Despite President Obama's renewed call for legislation this year to revamp the nation's financial regulatory system, its chances remain slim amid Republican resistance, heavy industry lobbying and a crowded legislative calendar focused on health care.
House Financial Services Chairman Barney Frank and Senate Banking Chairman Christopher Dodd are each working on their respective overhaul bills, with the House better positioned to quickly move a package. But the Senate remains a tougher path given its procedural rules, and even Dodd has held off predicting passage this year.
"The president got it right. We need change and change now," said Dodd.
Frank, who is moving his bill in pieces through his committee, plans this month to mark up a measure that would create a Consumer Financial Protection Agency to better protect citizens against abuses in home mortgages, credit cards and payday lending. Obama made a pitch for the agency in today's speech -- the only policy proposal in the address that received applause. "The lack of clear rules in the past meant we had innovation of the wrong kind: The firm that could make its products look best by doing the best job of hiding the real costs," he said. "By setting ground rules, we'll increase the kind of competition that actually provides people better and greater choices."
But banking lobbyists have geared up to defeat the proposal, led by a multimillion-dollar U.S. Chamber of Commerce campaign that argues it would create a government bureaucracy that would drive up the prices for such products.
House Republicans have also been steadfast against efforts to further regulate the markets, and they believe the public tide is with them as bailout fatigue and government debt rise. "Whereas before the American public may have been willing to go to the wire and help bail out Wall Street ... I don't think they will be able to go to the well this time," said Rep. Scott Garrett, R-N.J.
Business lobbyists are concentrating on moderate Democrats on the House Financial Services panel to weaken the CFPA bill. But Rep. Joseph Crowley, D-N.Y., chairman of the New Democrat Coalition, said he believes Frank will craft a CFPA bill that will bring aboard all members of the Democratic Caucus, just like he has done with a derivatives regulation bill.
"I know there are colleagues and tea-baggers who think that government should stay out of the financial services industry, but I can tell you that if it had not been for the stimulus package, I believe we would be in a Great Depression," Crowley said.
In the Senate, Dodd is working with Banking ranking member Richard Shelby to craft a bipartisan measure. Shelby has been a staunch critic of Obama's proposal to empower the Federal Reserve to become a systemic-risk regulator that could prevent a firm's collapse from threatening markets, and the Senate bill is not expected to give the central bank such authority. In addition, Sen. Charles Schumer, D-N.Y., is pushing for consolidation among banking regulators that goes further than what the administration has proposed.
This article appears in the September 19, 2009 edition of National Journal Daily PM Update.