Financial Reform likely to include robust Consumer Agency

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Monday April 05, 2010 · 11:20 PM PDT

2010/04/05 · 23:20

Progress is likely for Financial Reform as Republicans and their banking allies have realized the they can't afford a high profile defense of letting Big Banks avoid transparency.

Street Fight
Obama can get everything he wants on financial reform--if only he gets tough.

Shelby’s recent outreach seems to reflect the new reality in the battle to tame the banks: Both sides recognize that the reformers have the momentum, given the way last month’s health care victory has unified Senate Democrats, and given the political peril for Republicans in appearing to do Wall Street’s bidding. But both sides also recognize that, p.r.-wise, the consumer agency tends to overwhelm other elements of the reform effort.

In light of this, Republicans seem to be settling on a strategy: Give the Democrats much of what they want on the consumer agency and bet that Democrats won’t be too picky about the rest. If the bet pans out, the industry and its GOP allies would, in effect, be trading a robust consumer agency for a chance to scale back a number of highly consequential but below-the-radar reforms. But will it?

Republican obstructionism in defense of the Big Banks during the run up to an election was a nonstarter. Its almost like the Democrats timed Financial Reform for when they'd have the most leverage against Wall Street Bank's army of lobbyists.

For the last several months, the big banks, who make billions of dollars trading derivatives, have tried to arrange it so that these proposals would apply to as few transactions as possible. Their efforts have been somewhat successful—the financial reform bill that passed the House in December featured a reasonably broad exemption to the new regulations (though the industry still has its share of gripes). But the language Dodd moved through his Banking Committee last month is significantly tougher, and the administration has expressed its support.

And, yet, when you talk to industry representatives, they don’t appear overly troubled by the recent turn of events. Most continue to regard the derivatives provision in Dodd’s bill as a placeholder, which will almost certainly be nudged aside by a compromise negotiated by Democrat Blanche Lincoln and Republican Saxby Chambliss. (The two senators run the Agriculture Committee, which shares jurisdiction over derivatives.)

This is why forceful presidential leadership is essential for maintaining the Bill's comprehensive regulatory approach that includes effective regulation of derivatives. We can't afford to take our eye off the ball, our economy depends on it.

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