Big Bucks and Hired Guns: Why Financial Reform Is Stalling

Last Updated Apr 25, 2011 6:42 AM EDT

The biggest problem with Dodd-Frank, the financial reform bill President Obama signed into law last summer, is that it offered little in the way of actual reform. Rather, it mostly laid out broad principles -- derivatives must be regulated, consumers need to be protected from financial fraud, regulators can shutter big banks -- while leaving the much harder work of writing rules to implement those concepts until later.

Well, later is here, and Dodd-Frank is in trouble. Intense corporate lobbying to stall and weaken the law is working. The Federal Reserve missed its April 21 deadline to complete regulations limiting debit-card fees. And rules to tighten federal oversight of swaps have been delayed.

Reform foes also have successfully limited funding for the regulatory agencies charged with enforcing Dodd-Frank, including the SEC and Commodity Futures Trading Commission. Meanwhile, financial firms continue to train their fire on the Consumer Financial Protection Bureau and on a related proposal to make banks hold more capital against potential losses. More broadly, lobbyists are even lobbying to loosen restrictions on themselves.

Rising bounty on Dodd-Frank
Leading the charge, unsurprisingly, are banking giants such as JPMorgan Chase (JPM) and Wells Fargo (WFC). As a whole, Wall Street last year spent $251 million and deployed more than 2,500 lobbyists to press Congress on Dodd-Frank. And according to the WSJ, many of the financial firms and trade groups that lobbied the hardest against the law before it was passed are now spending even more to neuter key parts of the statute:
The [financial] industry's first-quarter lobbying tally is its second-highest ever, according to an analysis of data provided by the Center for Responsive Politics....
Disclosure documents show the financial industry turned its attention to regulators and executive-branch agencies in charge of implementing Dodd-Frank, and reflect the dozens of meetings the industry has held with officials at the Federal Reserve, the Treasury Department, the Securities and Exchange Commission, the Commodity Futures Trading Commission and others.
Financial groups are hiring big guns in Washington to blast away at Dodd-Frank. For instance, the Financial Industry Regulatory Authority, a self-regulatory group that oversees brokers, recently hired former Ohio Senator Michael Oxley to lobby on securities regulation. Oxley, a co-sponsor of the 2002 Sarbanes-Oxley Act, was brought in specifically to block efforts to hold brokers to the same legal standards as independent financial advisers. Here's what he said in an interview this week about his new role at FINRA:
I think for the first time you really had direct mention of investment advisors [in Dodd-Frank] and how to go about their registration and regulation. So a lot of this is new [to those on Capitol Hill] and I think there is a lot of information we need to get out about the capabilities of FINRA -- and whether the SEC will have the necessary resources to carry out [oversight of advisors]. We hope to have some allies in that area to help us deliver that message.
Tweeting for "swipe" fees
Financial firms are also waging the fight against Dodd-Frank over Twitter, including a campaign to quash the rules capping the interchange, or "swipe," fees banks charge merchants to process debit-card transactions.

On another front, financial firms and related groups opposing the rules through February had contributed more than $500,000 in political action committee money to numerous lawmakers, including sponsors of a bill that would delay the regs (click on adjoining chart to expand).

It's not only Wall Street that's on the attack, of course. A range of special interests have lobbied against Dodd-Frank, including the American Benefits Council, American Land Title Association, American Petroleum Institute, Center on Executive Compensation, Credit Union National Association. Independent Petroleum Association of America and many other industry groups.

The battle is decidedly uneven. Such groups have the resources to spend big on lobbying, while regulators like the CFPB and CFTC must beg Congress not to cut their budgets to the bone. And the longer it takes to formulate the rules intended to give force to the law, the likelier it becomes that regulators will be forced into watering down those rules. Dodd-Frank, a modest piece of legislation when it was passed, is at risk of being that much weaker when -- and if -- it's fully implemented.

Chart courtesy of the Sunlight Foundation
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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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