Banks Hire Insiders as Senators Press for Reform

Posted April 20, 2010 at 6:44pm

As Senate Democrats target the biggest banks with sweeping financial regulatory reforms, Wall Street is attempting a bank-shot attack, relying on third-party lobbyists not blamed for causing the economic crisis to make its case to Congress.

The move comes as Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) pledged Tuesday on the Senate floor to bring up the financial legislation that would target the “same large financial firms that got us in the mess in the first place” in the next few days.

The banks have faced diminished credibility since the collapse of the financial system more than two years ago, but the news of the Securities and Exchange Commission filing civil charges against Goldman Sachs last week reinforced just how difficult it is to regain their footing on Capitol Hill.

While the banks continue to send their in-house foot soldiers to the Hill, they have intensified an effort in recent weeks to hire former lawmakers to work inside their lobbying associations and to use smaller banks to try to gain political advantage.

However, the small banks aren’t looking kindly at the strategy of their bigger brethren.

Community banks are tired of carrying water for the big banks on regulatory reform, said Steve Verdier, executive vice president at the Independent Community Bankers of America.

“One of the things that’s really bugging us is everybody and their brother are saying community banks want this and community banks want that,” Verdier said.

While Verdier acknowledged that the ICBA is willing to work with the big banks when they are in agreement on particular provisions in the bill, he said his group is invested in the financial regulatory reform bill moving forward. The ICBA has been lobbying for non-bank retailers to be covered by a proposed consumer protection agency, making sure prudential regulators have more input in consumer rule-writing, among other matters.

“One thing we are not doing is trying to stop the bill or hold it up indefinitely so that Wall Street can make further weakening changes,” Verdier said.

Big banks aren’t relying solely on small banks and credit unions to be their face on Capitol Hill. Wall Street also is on a hiring spree for contract lobbyists, particularly high-profile former lawmakers.

Citigroup, one of the banks hardest hit by the financial crisis, recently did just that. The bank retained former Senate Majority Leader Trent Lott (R-Miss.) and his partner, former Sen. John Breaux (D-La.), to lobby on financial regulatory reform and tax issues.

The increased firepower comes after the bank worked with the former Senators through the Financial Services Roundtable, which also has the Breaux Lott Leadership Group on retainer.

The Financial Service Centers of America, a trade group of payday lenders and currency exchanges, also recently upped the ante in Washington, D.C., bringing on former Sen. Don Nickles (R-Okla.), founder of the Nickles Group.

The FSCA is fighting its inclusion in the proposed Consumer Financial Protection Agency, according to Ed D’Alessio, deputy general counsel for the group.

“Our industry had nothing to do with the financial meltdown, and CFPA will simply add another level of bureaucracy with no corresponding benefit to either consumers or industry,” D’Alessio said. “We retained the Nickles Group to help us convey that message on Capitol Hill.”

Former Members can have a leg up in getting the attention of current lawmakers, according to one in-house financial services lobbyist whose company retains former lawmakers.

“It’s hard to focus Members on the details of this very complex bill and more particularly on unintended consequences,” the lobbyist said. “You hope they can reinforce what Members are already being told.”

“In many cases, the staff up there realize some of the problems, but Members are just trained to the political maelstrom,” he added.

Still, former Members aren’t always the end-all be-all, especially when it comes to lobbying on technical issues like derivatives.

The army of ex-Members lobbying the bill, including former House Majority Leader Dick Gephardt (D-Mo.) and former Rep. Richard Baker (R-La.), is making the pitch as Dodd and Senate Agriculture, Nutrition and Forestry Chairman Blanche Lincoln (D-Ark.) are trying to hammer out details of how to regulate the over-the-counter derivatives market. Lincoln — along with Sens. Bob Casey (D-Pa.) and Tom Harkin (D-Iowa) — reiterated the push for reform on Tuesday.

“Just because you hire a former Member doesn’t make your story any more believable,” said one Republican lobbyist working for financial services companies. “What they are trying to do is use third parties — whether it’s the [U.S.] Chamber doing small-business education and that kind of thing.”

The U.S. Chamber of Commerce is continuing its full-court press on several of the key regulatory reform issues, including the consumer protection agency, systemic risk and too-big-to-fail provisions, as is the Financial Services Roundtable. The roundtable reported spending almost $2.7 million during the first quarter of 2010.

“Congress is working on a bill that will fundamentally modernize the regulatory framework,” FSR’s Scott Talbott said. “This bill will have effects to come. This is the time to get it right. We’re committing resources to that.”