Wall Street is desperate for regulatory relief from President Obama’s financial reform law. Banks, however, along with their Republican allies, see dimming prospects for changing the 2010 Dodd-Frank law. With only 10 months left, they believe the Obama White House is simply running out the clock and leaving needed changes to the next president.
“It’s been very much an ‘absolutely no changes, even sensible ones’ kind of a stance, certainly by Secretary Lew and others,” said David Hirschmann, head of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, referring to Treasury Secretary Jack Lew.
“I think in part frankly to ensure that Dodd-Frank isn’t weakened but also probably in part due to the significant attacks from the progressive left, from Elizabeth Warren and others, who might want to go well beyond Dodd-Frank,” Hirschmann said in a press call with reporters, referring to the Democratic senator from Massachusetts who has led a liberal insurgency against Wall Street’s influence in Washington.
All-out White House opposition to regulatory relief was not always a given. In late 2014, lobbyists succeeded in attaching a provision rolling back a Dodd-Frank rule on bank derivatives trades to a must-pass spending bill. While Obama backed the spending bill to avoid a government shutdown, Warren led a liberal charge to oppose it because of the part chipping away at Dodd-Frank.
While the legislation ultimately passed, the episode demonstrated Warren’s ability to rally liberals against Wall Street, even with Obama standing in the way.
Last winter, in a similar scenario, the industry struck out in its attempts to tack deregulatory measures on to spending bills, after months of warnings and alarm-raising by Warren and her allies.
Facing sustained criticism from the Left, Obama has sought to protect his legacy by blocking further deregulation and has sharpened his rhetoric against Wall Street and Republicans.
Members of Congress seeking to undo Dodd-Frank “should be the target of your concern and your wrath,” Obama told voters in a short press statement following a meeting with top financial regulators.
He also defended his record, saying that “Wall Street reform — Dodd-Frank — the laws that we passed have worked. I want to emphasize this because it is popular in the media, in political discourse — both on the Left and the Right — to suggest that the crisis happened and nothing changed. That is not true.”
This year, the industry and Republicans are again trying a two-pronged strategy to loosen Dodd-Frank rules: advancing bank-relief bills through normal means by finding Democratic counterparts, and by including them in government-funding bills. But they realize that the Obama administration is likely not to play along and to weigh in early with credible veto threats as it did last year when it was successful in keeping financial policy riders out of spending bills.
Sen. Richard Shelby, the Republican chairman of the Senate Banking Committee, said Wednesday that he would attempt again this year to pass the sweeping financial reform package he introduced last year, which would have pared back rules across the board and touched almost every aspect of the architecture of the financial system.
In a speech to bankers in downtown Washington, however, the Alabaman acknowledged that it would be difficult while Obama remained in office.
“Many officials in this administration as well as members of Congress have simply said no to any changes in our regulatory regime or Dodd-Frank,” Shelby said, before adding, “I do not think we should take no for an answer, and I do not plan to as chairman of the Banking Committee.”
Last week, several of the more moderate Democrats on the Senate panel, including Heidi Heitkamp of North Dakota, said they would engage in further talks about parts of the package. Shelby last year also sought to pass the bill as part of appropriations legislation.
Speaking at the same event for bankers, Rep. Blaine Leutkemeyer, R-Mo., a member of the House Financial Services Committee, suggested that the only way to legislative success was through an appropriations package. “Small things can get done” that way, he suggested.
Yet both sides are sensitive to the fact that almost any significant changes would lead to a major confrontation of the kind that the White House has won recently.
“We’ve seen now, for five years, efforts to repeal Dodd-Frank, to chip away at Dodd-Frank,” Lew said during Senate testimony earlier in the month. “So perhaps we are conditioned by the experience of the last five years.”
Even though it included some measures the White House would support, such as relief for community banks that do not pose a threat to the financial system, Shelby’s bill would do “severe damage to Dodd-Frank,” Lew said. Asked what relief measures for small banks he might support, Lew reiterated his opposition to the bills Republicans have advanced.
Faced with entrenched opposition from the Obama administration, Republicans have sounded bitter.
“To some, Dodd-Frank has taken on the equivalent of sacred text,” House Financial Services Committee Chairman Jeb Hensarling complained at the American Bankers Association conference. “It is something that is akin to brand protection, and that regardless of the facts, regardless of the challenges, some people just don’t want to touch it.”
Luetkemeyer directed his ire more specifically at Warren, whom he described as the “Darth Vader” of finance. Bank allies would have to find a way to “neuter” her, he said, in a comment that drew criticism from liberals and women’s groups.
Once Obama is out of office and he is not around to guard the reputation of his own law, the dynamics may shift.
“The battle lines may be redrawn slightly after the election,” Hirschmann said, “but you’re right that for now the mantra has been: absolutely no changes.”
