Financial reform in America

Barack Obama’s financial reforms meet political reality
“IN THESE efforts we seek a careful balance,” Barack Obama declared as he unveiled his financial reforms on June 17th. Not equitable enough for some, it seems. With lawmakers, regulators and bankers blowing raspberries at crucial parts of the package, the odds are moving against its becoming law by the end of the year, as originally envisaged. Worse, passage looks increasingly dependent on the most contentious bits being rewritten.
The Treasury’s work rate cannot be faulted. It has sent hundreds of pages of proposed legislation to Congress in recent weeks on pay, securitisation, hedge funds, rating agencies and more. The final piece, on derivatives, is expected soon. The House of Representatives was expected to approve the compensation bill, curbing egregious pay-offs and giving shareholders a vote on pay, on July 31st.
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But the overall timetable is slipping. There is no consensus on who should supervise the largest financial firms. The administration wants the Federal Reserve to do this, supported by a council of regulators that keeps a lookout for emerging risks. But lawmakers on both sides worry that the central bank is already too powerful, or that expanding its role would undermine its monetary credentials. Barney Frank, the House financial-services committee’s ebullient chairman, has criticised plans to draw up a list of firms that are “too big to fail”, fearing it will entrench them.
The loudest opposition has been reserved for a proposed consumer-protection agency, which would write and enforce rules for mortgages, credit cards and so forth. This is needed, the administration argues, because bank regulators are inclined to focus on safety rather than the treatment of customers—even if they have recently become, in Mr Frank’s words, “born-again consumer advocates”, rushing out new curbs on predatory lending as their turf has come under threat.
Lawmakers would like to support the new agency—there are votes in championing the little guy. But banks, including politically powerful community lenders, have stoked fears that the new regulator could become an unwieldy monster and that its mandate to make products simpler could constrain credit. Existing regulators have weighed in too, arguing that separating prudential regulation from consumer protection could make the system less safe. A House vote on the agency, scheduled for July, has been postponed until September because of lukewarm support.
All this cacophony is good news for industry lobbyists, who are also encouraged by the delays plaguing health-care reform, Mr Obama’s top priority. This will distract Chris Dodd, who is essential to getting the financial reforms through the Senate as head of its banking committee but must first shepherd the health package. “The longer this drags on, the less draconian the outcome should be, as long as markets continue to mend,” says one lobbyist.
No one doubts that the financial package will pass eventually, and that the final product will still contain plenty to furrow the lobbyists’ brows. Higher capital requirements are a given, as is the consumer agency, in some form. So too are restrictions on the size and nature of derivatives bets, a point reinforced this week by the head of the Commodity Futures Trading Commission. But the administration is set to get less of what it wanted, and later.