Financial Reform: 90% Done
A bipartisan group of senators have already agreed on most of the key elements in a major overhaul.
Cricket is one of the more genial sports, where, despite rivalries, players on both sides wear white and break for tea. There’s a lot of running back and forth, and an occasional confrontation, but mostly the players don’t get dirty. Financial reform in the Senate seems to be shaping up in much the same way, at least in comparison to other big issues – health care and climate change, for example. Overhauling financial industry regulations has turned out to be not nearly so partisan, with most lawmakers agreeing on about 90% of reform proposals. That’s partly because both Republicans and Democrats want to respond to voter outrage over bank bailouts and show they’ve reined in the institutions that many blame for the 2008 financial crisis.
So why hasn’t financial reform passed, almost a year and a half since Congress handed the banking industry a multibillion-dollar bailout?
Primarily because of one huge sticking point on which everything else hinges: The creation of a consumer protection entity to write and enforce rules on bank lending practices. This is where the white suits get a little dirt on the knees. And as David Min at the Center for American Progress points out, it, “is no small thing.”
Democrats want a stand-alone agency with strong powers Republicans don’t want to separate bank regulators from consumer protectors. Earlier this year the issue broke up cordial negotiations between Senate Banking Committee Chairman Chris Dodd (D-CT) and its senior Republican, Sen. Richard Shelby (AL). Dodd then started working with Sen. Bob Corker (R-TN), and now he’s juggling talks with both.
The timetable keeps slipping, but the issue is likely to get resolved in the Senate by April, just as the cricket season begins in England. Dodd, Shelby and Corker have already moved toward compromise, with Democrats backing away from the idea of a standalone agency and Republicans warming to the creation of a consumer protection division within an existing regulatory agency. This week, both sides offered up various ideas about where to house the agency and how much power to give it. There is still plenty of competition ahead, with members of both parties digging in their heels to score political points. And whatever bill gets through the Senate must be reconciled with the more far-reaching version passed by the House last year.
Eventually, though, there will be a semiautonomous consumer agency able to write rules but with a bank regulator – the Federal Reserve or the Federal Deposit Insurance Corporation, for example, still overseeing the process. The final bill will also include several steps that Republicans and Democrats already agree on: Pushing more derivatives onto regulated exchanges, forcing large hedge funds to register with the Securities and Exchange Commission, reforming credit rating agencies, merging the Office of Thrift Supervision with the Office of the Comptroller of the Currency, creating a council of regulators to monitor systemic risk and creating a resolution mechanism to help dissolve “too big to fail” institutions without taxpayer money.
Sometimes in cricket, after days of play the teams draw, leaving no winners and losers. Congress may reach the same result with financial reform, leaving both sides to claim victory. Even though the final bill will be a more modest measure than what Obama offered last year, the president will sign it, and the compromise will provide a political boost for incumbents, allowing them to say that they acted to prevent another financial crisis and to stop big institutions from taking undue risks.And Obama will be able to claim credit for cracking down on banks.