aside, rather than also considering what they could reasonably anticipate for future losses. When subprime loan losses began piling up and some institutions were exposed as having holes on their balance sheets, it was hard to trust that a bank was solvent because the accounting used by everybody seemed to be overestimating banks’ abilities to absorb losses.
To address these overly-rosy accounting practices, regulatory bodies in the U.S. and abroad crafted new standards that will require banks to account for future loan losses by considering historical data and economic forecasting. In 2016, the American federally-recognized accounting standards-setting body, the Financial Accounting Standards Board, issued new forward-looking accounting standards, known as Current Expected Credit Losses accounting (CECL), that it originally planned to go into effect in a couple years. The new standards would cause banks to hold more capital so they are prepared for inevitable downturns, potentially heading off bank failures that could require bailouts through the Federal Deposit Insurance Corporation or special appropriations of taxpayer money.
The banking industry came out strongly against the idea. Its chief U.S. lobbying group, the American Bankers Association, calls CECL “the most sweeping change to bank accounting ever” on its website and says it “presents operational complexities that can significantly increase costs at banks of all sizes.”
Within the halls of Congress, one lawmaker in particular has taken up the American Bankers Association’s cause on the accounting standards issue. Missouri Republican Rep. Blaine Luetkemeyer, the top Republican on the Consumer Protection and Financial Institutions Subcommittee, convened a stakeholder roundtable discussion on CECL, held subcommittee hearings on it, wrote an op-ed, led multiple congressional letters to regulators and congressional leaders opposing it, and introduced legislation to prohibit regulators from enforcing it. Most recently, Luetkemeyer managed to delay its implementation twice—first through adding language to the Coronavirus Aid, Relief, and Economic Security Act giving publicly insured financial institutions the option to delay implementation until the end of 2021, and then again through getting that delay extended until the end of 2022 in the Covid relief package that was signed into law on Dec. 27, 2020.
Luetkemeyer is often called “Wall Street’s favorite lawmaker” for his working alignment with the industry’s lobbying wishes. But Sludge has found that Luetkemeyer is more than just aligned with the banks, he also owns a dues-paying member of the American Bankers Association (ABA). When the group’s lobbyists speak to Congress, they are speaking in part on behalf of Representative Luetkemeyer’s own bank.
In his most recent annual disclosure, Luetkemeyer disclosed a stake worth up to $25 million in St. Elizabeth Bancshares, a S corporation that has been held by his family for decades. His brother Brice is the president and CEO of the bank, and his spouse is on its board of directors. Rep. Luetkemeyer has taken in between $4.6 million and $26 million in pass-through income from the bank since becoming a member of Congress, according to his annual disclosures, and his spouse has collected annual director’s fees.
Luetkemeyer was the chairman of the Financial Institutions and Consumer Credit Subcommittee in the 115th Congress, before the Democrats took control of the chamber and he became the subcommittee’s ranking member. The subcommittee, which the Democrats renamed the Consumer Protection and Financial Institutions Subcommittee, has jurisdiction over all banking regulators, as well as the chartering and branching of financial institutions, interest rate issues, consumer credit, deposit insurance, consumer access to savings accounts, and much more.
The congressional record shows that Luetkemeyer interacted with the ABA in his official capacity on the subcommittee without disclosing that he owns one of the group’s members.
In 2017, he brought then-ABA chairman Ken Burgess before his subcommittee to testify at a hearing on the application process for de novo banks and asked him softball questions like, “Can you point to a particular rule or regulation or group of rules or regulations that are problematic for you?” Burgess was required to file a truth in testimony disclosure before appearing before the committee to help committee members asses any potential conflicts, but Luetkemeyer was under no obligation to disclose that he owned a bank that Burgess was representing on behalf of the ABA, and he made no mention of the fact during the hearing.
In 2018, during a hearing he convened on CECL, Luetkemeyer submitted a letter from the ABA for the record, again without mentioning that the lobbying group represents his own bank. The letter argued that CECL would increase the cost of credit and reduce its availability, and that it should be delayed and subjected further.
“Luetkemeyer’s conflicts of interest are egregious and would be illegal if he were in the executive branch,” government ethics expert Craig Holman of Public Citizen told Sludge. “Luetkemeyer’s wealth, and the wealth of his family, will be directly and substantially impacted by his official actions in Congress. In his official position on the House banking subcommittee, Luetkemeyer not only has access to inside information about the prospects of the banking industry, which can reap enormous profit on the stock market and other investments, but Luetkemeyer may also influence the fortunes of the industry through legislation and public policies that affect the banking business.”
Luetkemeyer’s office did not respond to a request to comment for this article.
Fighting CECL is an issue that Luetkemeyer’s brother, the president of St. Elizabeth Bank, has worked on. In July 2019, Brice Luetkemeyer authored an op-ed in American Banker, a widely read banking trade publication not affiliated with ABA, calling CECL “a solution in search of a problem.” Brice submitted his anti-CECL article to the FDIC to consider as it worked on drafting an interagency policy statement on how CECL should be implemented. Brice Luetkemeyer is currently the chairman of the Missouri Bankers Association, a state affiliate of the ABA.
At the December 2018 hearing where Luetkemeyer had invited Burgess to testify, the congressman offered his opinion on who should be exempted from CECL. “It is my opinion that private firms, particularly community banks, should be exempt from this rule altogether.” St. Elizabeth Bank, with just under $200 million in assets, is a private firm and refers to itself as a community bank.
Rep. Gregory Meeks, the second highest-ranking Democrat on the Consumer Protections and Financial Institutions, told Roll Call last March that Luetkemeyer had convinced him that CECL could be problematic. “I get to understand issues in ways that are not based on political rhetoric but rely on real experience,” Meeks said of Luetkemeyer’s lobbying of him. “He’s gotten me to agree with his basic viewpoint on CECL: That we need a careful analysis of this proposal.” Meeks was the chair of the Consumer Protection and Financial Institutions Subcommittee in the last session of Congress and he joined Luetkemeyer on letters calling for CECL to be delayed, giving the effort bipartisan support. He told S&P Global that he has also begun lobbying Financial Services Committee Chair Maxine Waters (D-Calif.) on the issue, and that she was open to considering legislation to prohibit regulators from enforcing compliance with the standard altogether.
If the GOP takes control of the House in 2022, Luetkemeyer would be in position to once again take the gavel of the Consumer Protection and Financial Institutions Subcommittee. He has also said that he would be interested in chairing the Financial Services Committee overall, though there is no indication that the committee’s current top Republican, Rep. Patrick McHenry (N.C.), is interested in giving up that seat.
A 2019 scorecard from Americans for Financial Reform found that Luetkemeyer voted in favor of all 38 deregulatory measures that received House floor votes in the 115th Congress. These votes were characterized as “measures to deregulate finance, and to, in some way, serve the interests of Wall Street and the financial industry at the expense of the public interest.” The group also found that he voted in favor of every deregulatory measure that came before the Financial Services Committee that Congress.
Holman told Sludge that the fact that Luetkemeyer is in a position to use his seat for personal profit is a problem.
“Personal enrichment is a temptation that is hard to resist,” Holman said, “That is why Congress made such a conflict of interest illegal for executive branch officials. But Congress has deemed that the same self-serving conflicts of interest shall not apply to itself. Members of Congress can use their official positions to cash in, and Luetkemeyer is making the most of it.”