Politico----
A casual observer could be forgiven for thinking that the debate over financial regulatory reform was largely over. After all, President Barack Obama and his team at the Treasury Department spent months consulting with lawmakers and industry officials to create a plan that would win the necessary votes in Congress. They even side-stepped some of the most contentious fights for the sake of expediency.
It was all over but the mopping up, right?
Wrong. The mop-up operation for the regulatory reform proposal contains contentious debates that in any other year would be titanic legislative battles of their own.
The fates of each item will be determined on the Hill in a series of hearings this summer — including Wednesday, as the House Financial Services Committee examines ways to enhance consumer products regulation in a 10 a.m. hearing in the Rayburn House Office Building.
Rep. Barney Frank (D-Mass.), who chairs that committee, says the manifold regulatory items will most likely come together in one enormous bill over the course of the next two months, with a vote on the House floor after Congress comes back from its summer recess in September. The Senate, presumably, could vote on the package in October, making financial regulatory reform one of the last pieces of legislation Obama is likely to sign into law in 2009.
“We will have it done this year,” said Senate Banking Committee Chairman Chris Dodd (D-Conn.).
But there’s a long way to go between here and there. “July won’t be a good time to take a long vacation,” says Financial Services Committee spokesman Steve Adamske. “Obviously, there are going to be issues, and there will be changes, but we haven’t gotten into the nitty-gritty yet.”
Several financial services
lobbyists foresee three high-profile fights as the bill makes its way to the House and Senate floors, including over the size and the authority of the Federal Reserve, the precise authorities and jurisdiction of Obama’s proposed new consumer protection agency and the decision of how, exactly, the nation’s insurance industry will be regulated.
The Federal Reserve:
In a Senate Banking Committee hearing last week, the consolidation of power under the Federal Reserve envisioned in the Obama plan unexpectedly raised the hackles of both Republican and Democratic senators, including Banking Chairman Dodd.
“Your plan puts a lot of faith in the Federal Reserve’s ability to spot risk and exercise its power to prevent the next crisis,” Sen. Jim Bunning (R-Ky.) told Treasury Secretary Timothy Geithner during the session. “However, if the Fed and other regulators had been doing their jobs and paying attention to what the banks and other firms were doing earlier this decade, they almost certainly could have prevented the mess.”
The Obama plan calls for the Fed to take on expansive new authority to serve as a systemic risk regulator of all large financial institutions whose collapse could pose a threat to the entire system.
But the Fed’s secretive ways and inscrutable pronunciations on monetary policy rub an increasing number of lawmakers the wrong way. “There’s suddenly a lot of Fed haters out there,” said one financial industry lobbyist. “But Bunning and Rep. Ron Paul (R-Texas) hated the Fed before hating the Fed was cool.”
Consumer protection agency:
The idea seems to resonate with the public, but industry has vowed to fight the creation of a new bureaucracy to police the relationships between customers and financial institutions, wary of federal intervention in its most profitable business lines.
The politics of that fight, though, will be difficult, especially given the heated rhetoric industry lobbyists face on the Hill. “What planet are you living on?” Dodd demanded of industry groups resisting the consumer agency. “The very people who created the damn mess are the ones now arguing that consumers ought not to be protected.”
Still, one industry official says he’s going to fight on. “We’re going to try to kill this thing,” he said. “But there are a lot of Maginot lines in this debate: Who will it report to? What is its structure? What is its jurisdiction? The fewer financial products it regulates, the better.”
Among other worries, say industry representatives, is that the new agency could put the federal government in the business of setting interest rates on credit cards available to consumers. Industry has long argued that it needs flexibility to charge high rates so it can continue to make credit available to high-risk consumers with bad credit scores. Without high-rate cards, they say, many of those customers will be blocked from owning credit cards altogether.
Something of a bureaucratic food fight is already breaking out over which agency will oversee consumer issues. On Monday, the Federal Deposit Insurance Corp. announced it had created a new post, naming Ellen Lazar to the role of senior adviser for consumer policy to FDIC Chairwoman Sheila Bair.
But for now, all eyes are on Elizabeth Warren, the head of the congressional TARP oversight panel, as a potential pick to run the new consumer agency. “She’s leading the space right now,” says a lobbyist.
Insurance industry:
Obama’s plan didn’t quite create the federal-level insurance regulation that some were expecting. As of now, the insurance industry is regulated by a state-level system, which appeals to some industry players and frustrates others. Given that one of the highest-profile wipeouts of the 2008 financial collapse was an insurance company, American International Group, the industry has attracted the attention of federal officials laying out the scope of the new systemic risk regulatory capability.
But it’s not entirely clear how systemic risk regulators will interact with the insurance industry. “Who does the systemic risk regulator work with in Washington if there’s another major insurance failure?” asked the industry official.
Sources: Politico
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