Obama administration pressures Congress to pass financial reform, despite its packed fall agenda

As time passes from the height of the financial crisis one year ago and the economy begins to recover, administration officials are ramping up their calls for congressional lawmakers not to let the window of opportunity close before enacting a series of new regulations.

“We continue to believe that we are on track for enactment by year’s end,” said Neal Wolin, deputy Treasury secretary, in an interview with The Hill. “We as a country, frankly, coming out of what we have just been through, need to make sure that we put our financial-services system on the right footing, and there is no time to waste.”

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Concern began to mount that financial reform was slipping from the list of priorities when House Financial Services Committee Chairman Barney Frank (D-Mass.) postponed a hearing before the August recess on a central element of the administration’s reform plans. Meanwhile, federal financial regulators began sparring with the administration in public hearings.

The debate is expected to ramp up this week and later in October. Treasury Secretary Timothy Geithner will testify before House lawmakers on Wednesday on the need for new rules. House and Senate lawmakers will hold a series of hearings in the next several weeks on major parts of the administration’s financial reform proposals.

Still, the administration has an uphill battle to win lawmakers’ attention on the issue as President Barack Obama’s leading domestic priority — reforming the nation’s healthcare system — enters its most critical and contentious period of debate. And lawmakers are already locked in a series of tough fights on financial reform.

Unlike the major healthcare and energy bills this year that the White House left Congress to draft, writing the major financial reform efforts began in the administration. 

Obama administration officials, starting soon after Election Day, began crafting a reform proposal that culminated in more than 600 pages of legislative text that was sent to Capitol Hill.

The administration drafted a broad array of changes, including: the creation of a new Consumer Financial Protection Agency (CFPA); new responsibilities for the Federal Reserve to oversee “systemic risk”; power for the government to wind down failing institutions that are not banks; and new regulations over the massive and virtually unregulated markets for complex financial derivatives, among others.

“I think they wanted our expertise and our input and because of the range of things and the complexity of it, they wanted that as a starting point,” Wolin said, referring to congressional lawmakers. “Obviously, they’re going to make their judgments and make whatever adjustments they think are appropriate.”

Frank and Senate Banking Committee Chairman Chris Dodd (D-Conn.) are both working to draft bills that will differ from the administration’s proposals.

Dodd’s plans are expected to include major splits with the Obama administration. The administration proposed merging just two of the bank regulators, while Dodd would like to see the consolidation of four regulators. Dodd also wants to create a council of regulators to oversee risks across the system; the administration prefers granting the power primarily to the Federal Reserve.

Three sources familiar with Senate Banking Committee plans say Dodd is eyeing a hearing to debate legislation at the end of October or by early November. Frank is now working behind the scenes on his own draft of the legislation before holding a hearing in the middle of October.

“I think if you consider the breadth and depth and complexity of what we’re putting forward, Congress is taking this up actually with impressive speed,” Wolin said.

Numerous parts of the plan have set off major lobbying battles against an industry that appears emboldened since earlier this year despite witnessing a crisis that many consider the worst since the Great Depression.

Financial lobbyists and Republicans are attacking the consumer agency proposal. The U.S. Chamber of Commerce, with a series of real estate, business and auto interests, has a multimillion-dollar campaign against the plan. Opponents argue it would drive up costs on consumers, hurt innovation in the financial world and create a series of different state laws that increase the costs of compliance.

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“I think the interests aligned against the consumer agency would like the world to stay just as it is, but we think it’s pretty obvious that the current structure has gotten us to a pretty awful place,” Wolin said.

Some bank lobbyists are picking into the details of the plan in the hope that lawmakers leave some of the technical responsibilities for supervision and writing of new rules at existing regulators rather than granting them to the new agency.

The administration and consumer watchdog allies argue that defeats the purpose of the agency.