Hundreds of Wall Street lobbyists are swarming government agencies and gutting the Dodd-Frank financial reform law, their opponents say.
Unions, consumer groups and others complain that they are over-matched and losing fights to preserve regulations that stand between the economy and another financial meltdown.
Wall Street’s government relations troops are everywhere inside the agencies drafting rules, and they are winning one battle after another, critics lament.
“They’ve definitely had success in delaying and watering down rules,” said Marcus Stanley, policy director for Americans for Financial Reform, a coalition of public interest and consumer groups, labor unions and state organizations.
Finance and business groups counter that Congress botched its financial reform efforts, so a mass lobbying effort is necessary to stop Dodd-Frank from imposing damaging burdens on banks and other corporations.
The Financial Services Roundtable estimates that Dodd-Frank could cost business more than $20 billion a year, and require 34,000 new regulators.
Tom Quaadman, vice president at the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said many problems could have been fixed if Congress had done its oversight job properly, but instead it held virtually no hearings on the legislation.
“The Dodd-Frank Act is a poster child of what happens when you pass legislation out of regular order,” he added.
The Dodd-Frank Act, approved in 2010, is the biggest regulatory overhaul of Wall Street since the one that followed the Great Depression.
It requires government agencies to impose hundreds of rules to increase transparency and stop practices that some blame for the financial meltdown.
Agencies have completed 37 percent of that work so far, said commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC), and only six percent since last summer.
The dramatically slower pace is due to an unyielding rearguard action by industry groups.
“We were really rocking and rolling up until last July,” he said. “But it’s been a long time since we’ve rocked or rolled.”
The Sunlight Foundation found in a study released last year that big banks had met 1,298 times with financial regulatory agencies to hash out the rules. Groups pressing for tighter regulations had attended only 242 such meetings.
“The agencies are only hearing one side of the argument over and over again,” said Lee Drutman, a senior fellow at the foundation who penned the study.
Chilton estimated there are as many as 5,000 financial industry lobbyists in Washington. On the public interest side there are “maybe a dozen,” Stanley said.
Public interest groups outraged that regulators are bowing to industry pressure point in particular to CFTC rules, including one that imposes new requirements on swap dealers. Swaps, a financial derivative used to hedge against risk, were previously unregulated and came under deep scrutiny after the financial crisis.
The new rule requires swap dealers to register with the CFTC and meet various oversight requirements. An early version defined a dealer as anyone involved in transactions worth $1.5 billion per year, but that threshold was raised to $8 billion in the final rule.
The threshold drops to $3 billion after five years, and CFTC officials say it will encompass major swap dealers. Nevertheless, some people including a group of Senate Democrats balk at the change.
Critics also excoriate the CFTC for changes to regulations meant to open the derivatives market to more competition. The original rule required dealers to get price quotes from five banks before entering into a contract. After effective lobbying by Wall Street, that number was cut to two, the bare minimum under the statute, although it will rise to three after 15 months.
Asked whether the change was a result of industry pressure, Chilton replied, “100 percent.”
Opponents of tight Dodd-Frank rules argue that it is not just Wall Street but also many companies on Main Street that rely on derivatives to protect themselves against fluctuating commodity prices. For example, beer brewers use derivatives to smooth out spikes and troughs in wheat prices.
“Congress did not intend for these provisions to apply to end users,” said Don Green, vice president of corporate governance for the Business Roundtable, whose members are mostly non-financial companies. “They envisioned two different regimes.”
There are other fights. One is over a measure that forces firms to publish information about staff and CEO pay. Another is over the so-called Volcker Rule, which restricts banks’ ability to trade and invest.
Beyond fighting a regulatory war, Wall Street firms are pushing legislation to weaken some parts of the law and have begun marshaling their legal guns to challenge others in court.
The House Financial Services Committee has unsheathed its sword to cut back various Dodd-Frank provisions. One of nine bills the panel approved this month would exempt non-financial companies from some of the derivatives regulations.
No legislation has yet produced statutory changes, but Wall Street’s efforts to thwart the rules with lawsuits have proven successful said Bart Naylor, a financial policy analyst for Public Citizen, a consumer group.
Regulations designed to bolster shareholder rights and impose investor position limits on certain commodities have effectively been halted by court fights, he said.
Beyond those delays, Chilton said the threat of litigation has further slowed rule making. Wary of legal fights, regulators have come down with “analysis paralysis,” he said.
Those pushing for stronger enforcement urged them to press harder.
“They have not been as good at sticking to their guns as we would have liked,” Stanley said.