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IF THE MOB IS SO ANGRY WITH YOU that a trip to the gallows appears inevitable, then the best you can hope for is a say in the construction of the fatal contraption. That's about what the financial-services industry is angling for as Congress fashions a regulatory noose for its neck.
Sen. Christopher Dodd of Connecticut, chairman of his chamber's Banking Committee, on Monday begins the arduous process of moving a controversial, 1,336-page "Restoring American Financial Stability" act to the floor for a vote. This bill is as thick and sweeping and chock full of surprises as the ObamaCare bills.
Dodd appears impatient to cap a 36-year political career, ending in December, with Senate approval of this far-reaching bill. Weary of GOP foot-dragging, he announced on March 11 that he was prepared to go on without them and scheduled a committee markup of the bill for March 22. Democrats in the House have been much more expeditious than Dodd, having passed their reform bill in December.
With straight faces, Wall Street's captains attest an indulgence for the enactment this year of stricter curbs on their buccaneering -- conditioned, ahem, on a few "sensible" alterations, especially in the Dodd bill.
"The fact is that there is relative uniformity in the financial-services industry that something ought to be done as long as it is reasonable," says T. Timothy Ryan, president and CEO of the Securities Industry and Financial Markets Association, or Sifma, a trade group representing hundreds of securities firms, banks and asset managers. "We aren't fighting this thing. We want something that is responsible and makes sense."
Dodd risks delay if he blows off the industry's concerns. It's rare for Wall Street to willingly cooperate with Congress and, as a result, similarly ambitious legislation has taken a decade to pass.
There is lots to like in Dodd's bill. It increases the accountability and transparency at self-regulatory organizations like the Financial Industry Regulatory Association, or Finra, which are currently accountable to almost no one. Dodd also attempts to repair the fractured bank-regulatory system, enhance consumer protections, reduce conflicts of interest and increase transparency at the rating agencies and the Federal Reserve, and set up a mechanism for liquidating large, troubled banks.
That said, when you run a hurry-up offense, as Dodd as done, you inevitably make some mistakes. Sifma, the American Bankers Association and the U.S. Chamber of Commerce are zeroing in on major elements of the bill that they believe will erode the health of the financial-services sector and, consequently, harm the overall economy.
Sifma's No. 1 peeve is with Dodd's proposed re-write of the Bank Holding Company Act, which would prohibit proprietary trading and hedge-fund sponsorship for "systematically important" institutions with assets of $50 billion or more -- the Volcker rule.
Essentially, banks would time-travel back to the age when they did little but take deposits and make loans. This would put the U.S. financial industry at a significant disadvantage to competitors in Europe and Asia that aren't similarly restricted. Dodd inadvertently would become a booster of London's Canary Wharf at the expense of Wall Street.
A RELATED PROVISION, DUBBED "The Roach Motel" by industry satirists, makes it almost impossible for Street firms that became bank holding companies, such as Goldman Sachs, to escape the prohibition by relinquishing their bank charters.
Sifma is also concerned with a section of the bill on derivatives because it hasn't been released yet. The language is being dreamed up by Democratic Sen. Jack Reed of Rhode Island and Republican Sen. Judd Gregg of New Hampshire. The fear is that it will restrict the use of unregulated derivatives by businesses like airlines and agricultural concerns.
Sifma also opposes Dodd's call for mandatory trading of all over-the-counter derivatives and swaps on exchanges. Exchanges say they wouldn't be able to comply, and financial firms favor some exemptions (see story, "Can This Bill Pass?").
The U.S. Chamber's biggest gripe, one shared with the ABA, is with a new Consumer Financial Protection Agency established by the act. Its powers are too broad and its standards too vague, the Chamber complains.
Dodd, the man in a big hurry, must avoid ramming the bill through Congress like ObamaCare.
"The goal is to make the legislation responsible and effective," says Ryan. "Improve it so we can support it. We would hate to oppose this -- and we haven't been," he says. That isn't to say they won't.
E-mail: jim.mctague@barrons.com
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