Wall Street prepares Dodd-Frank assault

Banks and financial institutions are planning an aggressive push to dismantle parts of the Wall Street reform law when Republicans take control of Congress in January.

Fresh off a victory in the government funding debate that liberals decried as a giveaway to Wall Street, advocates for the financial sector aim to pursue additional changes to Dodd-Frank that they say would lighten burdens created by the 2010 law. Among the top items on the wish list: easing new requirements on mortgages, loosening restrictions on financial derivatives and overhauling the Consumer Financial Protection Bureau.

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“Every major piece of legislation has changes. Even our Constitution has significant changes,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “People have an opportunity to be part of the ‘results caucus’ or the ‘rhetoric caucus.’ ”

Industry advocates say they need to strike while the iron is hot, given the likelihood that the race for the White House could soon plunge Congress into partisan warfare.

“The window gets narrow very quickly, but I also look at that optimistically,” said James Ballentine, a lobbyist for the American Bankers Association. “At the outset of the Congress, I anticipate them being very busy.”

The lobbying blitz is likely to draw a counterattack from liberal groups, which last week rallied behind Sen. Elizabeth Warren (D-Mass.) in denouncing the $1.1 trillion funding package as a sweetheart deal for Citigroup.

“Let me say this to anyone who is listening at Citi: I agree with you. Dodd-Frank isn’t perfect. It should have broken you into pieces,” Warren said in a speech from the Senate floor.

The backlash was strong enough that passage of the funding bill was in doubt, with House Democrats voting in droves against it despite President Obama’s endorsement.

While the White House butted heads with liberals over the funding bill, arguing it contained good elements despite the financial provision, a spokesman signaled Obama might draw the line at future changes to Dodd-Frank.

“I do anticipate that we’re going to expend some time and energy next year and the year after trying to counter the efforts of Wall Street firms and their lobbyists,” said White House spokesman Josh Earnest.

Advocates for tougher rules on Wall Street said they were encouraged by the liberal uprising, viewing it as a sign that Democrats will not stand idly by while Dodd-Frank is torn apart.

“This past week’s drama suggests in some ways that we are, more likely than people once thought, going to win some of those fights,” said Lisa Donner, executive director of Americans for Financial Reform. “This debate, and how much people engaged in it, really does put members of Congress on notice that the public cares.”

One senior financial industry executive said the dust-up over the funding bill has forced the industry to recalibrate its lobbying priorities for the coming year. Given Warren’s megaphone, the executive said, getting through the next Congress without new restrictions on large banks would constitute a win.

Still, the GOP majority is expected to be more receptive to changes to the Dodd-Frank law, having fought it from its inception as a misguided response to the 2008 crash.

There has also been bipartisan support for revising Dodd-Frank, with dozens of Democrats previously backing the controversial language in the funding bill that allows banks to mix derivatives trading with traditional banking activity.

Passage of that provision, as well as the inclusion of another derivatives change in a terrorism insurance bill, represents a long-overdue thawing in the debate over the law, industry advocates say.

“Probably 45 to 50 percent of the House and Senate has changed" since Dodd-Frank passed, Ballentine said. “There are members that are there now that are not wed to every single sentence.”

With the GOP set to control both chambers, groups with a stake in the Dodd-Frank debate are tallying up how many Democratic votes they might have for various proposals.

For any bill to stand a chance of enactment, it will need Democratic support to avoid or overcome a potential veto from Obama.

“It helps make the case with the administration … that these are not just Republican efforts,” Ballentine said.

One of the likely flashpoints in the coming Dodd-Frank battle is the consumer bureau.

Republicans and industry groups are demanding an overhaul of the agency, calling for a new structure that allows Congress to set its budget. They also want the bureau led by a bipartisan commission rather than a single director that they say has too much power.

Democrats have universally opposed those efforts, none more fervently than Warren, who came up with the idea for the bureau and was the guiding hand during its inception.

Hunt predicted Warren would resist any and all tweaks to Dodd-Frank, even something as small as “a change in the number of pages.”

“That’s going to be her choice,” he said.

Another fight on the horizon is the push for “regulatory relief,” as financial institutions and Republicans seek to require agencies to pursue more cost-benefit analysis when writing rules.

Reform advocates argue that would simply bind the hands of regulators while giving businesses more ammunition for court battles against Dodd-Frank.

In the face of loud opposition, financial lobbyists say they have a compelling case for revisiting the law. While the economy is improving, they argue the new rules have made it exceedingly difficult to obtain loans, including mortgages.

“Whenever we do something, we have to explain to members of Congress how it will impact their constituents and the economy. If we can make that case, then we have a chance,” said Francis Creighton of the Financial Services Roundtable.

They hope to find at least a few Democrats ready to listen.

“I don’t think Democrats are opposed to amending Dodd-Frank,” Ballentine said. “They don’t want Dodd-Frank to disappear. That’s not what the industry is asking for.”