Financial Regulation: Industry Objections Increasing
It wasn't so long ago—against the backdrop of the financial crisis and its aftershocks, amid a tide of popular anger—that financial-industry representatives took pains to acknowledge the need for financial reform, even in their own corners of the sector. That's beginning to change. While few are arguing against revamping regulation generally, lobbyists and industry trade groups are increasingly arguing that policymakers should tread lightly when it comes to their particular constituents. The ever more vocal objections began right around the time that the Obama Administration unveiled its omnibus proposal for financial regulation, on June 17. Now banks are pushing hard to fend off a new accounting rule that would force them to put many off-balance-sheet assets back onto their books, and thrifts are fighting to keep the widely criticized Office of Thrift Supervision from being merged with other bank regulators. Hedge funds are calling for caution on rules that go beyond basic registration of the investment pools. The derivatives industry's supporters in Washington are warning that proposals to require increased transparency and more systematic markets for the complex financial instruments could drive up costs for a variety of financial and industrial companies. And the U.S. Chamber of Commerce, which called consumer-protection improvements a key part of reform earlier this year, is fighting against the Administration's proposed Consumer Financial Protection Agency.
The "Not in My Backyard" Reaction It amounts to a kind of regulatory NIMBYism ("not in my backyard")—predictable, perhaps, once proposals for reform began to coalesce, starting with the Administration's 80-plus-page white paper.
"I think the NIMBYism started once we had something to shoot at—before that, it wasn't really real," says Scott Talbott, a lobbyist for the Financial Services Roundtable, which represents large financial companies. "Then once we have the legislative language, the real fights will begin."
That could be soon. Treasury Secretary Timothy Geithner has said the agency could propose legislative language to create the new Consumer Financial Protection Agency within a few days.
But Brian Gardner, a policy analyst for Keefe Bruyette & Woods ( (KBW)) in New York, said the new tack is to be expected—and is also driven by lessons from the push for health-care and energy legislation.
"It's pretty natural that they start to try and figure out what's in their interest and how to mold it in ways that can either prevent harm or do something they can take advantage of," Gardner says. At the same time, he notes, "Washington is working quicker than people are used to, so I think people are getting attuned to working quicker."
Advocates Speak Up for Industry, Investors For its part, the Chamber of Commerce says it's not opposing the idea of improving consumer protection. But the group says that creating another government agency is the wrong way to go about it. "That's precisely the type of patchwork quilt that got us into trouble in the first place," says Tom Quaadman, the group's executive director for financial reporting policy.
A hedge fund industry official said fund managers are embracing registration—roughly three-quarters of funds have registered voluntarily—but remain wary of more extensive restrictions. Fund managers have had hundreds of meetings on Capitol Hill in recent months. "We're very supportive of what [the Administration is] trying to do, but the devil's in the details," says the official.
Of course, industry isn't alone in getting more vocal. Consumer and investor advocates, and political groups supporting Democratic proposals, are ratcheting up the volume as well. In an e-mail to news organizations and others, Americans United for Change—a group formed to fight Bush Administration policies that now throws its weight behind Obama's initiatives—blasted the Securities Industry & Financial Markets Assn. (SIMFA) after Bloomberg News reported the financial group was mounting a campaign against "populist" criticism of the industry. "What are they going to call their new PR campaign: The 'Thanks for the Bailout, Suckers—Now Quit Whining' Tour?" Tom McMahon, acting executive director of Americans United for Change, was quoted as saying in the e-mail.
Divide-and-Conquer Strategy? SIFMA President Timothy Ryan told Bloomberg the group has advocated more government power to unwind financial firms that don't own banks: "This effort, which is not uncommon for a trade association, is designed to ensure our ideas for improved accountability, oversight, and transparency are heard by the widest possible audience."
"It's a strategy to try to split people on Capitol Hill and try to confuse people," says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a consumer advocacy organization in Washington that recently joined with dozens of others to form Americans for Financial Reform. "It's an attempt to blame it on the other guy—they're hoping to water down reform, deflect criticism of their industry."