At least according to reporting in the press, the administration’s regulatory reform vision is being compromised away, with the independent Consumer Financial Protection Agency (CFPA) turning into a consumer protection division within the Federal Reserve, and the “Volcker rule” to rein in risky trading failing to gain even a foothold. The officials reiterated Obama’s commitment from the State of the Union that a bill that does not meet an acceptable (but unidentified) threshold in terms of real reform will be vetoed, but they also spoke in terms of principles, rather than specifics, which seemed to open the door to compromises.
Interestingly, they seem to be very actively considering how the bill can be improved both on the floor of the Senate and then in conference committee, where whatever the Senate passes will have to be reconciled with the bill that the House passed last year. At least in terms of the CFPA, Sen. Jack Reed (D-RI) has said that he is going to try and amend the bill on the floor if the Banking Committee drops an independent agency. House Financial Services Chairman Barney Frank (D-MA) has also said that he won’t bring a bill without a strong CFPA to the house floor.
So maybe the House will be where the CFPA and the Volcker rule ultimately survive the legislative meat-grinder? This makes me slightly nervous, considering that the CFPA barely survived in the House the first time around (with Republicans joining a cohort of conservative Democrats to propose an amendment forming a toothless consumer protection council instead).
The officials spent a lot of time emphasizing that the steps they took to rescue the financial system, while politically unpopular, were necessary to prevent a bigger mess, and how financial reforms are tough to push through because their benefits are fairly broad and non-specific, while reform adversely affects the very concentrated, powerful banking and investment industry. So I was moderately heartened to hear that the administration is looking at ways to reduce mortgage principal for homeowners who are underwater, as FDIC Chairman Sheila Bair is trying to do (although Treasury Spokesman Andrew Williams clarified later that Treasury “is not poised to roll out a major principal write-down program”). As I’ve pointed out before, this is a good way to take on the banks and give people a tangible result that will lend credibility to the wider financial reform fight.