The departures of Heitkamp and Donnelly will mean fewer moderate Democrats on the Senate Banking Committee. | Getty Bank-friendly Senate Democrats fall in midterms, in blow to industry

At least three Senate Democrats who backed the landmark financial deregulation bill this year lost their reelection campaigns despite their efforts to work across the aisle, in a potential setback for the banking industry.

Red state senators Joe Donnelly (D-Ind.) and Heidi Heitkamp (D-N.D.), who helped write the bill, and Sen. Claire McCaskill (D-Mo.), who supported it, were all defeated by Republican challengers Tuesday. Sen. Bill Nelson (D-Fla.), who also backed the legislation, was trailing his opponent, Rick Scott, as of Wednesday.


Heitkamp and Donnelly were crucial to assembling the bipartisan bloc of lawmakers that passed the deregulation bill, S. 2155 (115), that was signed by President Donald Trump in May easing some key post-crisis rules on small and regional banks.

Sen. Jon Tester (D-Mont.), another author of the bill, eked out a win over his opponent, Matt Rosendale, in a close race that wasn’t called until midday.

“Since so many moderate Dems who supported S. 2155 lost, it may now be harder to get the Dems needed to get to 60 on financial services legislation,” said Ian Katz, a partner at Capital Alpha Partners, referring to the number of Senate votes needed to overcome a filibuster. “After last night, it would be hard for Dem senators to think that cooperating with Republicans on financial policy is helpful to winning re-election.”

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The conversation on the minority side of the Senate Banking Committee will continue to be dominated by Sherrod Brown (D-Ohio), the panel’s top Democrat, and Elizabeth Warren (D-Mass.), a potential 2020 presidential candidate who wields considerable star power.

“In theory, for the banks, Republicans replacing Dems should be good,” said Katz. “On the other hand, it's nice for the industry to have some moderate Dems to deal with when they're trying to find some bipartisan common ground.”

Still, Tester‘s victory is a notable win for banks; the American Bankers Association backed him, as did a super PAC known as the “Friends of Traditional Banking.” And he prevailed even though the president campaigned heavily against him, thanks particularly to a spat over the Montana Democrat’s part in sinking Trump’s nominee to head the Department of Veterans Affairs.

But that dynamic also highlights another reason Democrats have less of an incentive to make deals. Tester, Donnelly and Sen. Mark Warner (D-Va.) weren’t invited to the signing ceremony for the deregulation bill that they helped write. The president also campaigned against McCaskill, Heitkamp, Donnelly and Nelson.

“Every one of those Democrats who supported the bill then got screwed by the White House," said Karen Petrou, managing partner at Federal Financial Analytics. “Some of the destruction was their own doing, but … this is a real lesson the next Senate will take to even greater heart: working with the White House doesn’t protect you from a presidential assault."

The setbacks for moderate Democrats in the Senate was in contrast to the House, where the party was able to capitalize on a number of purple or even red districts.

Rep. Jim Himes (D-Conn.), who heads the business-friendly New Democrat Coalition, said he expects that group to have a stronger presence on the House Financial Services Committee in the wake of Tuesday’s elections.

"It's pretty typical for some of your more centrist members to wind up on Financial Services,” Himes said. “New Democrats come from districts where by and large they're purple districts, where you need to listen to everybody. And that tends to give you a slightly more open-minded-approach to policy."

"As we celebrate our progressives and their progressive ideas, we just need to make sure that we also don't do that to an extent that it hurts the people who are on the bleeding edge of our caucus," he said.

Tuesday's elections also shook up the GOP's 34-member roster on the House Financial Services Committee, which was already set to lose seven Republicans who were not running for new terms, including Chairman Jeb Hensarling (R-Texas).

Three Republican incumbents on the committee lost reelection: Reps. Randy Hultgren (R-Ill.), who fell to Democrat Lauren Underwood; Keith Rothfus (R-Pa.), who lost to Rep. Conor Lamb (D-Pa.) — another incumbent whose district was combined with Rothfus‘; and Claudia Tenney (R-N.Y.), who was defeated by Democrat Anthony Brindisi.

The races of three other committee members were also too close to call Wednesday evening: Mia Love (R-Utah), Bruce Poliquin (R-Maine) and Tom MacArthur(R-N.J.).

Moderate Senate Democrats could get one boost from the election: if Rep. Kyrsten Sinema wins the still-too-close-to-call Senate race in Arizona. Sinema has been an ally to the financial industry.

But ultimately, having more Republicans in the Senate is perhaps more useful, said Richard Hunt, head of the Consumer Bankers Association. That’s because moderate Democrats were still hesitant to support initiatives helpful to industry for fear of blowback from their more progressive colleagues, he said.

"It's a mixed bag,” Hunt said. “You can make the argument you have more votes now. There were times the moderate Democrats wanted to support more common sense relief but they were beholden to the Elizabeth Warren faction."