On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) released the latest version of his legislation overhauling the nation’s financial regulatory system. President Obama has praised the bill, saying that it “provides a strong foundation to build a safer financial system.”
Of course, the bill has set off a flurry of lobbying, particularly because Dodd has scheduled a committee markup for Monday. In fact, “just hours” after the bill came out, financial services lobbyists were taking shots at it, while the U.S. Chamber of Commerce has pledged to spend $3 million (in addition to the $3 million is has reportedly already spent) on watering down or blocking the bill.
Aside from the new consumer protection entity, which has been a flashpoint for months, a few provisions are emerging as the focus of the lobbying efforts, as groups look to blunt the effects of new laws or win themselves carve-outs and exemptions. Here are some of the key places where lawmakers need to take a stand against the financial services industry:
– No federal preemption of state law: Dodd’s bill, like the reform effort passed by the House last year, allows states to write stronger consumer protection laws than those set by the federal government (creating a federal floor for regulation, instead of a ceiling). The bill gives federal regulators the ability to preempt state law on a case-by-case basis, but banks want full federal preemption of the states, so that they only have to focus on watering down laws at the federal level. Allowing states to crack down on financial shenanigans at the state level could have mitigated much of the subprime lending that occurred in the buildup to the economic crisis.
– Better corporate governance: Provisions crafted by Sen. Chuck Schumer (D-NY) that give shareholders more power over their companies and hold corporate management more accountable for misdeeds are included in the bill. These changes are despised by big business groups like the Chamber, which is “mobilizing forces to lobby lawmakers” against them. Current imbalances make it incredibly difficult for shareholders to influence corporate directors or hold down excessive risk-taking (and excessive executive compensation); Schumer’s changes would start to change this.
– No carve-outs: Just like during the House debate, various business want to exempt themselves from various new rules. Credit unions want to avoid oversight by the new Bureau for Financial Consumer Protection, while corporations want to avoid having to clear derivatives on exchanges. But exemptions such as these create an uneven playing field and cause every lawmaker to search for a carve-out for his or her local businesses. Obama seems firm on preventing carve-outs, saying that he will not accept attempts to exempt “banks, credit card companies or nonbank firms such as debt collectors, credit bureaus, payday lenders or auto dealers” from the new rules.
The House bill passed last year, while strong overall, did include some unfortunate exemptions (like allowing auto dealers to escape oversight from new consumer protection rules). It’s a sure thing that the financial industry will try even harder to turn the Senate bill into swiss cheese, with loopholes and exemptions everywhere.