Prospects Look Bright for Financial Reform
After weathering the worst financial crisis since the Great Depression, getting a financial regulatory overhaul done should be as close to a slam dunk for Democrats as anything else on their agenda this year — and they sure could use a victory.
Several factors seem to be favoring getting a deal done sooner rather than later. Democrats need to pass legislation, and Republicans in general appear more amenable to a deal on financial regulations than on health care or a cap on carbon emissions.
President Barack Obama and Treasury Secretary Timothy Geithner have been stepping up their efforts in recent weeks to get a bill moving, with Geithner saying in an interview Tuesday with a small group of reporters that a consensus appears to be emerging behind the reform effort.
The administration has been pushing Congress to finish a bill by the end of the year, and Geithner reiterated Tuesday his desire to see action as soon as possible.
“Obviously, we want to get this done as quickly as we can,— he said. “As we’ve seen before, as you let the memory of the crisis fade, it’s easier for people to fight reform. The best strategy our opponents can adopt is to slow things down.—
With the memory of last fall’s near-meltdown still fresh, few are arguing for doing nothing.
“It’s a very hard argument to make that the system worked and we should just tinker at the margins,— Geithner said.
Not that getting a bill done will be easy, of course. Despite Geithner’s optimism, he still faces plenty of hurdles to passing a bill in the next few months, including the opposition of many financial firms to the creation of a powerful new consumer agency to oversee the safety of financial products and turf battles within the government over who should oversee what.
“There are no slam dunks right now,— one Senate Democratic leadership aide said. “We have to fight for everything.—
Some institutions are lobbying hard for carve-outs to avoid facing new regulators and tougher reserve requirements proposed by Geithner.
“The banks still have a lot of influence on Capitol Hill, although that may be diminishing somewhat, and you’ve got turf battles,— the aide said. For starters, while the administration is pitching the stand-alone Consumer Financial Protection Agency, Federal Reserve Chairman Ben Bernanke wants to add consumer protection to his charter instead. Other agencies also have objected to sharing power with a new regulatory regime.
White House Press Secretary Robert Gibbs vowed Tuesday that Obama would fight for the consumer agency, stopping just shy of a veto threat. “The president will fight for and fight against anybody in the special interests who don’t see it as an important part of financial regulatory reform,— he said.
One big plus for the White House appears to be Senate Banking, Housing and Urban Affairs Chairman Chris Dodd’s (D-Conn.) decision to stay at his post instead of taking the Health, Education, Labor and Pensions Committee chairmanship, a decision that surprised many in the Senate. Dodd wouldn’t have remained at Banking without a strong sense that he could accomplish something big, aides said.
Dodd spokeswoman Kirstin Brost quipped that he stayed at Banking because he deemed the bill “too big to fail.— She said he did so only after talking extensively with ranking member Richard Shelby (R-Ala.).
“He considers Sen. Shelby a close friend and a partner who could help him get this done,— she said.
A Senate Republican aide said it’s more likely that a deal will come together next year, given everything already on the Senate’s plate this year.
Dodd is shooting for finishing the bill this year, but the timing is less important than making sure the country doesn’t face another financial crisis in a year or two, Brost said. “We need to make sure this is done right. The nation is depending on us getting it right.— And while big financial firms are still lobbying the way they did before the crisis, one Senate aide said, they don’t have quite the pull they used to.
“A lot of these big businesses don’t understand that the world has changed. Nobody likes them anymore. Nobody’s buying their crap anymore.—
In the House, Financial Services Chairman Barney Frank (D-Mass.) has already tweaked his bill in an effort to appeal to fiscally conservative Blue Dog Democrats, but he has kept intact the core pieces of the administration proposal, including the consumer agency and a new resolution authority that would take over and dispose of large financial institutions when they fail.
Financial Services ranking member Spencer Bachus (R-Ala.) has criticized the administration plan as institutionalizing a “too big to fail— policy and creating a roadmap for future bailouts that could put taxpayers on the hook. He has proposed creating an expedited bankruptcy process instead.
Geithner on Tuesday defended his package against critics who have argued it does not do enough to deal with large institutions.
“The most important thing to do is make sure banks and investors don’t live with the expectation the government is going to bail them out,— he said. “We have to make sure we build into our system the capacity to let institutions fail without igniting an inferno.—
Geithner emphasized that “resolution authority is not for saving banks. It’s used to dismember, unwind, restructure, close institutions with less collateral damage and less risk to the taxpayer.—