Banks brace for tough battle in the Senate


Lobbyists for banks big and small expect Senate Banking Committee Chairman Chris Dodd (D-Conn.) and other panel members to offer measures that would go further than the Obama administration in overhauling the existing regulatory scheme.

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Community banks that think their regulatory system works well fear Congress will push them under a single regulator with big banks. Large banks don’t want a single regulator either, and argue that stripping the Federal Reserve, which is unpopular on Capitol Hill these days, will take the Fed’s attention away from other critical matters.

The regulators are nervous, too.

Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair penned an op-ed in the The New York Times last week opposing the concept of a single regulator. She argued this would benefit “too big to fail” entities like Bank or America or Citigroup, which were bailed out by the government, while hurting community banks, which vehemently oppose setting up a single regulator.

The administration would leave the FDIC with regulatory powers over banks, but Dodd at an Aug. 4 hearing questioned whether it was “the right prescription.”

“Do we really need three federal agencies to regulate banks?” asked Dodd, who went on to say that Congress should not be in the business of protecting regulators.

Still, for all the talk and worry on K Street and at the Fed and FDIC, it’s not at all clear how far the committee will go, particularly with Dodd’s chairmanship in limbo. He may take over the Senate Health, Education, Labor and Pensions (HELP) Committee, which would put Sen. Tim Johnson (D-S.D.), who is seen as a friend to the industry, in line for the Banking gavel.

Sen. Bob Corker (Tenn.), a rising GOP star on financial matters who has partnered with Democratic Sen. Mark Warner (Va.) on two banking bills, said he’s heard “almost no discussion” on the committee over the August recess about a single regulator.

He also said he hasn’t made up his own mind: “My frank answer is, I’m not sure I can answer that yet,” Corker said in an interview. He said he plans to meet with the FDIC and other regulators to take in their views before coming to a decision.

“The word is that Dodd is pushing this,” said one banking industry source, echoing the views of others contacted for this story.

But Warner has also been an outspoken proponent of a single regulator. He argues the administration’s regulatory proposals would leave too many regulators in place. Such a system will allow banks to shop for the weakest regulator.

Corker does see signs the administration is moving away from other positions it has staked out. For example, he said administration officials have signaled to him that they’re willing to move on their proposal for a Consumer Financial Products Commission, which has been heavily criticized by the banking industry but won applause from consumer advocates.

He’s also talked to Obama economic adviser Larry Summers about resolution authority, which would allow the government to unwind a non-bank financial institution without resorting to bankruptcy proceedings. Corker and Warner have introduced a bill to give these powers to the FDIC.

Corker said he got the sense from Summers and other officials that the administration is “willing to come our way,” though it thinks “our legislation gives the FDIC too much power.”


China decision looms for Obama


President Barack Obama faces an enormous decision on trade that could spoil the mood at a Pittsburgh summit of world leaders later this month.

The president must decide by Sept. 17 how to respond to a petition from the United Steelworkers, who want the administration to impose trade barriers to automobile tires from China.

The deadline for his decision comes on the eve of the G-20 heads-of-state meeting in the Steel City on Sept. 24-25. G-20 leaders have pledged to avoid protectionism, and just last week Treasury Secretary Timothy Geithner joined other finance ministers in the group to reaffirm the U.S. commitment to fight all forms of protectionism.

Hammering China with 50 percent tariffs through the first-ever use of a “China safeguard” will not play well with many of Obama’s guests, particularly the Chinese.

On the other hand, Obama can’t afford to tick off labor groups unnerved by his wobbling on the inclusion of a public insurance option in healthcare reform.

The union argues that imports of Chinese tires have cost the U.S. jobs, and the nonpartisan International Trade Commission (ITC) backed it up by recommending that Obama impose tariffs of 55 percent.

The steelworkers brought the petition under a U.S. law known as Section 421 that was approved as part of legislation passed in 2000 that granted China better trade treatment. The law has never been successfully used before — former President George W. Bush rejected several petitions — and if Obama grants relief, more unions or domestic industries are expected to seek similar help.

U.S. Trade Representative Ron Kirk, a frequent golfing buddy of Obama’s, offered his private recommendations last week.

The best option for Obama might be to find middle ground. He can go along with the ITC’s recommendation, and he may also reject it completely. He can also impose tariffs somewhat smaller that those proposed by the commission, which might make both sides unhappy but allow the president to say he has found a middle ground.