By Silla Brush - 06/16/09 07:27 PM EDT
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, intends by the August recess to pass through his committee legislation that restructures the financial system. He is awaiting the final proposal from the administration.
The administration aims to remove the regulatory gaps and weaknesses in the existing financial system, and has been working since last year to draft the proposal. The selling of the plan on Capitol Hill will begin almost immediately, with Treasury Secretary Timothy Geithner scheduled to testify before House and Senate committees on Thursday.
At various points leading up to Wednesday’s release of the plan, administration officials have sought industry’s input. Officials from Treasury and the National Economic Council have held several rounds of meetings with lobbying groups.
While industry groups will pick apart many details of the plan, some are broadcasting a desire to work with Congress so that the final result wins bipartisan support.
“We’re trying to rebuild a sense of normalcy for the industry regarding the administration and the Hill,” said Rob Nichols, head of the Financial Services Forum, a group with 17 large industry members.
Nichols mentioned that one political model is the bipartisan work to reform the Committee on Foreign Investment in the United States. The House passed that bill by a vote of 370-45; it passed the Senate with unanimous consent and was signed into law by President Bush in 2007.
The lobbying battle so far has taken place largely behind the scenes among Big Business, the companies that finance corporate America, investors and consumer groups. But as components of Obama’s plan have leaked, the fight over financial markets has become more public.
Labor and consumer groups that support most of Obama’s plan announced Tuesday they planned to take on what they see as the banking industry’s dominant position in Washington by stoking grassroots anger over the financial crisis. The new coalition, Americans for Financial Reform, includes roughly 200 organizations such as U.S. PIRG, the AFL-CIO and the AARP, and has a budget of $5 million.
Rob Johnson, a former chief economist of the Senate Banking Committee, said a market has developed in Washington for “buying and selling the rules governing our society.” Johnson is now an economist at the Roosevelt Institute, which is a member of the new coalition.
On nearly every nook of the administration’s plan, lobbyists will attempt to shift the regulations in ways large and small that could benefit companies for years to come. Some fear the bill, a priority for the administration and the Democratic Congress, will attract policy ideas outside to the scope of financial market reform.
“We are worried that any legislation will become a Christmas tree for unrelated proposals,” said David Hirschmann, president and CEO of the U.S. Chamber of Commerce’s Center for Capital Markets.
The administration intends to grant the Federal Reserve greater authority and consolidated supervision over large firms that could topple the system. Under the Obama plan, there would also be a council of regulators with broad authority to look across the system. While industry trade associations have generally voiced support for the notion of a “systemic risk regulator,” the details of the plan will be the focus of much debate.
One flashpoint would be if the administration outlines explicit criteria designating new requirements regarding systemically significant institutions. Another would be over the power vested in the council of regulators compared to the Federal Reserve. Lawmakers from both parties have voiced concern over the central bank, its transparency, its role in overseeing institutions in the financial crisis and its wide latitude to respond to crises.
ICI supports a council of regulators that would give greater say to other agencies, such as the Securities and Exchange Commission.
Another key area of disagreement with the administration will be over the plan to set up a consumer financial protection agency. Financial-industry groups argue that setting up a new office would simply add another layer of bureaucracy and trample on already-existing authorities.
“Give the power for consumer protection to the agencies that have real power,” Steve Bartlett, head of the Financial Services Roundtable, recently told reporters.
Consumer groups and Elizabeth Warren, head of the Congressional Oversight Panel looking into the $700 billion financial rescue package, back the idea. Democratic Sens. Dick Durbin (Ill.), Charles Schumer (N.Y.), Chris Dodd (Conn.) and Edward Kennedy (Mass.) are also in support.
Richard Hunt, head of the Consumer Bankers Association, said that his association is concerned that some of the consumer protection changes could lead to states “all trying to outdo each other”; that more regulations could further hamper the flow of credit.
While the administration has talked for months about setting up a way to deal with non-bank financial institutions whose failure threatens to affect the wider economy, the details of the program and how it is paid for will be controversial and will likely spiral into a broader debate between smaller banks and large institutions.
Private equity and venture capital firms have argued that they did not play a role in pushing the system into crisis. Left unclear is whether the administration will make a push this year or later to establish an office at the federal level on insurance issues.
Jim Snyder contributed to this article.