By Silla Brush - 03/16/10 11:23 PM EDT
Lobbyists are scurrying to make major changes to the 1,336-page financial overhaul legislation Sen. Chris Dodd (D-Conn.) released this week.
Everyone from consumer advocates to executives at big banks want changes to the long-awaited bill, which aims to prevent future financial crises.
On Tuesday, the U.S. Chamber of Commerce, which has been one of the loudest voices on financial legislation, said it would spend another $3 million on its efforts against the Dodd bill, bringing the Chamber’s campaign to $6 million.
“We will intensify our grassroots efforts,” said David Hirschmann, president of the Chamber’s Center for Capital Markets Competitiveness. The Chamber said it would focus its advocacy efforts in six states: Tennessee, Arkansas, Montana, South Dakota, Indiana and Virginia.
Among the issues in the bill, 10 have emerged as the principal battle lines being fought over.
$50 billion line for consumer bureau
Credit union groups are pushing for an amendment to raise the threshold from $10 billion to $50 billion in assets for depository institutions covered by the proposed Bureau of Consumer Financial Protection.
Three large credit unions — the State Employees’ Credit Union, Navy Federal Credit Union and Pentagon Federal Credit Union — have assets in excess of $10 billion but less than $50 billion. The National Association of Federal Credit Unions has been lobbying for the change.
There are 36 bank holding companies with assets in excess of $50 billion, according to government data. There are roughly 120 banks and thrifts with assets exceeding $10 billion, according to market research firm SNL Financial.
Prepaid resolution fund
Congressional lawmakers and the administration have wrangled for months over how to set up a process for dissolving failing financial firms. It’s one of the central questions of the overhaul. The House approved a $150 billion industry-supported resolution fund that could be tapped by federal regulators; Dodd pitched a $50 billion industry-supported fund.
The Obama administration had originally supported a fund that would be created in the event of a firm failing and supported by assessments on large financial firms. The forces in support of a prepaid fund appear to be winning the fight, but financial companies are sparring over which firms, exactly, should be required to pay for failures.
The financial industry had not been expecting Dodd’s bill to include language strictly limiting proprietary trading at banks. While the measure does not include specific limits in the statute, it does require federal regulators to devise a prohibition on trading.
“Rather than arbitrarily banning certain activities, or setting arbitrary size limits, our policy response should focus on improving risk management, internal controls, supervisory oversight and creating the authority to resolve large financial institutions,” said Rob Nichols, president of the Financial Services Forum, an association of CEOs at 18 large financial firms.
Financial lobbyists are pushing instead for regulators to have flexibility in studying the issue. “It’s a one-size-fits-all, draconian approach to a very complex issue,” said Scott Talbott, senior vice president at the Financial Services Roundtable.
State versus federal powers
Financial lobbyists have pushed to maintain strong powers for the federal government to pre-empt state financial regulations. The issue of pre-emption was a hot-button topic in the House overhaul bill. Negotiations over the issue with centrist Democrats lasted for days.
Financial lobbyists, including Richard Hunt at the Consumer Bankers Association, argue that without federal pre-emption of state rules, a patchwork of regulations will harm the industry. Meanwhile, consumer advocates and the Obama administration argue it is essential to provide greater scope for state powers.
Liberal Democrats and consumer advocates want to rein in payday lenders, which typically make short-term loans at high interest rates. The industry is strongly opposed to new federal regulations, arguing in favor of state-based rules. “None of us should be regulated by the federal government,” said Steven Schlein, spokesman for the Community Financial Services Association, a payday loan trade association.
While the Dodd bill provides greater scope for regulation of payday lenders, consumer advocates said they have concerns over a requirement that proposed rules would need to be studied. “Quite frankly, we don’t know why we need to study laws over payday lenders,” said Ed Mierzwinski, of the U.S. Public Interest Research Group.
Autonomy of consumer protection bureau
Banking lobbyists are concerned about the autonomy of the proposed Bureau of Consumer Financial Protection. They and most Republicans oppose a separation between regulators who oversee the safety and soundness of institutions and those who oversee consumer protection.
Consumer advocates praised Dodd’s inclusion of a “firewall” between the new bureau and the Federal Reserve, which regulates banks. “It’s a pretty unprecedented and shocking concentration of power,” said Andrew Pincus, a partner at the Mayer Brown law firm who is working for the Chamber.
The Chamber has sounded the loudest opposition to the potential for financial overhaul legislation to come to bear on non-financial companies. The Dodd bill, and particularly the bureau for consumer protection, would impose new rules on non-banks and have enforcement powers over those with at least $10 billion in assets.
The Chamber, National Association of Manufacturers (NAM) and other non-financial lobbying groups are concerned that the scope of the bill is too wide. The National Association of Automobile Dealers (NADA) successfully pushed for an amendment in the House financial bill that exempted dealers from the consumer protection agency. The administration has argued that non-banks are large players in the financial market and that current powers are too limited.
While the financial reform debate has been dominated by regulations on banks and depository institutions, insurers have begun to have a louder voice as the Senate takes up legislation. The American Insurance Association and Property Casualty Insurers Association of America, among other trade associations and insurers, are concerned about the way in which failing financial firms would be wound down in the future.
They argue the legislation would trample on the existing state-based system of resolving failing insurers and also require larger insurers to help pay for future failures.
‘End user’ derivatives exemption
The Dodd bill includes a placeholder for new limits on the multitrillion-dollar market for financial derivatives. Sens. Jack ReedJack ReedReid throws wrench into Clinton vice presidential picks House, Senate at odds on new authority for cyber war unit House defense bill elevates cyber force, defying White House MORE (D-R.I.) and Judd Gregg (R-N.H.) are still discussing derivatives legislation that could be added to the Dodd bill.
But financial lobbyists and business interests, including the Chamber, Edison Electric Institute and Business Roundtable, have pushed lawmakers to write a broad exemption for “end users” so that companies are not restricted from using derivatives to hedge commercial risks. Consumer advocates have warned against a broad carve-out that could be used by banks and other financial firms.