Obama plan gets cautious reception

Bloomberg

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The U.S. administration’s overhaul of financial-industry rules faces a lobbying assault on Capitol Hill, as lawmakers question the Federal Reserve’s role and bankers say the plan may hinder economic growth.

President Barack Obama announced his proposals Wednesday and banks, hedge funds and commodities traders quickly pointed to provisions they didn’t like. The American Securitization Forum, whose members include Goldman Sachs Group and JPMorgan Chase, said Obama’s plan to fix the mortgage market "may not be the most effective way."

Financial firms, some of them blamed for causing the credit crisis, say they want to make sure the industry isn’t further damaged by ill-conceived or burdensome regulations. They want to limit costs that may eat into profits and eliminate rules that give competitors an advantage, said Ernest Patrikis, a partner in New York law firm White & Case. "Anytime you have a new regulatory regime that’s this sweeping, there will be a lot of lobbyists engaged on all sides," said Peter Peyser, principal at the Washington lobbying firm Blank Rome Government Relations. "The momentum is clearly in the direction of more regulation."

House Financial Services Committee Chairman Barney Frank said in an interview Wednesday that Obama’s plan "is overwhelmingly likely to be passed substantially" in its original form. Even so, he and other top Democrats in Congress, who will guide the legislation, disagree with cornerstones of the proposal.

Obama would give the Federal Reserve the power to regulate all firms that pose a threat to financial stability. Senate Banking Committee Chairman Christopher Dodd said the matter is "still an open question." Frank said he also had concerns about the Fed’s ability to do the job. Financial-industry executives were working to shape Obama’s plan well before it was announced, Peyser said. Some demands from lobbyists were already incorporated.

On Dec. 16, Obama’s staff met with some of the industry’s biggest trade groups, including the Securities Industry and Financial Markets Association, the American Bankers Association, the Financial Services Forum, the Mortgage Bankers Association and the Financial Services Roundtable.

Lending practices

The American Bankers Association still isn’t happy with Obama’s plans for a new agency to monitor bank-lending practices whose mandate may "go well beyond consumer protection," the group said Wednesday in a statement. The group vowed to fight for changes, he said. "The administration’s proposal is so vast and controversial that it will be extremely difficult to enact and will produce great uncertainty in the financial markets," the association’s CEO, Edward Yingling, said in the statement. "It needlessly rips apart all the existing regulatory agencies."

Other Obama measures likely to encounter pushback include higher capital requirements for banks deemed "too big to fail" and a rule that brokers act in their clients’ best interests when doling out investment advice.

"Stronger capital standards is really going to be an issue," said Patrikis, a former general counsel for the New York Federal Reserve. "It all becomes a cost factor." The Washington-based Hedge Fund Association said in a statement that Obama’s registration requirements would be "unduly burdensome" on firms with less than $250 million under management and "could have a significant negative impact on the hedge fund industry and U.S. economy."

Peyser said he expects "significant lobbying" on regulation of the insurers, hedge funds and private equity. "There’s a lot of detail that’s not here, and those industries will be working very hard to try to limit the scope of the regulation," he said. David Hirschmann, president and chief executive of the U.S. Chamber of Commerce’s Center for Capital Markets,