Finance Industry Focuses on Easing Rules

By Shahien Nasiripour

 

Financial groups hoping for a fresh look at what they claim to be onerous US financial regulations during a second Obama administration will probably be disappointed.

Pending financial rules that had been held up in part because of the election are expected to be quickly implemented, cementing the 2010 financial overhaul known as Dodd-Frank. Observers anticipate Washington’s attention over the next two years to be focused on taxes, fiscal policies and entitlements – matters that have long bedevilled policy makers and legislators.

With status quo in a divided Congress after the election, financial groups are stuck with three weaker options in their quest to soften Dodd-Frank. Those are: trying to slow implementation of the roughly two-thirds of the law’s 398 rules that have yet to be finalised; lobbying the White House to nominate more industry-friendly regulators, and fighting the rules in court.

None of those paths are expected to offer the victory the industry craves.

“The financial services lobby has been doing everything it can to delay the rules hoping that they will have either a Republican Congress or a Republican president,” said Edward Mills, policy analyst at FBR Capital Markets.

But with a Democratic-majority Senate and much of the law already implemented in the form of fresh rules and new agencies, financial institutions who complained about the raft of regulations during Barack Obama’s first term as US president may be facing a second term during which little will change.

“Investors generally know what the political landscape will look like if President Obama is re-elected. A second term . . . will be, in our view, a defence of Dodd-Frank,” analysts at Keefe, Bruyette & Woods said last week.

It was not supposed to be this way. The financial services industry invested heavily in Mitt Romney’s campaign, in part over anger at their treatment by the Obama administration and the new rules threatening their bottom lines.

The industry’s campaign began at least two years ago, on the same day that Congress passed Dodd-Frank when bankers were already demanding it be fixed.

Talk of fresh legislation to reform those parts of Dodd-Frank bankers considered unworkable dominated a conference held on July 15, 2010, by the Securities Industry and Financial Markets Association, Wall Street’s largest trade group.

More than two years later, Congress has yet to alter it. Many of the unfinished rules are expected to be finalised in the coming months before new agency chiefs are chosen for the few anticipated open slots. Swaps provisions, mortgage and securitisation rules, and the Volcker rule prohibiting proprietary trading are among the provisions expected to be completed.

Industry optimists point to the impending retirement of Barney Frank, the former House financial services committee chairman whose name forms one-half of Dodd-Frank, and small but bipartisan coalitions in Congress as reasons to hope that the law and the regulations it spawned may be revisited during a second Obama term.

Analysts at the Eurasia Group have argued that rules will be “watered down” in part because of the law’s perceived importance to Mr Obama’s legacy. “The administration will care about ensuring that it is a workable law,” they said.

Mr Mills and others reckon that the White House may support some Dodd-Frank revisions now that Mr Obama no longer faces re-election. The question would not be whether the White House publicly supported those efforts, but rather the strength of the administration’s private lobbying to kill legislative attempts at reform, Mr Mills said.

A US-based executive at a large European bank said there was bipartisan support to modify Dodd-Frank’s swaps provisions. But there would likely be little appetite in Congress.

“Next year is definitely going to be dominated by fiscal issues. If everyone is focused on the right thing they will be focused on taxes and fiscal policy,” the executive said.

Mr Obama said early on Wednesday that two of his priorities would be “reducing our deficit [and] reforming our tax code”.

The biggest change for financial groups may simply be a change in tone out of Washington. In 2009 Mr Obama derided “fat cat bankers on Wall Street” who “don’t get it”. Relations since have not improved.

“It’s hard to know whether [Obama] would stop vilifying the banking industry in his second term,” the US executive said. “I don’t know why he would change his view, but he may be a bit less vociferous about it.”