Publicly, Republicans are hinging their opposition to financial regulatory reform on their adamant refusal to create a new Consumer Financial Protection Agency (CFPA) or to implement a tax on the biggest banks, aimed at recouping money lost on the Troubled Asset Relief Program (TARP). But the Financial Times reported that, in private, Republican senators are also opposed to one of the more basic facets of the reform effort — strengthening capital standards for banks that are “too big to fail”:
Senate Republicans are resisting a fundamental tenet of the Obama administration’s financial regulatory reforms in another obstacle for the stalled legislative process. Several aides from both parties involved in reform negotiations told the Financial Times that Republicans had opposed in private a plan to impose tougher capital and liquidity requirements on companies that posed a risk to the financial system.
Capital requirements stipulate the amount of money that banks need to have on reserve against losses, and are calculated according to the riskiness of a particular bank’s assets. The administration has proposed hiking the requirements significantly for “Tier 1” companies, which are, for all intents and purposes, the very biggest banks that are “too big to fail.”
The administration’s plan is really a no-brainer. As Elizabeth Warren’s Congressional Oversight Panel has pointed out, “one of the key lessons that has emerged from this crisis is that our financial institutions did not have adequate capital reserves to weather the turmoil in the housing market,” as current capital rules “are out of date, subject to manipulation, and do not accurately reflect the risks associated with lending activities.” Even conservative economists like Gary Becker support increasing capital requirements for the largest firms, as it would make those firms “better prepared to deal with aggregate shocks to the financial system than they were during this crisis.”
And it’s not as if the administration is proposing particularly onerous new standards. Currently, banks have to have Tier 1 capital amounting to 4 percent of their assets, which the administration wants to double to 8 percent. For some perspective, Swiss regulators are pushing their banks into double-digit capital levels.
So what do Republicans gain by opposing these proposals? Well, it could be part of their rush “to capitalize on what they call Wall Street’s ‘buyer’s remorse’ with the Democrats.” Republicans are actively courting Wall Street donors, by promising to oppose financial reform. And if the latest lobbying reports are any indication, banks are ready and willing to spend. According to data compiled by the LA Times, “lobbying expenditures jumped 12% from 2008 to $29.8 million last year among the eight banks and private equity firms that spent the most to influence legislation,” with much of the increase coming in the last three months of the year as Congress considered regulatory reform.