In New Congress, Wall St. Pushes to Undermine Dodd-Frank Reform

14 Jan 2015 | Author: | No comments yet »

Clip Dodd-Frank at your own risk.

WASHINGTON — The House passed a measure Tuesday to dramatically restrict the government’s ability to enact any significant new regulations or safety standards, potentially hamstringing the efforts of every federal agency, from financial regulators to safety watchdogs.

Boosted by their November election gains, congressional Republicans have launched a new effort to weaken, bit by bit, a law that dramatically expanded federal oversight of the financial system after the Great Recession.WASHINGTON – The House moved Tuesday toward approving a measure aimed at softening legislation responding to the 2008 financial crisis that put banks and Wall Street under the most sweeping rules since the Great Depression.WASHINGTON – To anyone paying attention, the current battle in Washington over rolling back some of the more arcane provisions in the Dodd-Frank financial overhaul resembles a circular firing squad.In this conversation between the Massachusetts senator and Fortune Contributor and former FDIC Chairman Sheila Bair, a more business-friendly side of Warren emerges — and the final word on a White House run. The measure, called the Regulatory Accountability Act, has been passed by the House before, but stood no chance in the Senate when it was controlled by Democrats.

On Wednesday, the Republican-controlled House is expected to pass a package of bills making changes to the 2010 law, known as Dodd-Frank, which also created a powerful new agency to protect consumers. Amid a veto threat from the White House, the legislation pushed by the newly bulked-up Republican majority came under discussion in the House for the second time in less than a week.

One Dodd-Frank restriction was eased in a provision attached to the spending bill passed in December, and another as a rider on the legislation passed last week to renew government terrorism insurance. Opponents dub the measure a “stealth attack” because it targets obscure parts of the regulatory process that very few people understand, but has such broad scope that it would affect all agencies, from independent regulators such as the Securities and Exchange Commission to executive branch agencies such as the Environmental Protection Agency. “This is using that arcane process to basically undermine the entire regulatory system of the United States,” said Ronald White, director of regulatory policy at the Center for Effective Government, which opposes the bill. “It really covers the entire spectrum of public health and safety, worker health and safety, financial protections, consumer product protections — just about everything that you can think about for which the government has a responsibility to ensure the public is being protected,” White said. Most notably, the measure would give U.S. banks another two years — until 2019 — to ensure that their holdings of certain complex and risky securities don’t put them afoul of a new banking rule.

A new bill currently being debated in Congress seeks to create further loopholes in derivatives trading, while easing regulation of private equity firms and postponing once again full implementation of the Volcker Rule requiring banks to separate speculative trading from their commercial bank operations. When federal regulators approved the rule in late 2013, they banned banks from owning complex securities known as collateralized debt obligations — risky pools of corporate debt that are sliced into smaller packages for sale to banks. I have known and worked with Warren for many years, beginning with her days as a Harvard law professor and prominent bankruptcy expert to her current role as the senior Senator from Massachusetts. On the House floor, Democratic lawmakers objected to the measure being whisked through the House in the first days of the new Congress without the chance for discussion or changes at the level of congressional committees.

The GOP bill slated for a vote on Tuesday would let banks hold onto CLOs until July 2019 — a provision that many banking experts view as part of a piecemeal effort to repeal the 2010 Dodd-Frank financial reform law in its entirety. It does that by defining major rules as ones that have direct costs of more than $100 million or indirect costs above $1 billion, or would have significant costs for just about anyone, including government.

Sinai,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who is leading the effort to change the law. “Congress would be negligent in its duties if we did not continually monitor and fix Dodd-Frank’s unintended consequences.” In the last few weeks, Republicans watered down key parts of Dodd-Frank by attaching provisions to so-called must-pass bills — one funding most of the federal government and another reauthorizing an important terrorism risk insurance program that had expired. And there is definitely reason to fear that banks, given an inch, will not hesitate to take a mile and will abuse whatever restrictions are in place even as they succeed in loosening them.

Agencies already do cost analyses, but their primary legal responsibility is to choose the rule that offers the best safety for consumers, workers or investors. The maneuver provided an early road map to how the new Republican-controlled Congress might try to make long-sought changes to financial regulations over Obama’s objections. That kind of risk-taking on Wall Street helped trigger the 2008 crisis. “Just one week after being sworn into office, the House of Representatives is already showing the American people that its priorities are all wrong,” Dennis Kelleher, president of Better Markets, a group that advocates strict financial regulation, said in a statement. I recently sat down with her to discuss her thinking on banking, tax reform, the economy, the plight of the middle class, and the 2016 Presidential elections. –Sheila Bair Fortune: Congress just effectively repealed a Dodd-Frank prohibition on big banks using FDIC-insured deposits to fund high-risk derivatives, notwithstanding bipartisan opposition led by you and GOP Senator David Vitter.

Liberals’ anti-Wall Street fervor was highlighted this week when investment banker Antonio Weiss withdrew his nomination to a senior Treasury Department position because of opposition from Warren and others who objected to his Wall Street background. “We’ve already seen that the new Republican Congress is going to aggressively attack the Dodd-Frank act,” said Warren, who was an outspoken advocate for the legislation. The purpose of Dodd-Frank was to prevent banks from being in a position to cause another financial crisis like that in 2008-09 and to avoid the need for another government bailout of the banks.

The bill also does not define how to measure costs or benefits, leaving even that interpretation up to someone who might want to challenge a regulation. “It’s basically modifying the Administrative Procedures Act, which has been in existence for 60 years, and saying we’re going to change that whole process in a way that would require agencies to do years more analyses, to expand analyses in ways that we don’t define but which would allow industry to challenge any regulation as being inadequate or inappropriate,” White said, adding that some 74 new procedures and requirements would be slapped on agencies. This meant ending “too big to fail” and otherwise limiting the speculative activities of banks that are essential to the operation of our monetary and financial system. The proposed changes before the House now include a controversial two-year delay in implementing part of the so-called Volcker Rule, which bars banks from making risky investments.

True enough, the increase in capital requirements mandated by Dodd-Frank and implemented with some vigor by the Federal Reserve is starting to put pressure on banks to think about downsizing. Warren: I’m not sure what’s going to happen in the next Congress, but I will tell you that I’m madder than hops about repealing the section of Dodd-Frank that is designed to lower risks in exactly the area where the big banks got into trouble. Republicans have denounced the law as an excessive expansion of regulatory authority that’s stifling the competitiveness of the U.S. financial industry.

The pending Volcker Rule has already prompted some big banks to spin off certain speculative activities, even as the new legislation seeks to delay it. Robert Goodlatte (R-Va.), the lead sponsor of the bill, said no one wants to stop smart regulation, but that Congress should make it harder to pass bad regulation, which he argued already costs $1.86 trillion a year and weighs heavily on Americans. “All across this country people who have been struggling, people whose jobs and wages have been disappearing, people who have been leaving the labor pool for the dependency pool, people who have seen no way possible to start a new business, can feel in their bones that this American dream, the dream that they cherish and their children need is slipping away,” Goodlatte said before the measure passed 250-175, with eight Democrats in favor. “What is killing this dream?

As passage appeared closer, the Obama White House issued a formal veto threat Monday, saying the bill “would weaken and undermine” the Dodd-Frank law. It’s not ordinary Americans, It’s not global phenomena, it’s not natural disasters,” Goodlatte argued. “More than anything else, it is the endless drain of the resources that takes working people’s hard-earned wages to Washington and Washington’s endless erection of regulatory roadblocks in the path of opportunity and growth.” Goodlatte and several other Republicans pointed to a study first done several years ago for their estimate of the costs of regulations, but Democrats noted the study has been challenged by many critics, including the Congressional Research Service, which pointed out that while the study used data from the George W. To the extent that the bank lobby and their advocates in Congress are successful in chipping away at Dodd-Frank, they will only make it clearer that a more radical solution is needed. Bush administration on the costs, it ignored the Bush White House data on the benefits of regulation, which out-weighed the costs in almost every year. “It’s supposed to be difficult to enact laws and regulations,” said Rep. Blake Farenthold (R-Texas). “We’ve got to pass something out of the House, we’ve got to pass something out of the Senate and get it signed by the president to enact a law, but a bureaucrat can do it basically with the stroke of a pen.” UPDATE: 8:50 p.m.

They know that Wall Street has not been reined in – banks are bigger than ever, bonuses are bigger than ever, and more than ever Wall Street denizens are calling the tune in Washington. After the 2014 elections, however, the Democratic leadership appears to have significantly strengthened its support for bank reform, and has not only attacked efforts to repeal Dodd-Frank, but has pushed for more aggressive tactics to rein in Wall Street.

The biggest mistake Republicans could make would be to try to weaken the Consumer Financial Protection Bureau, which is popular with the public, Frank said. Even if this more radical legislation cannot muster a majority in a Congress – let’s not mince words – corrupted by Wall Street money, it will serve as a rallying cry for politicians sensitive to the simmering resentment against banks among voters. Republicans complain the agency is too powerful and want to replace the director with a five-member commission and subject its funding to the congressional appropriations process. The Office of the Comptroller of the Currency, a major bank regulator, has warned that the corporate debt market is overheating — an important alert for companies holding complex securities tied to corporate debt. Business columnist Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron’s, Institutional Investor and Bloomberg News service, among others

Democrats submitted 14 amendments to the legislation, all of which were denied under the procedures that Republicans, lead by Rules Committee Chairman Jeff Sessions (R-Ala.), placed on the bill. When too-big-to-fail institutions can place their employees in government positions, it extends their power and intimidates others who don’t have their connections.

It wasn’t so much that they were stronger than government, but they could persuade government to shift the rules to make themselves even more powerful. Don’t worry.” During the run up to Dodd-Frank, after the market crashed, and Congress was trying to figure out what to do, I can’t tell you how many Senators’ offices I walked into and they would say “Wow.

When I was campaigning for Senate, I would walk into a bar, cafe, or retail store, and I would often hear small business owners say that they are Republican because they are worried about taxes. I did a column about corporate taxes and inversions and I complained that my husband and I have a marginal rate — federal and state — of 53% which is not that uncommon for a professional couple.

I got mostly favorable mail on it, but one guy wrote and said “well, why should I listen to you if you aren’t smart enough to find ways around this high rate?” And it’s kind of becoming the American way — to dodge taxes however you can. Second, rebuild our infrastructure, both to put people to work immediately in better paying jobs, but in the long run, to help our economy because strong infrastructure is what encourages businesses to invest and grow. For-profit colleges account for roughly 10% of all college students, but they account for 25% of federal student aid dollars, and almost 50% of student loan defaults.

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