Posted on Monday, December 27, 2010
Ever since the Dodd-Frank financial reform law was signed in July, the question has been whether it would actually lead to a stable financial system. If the Republicans who will control the House next year get their way, the answer will surely be “no.”
The legislation requires regulators to write hundreds of rules to put the law into effect. To their credit, regulatory agencies have begun that process with a sense of mission and depth of expertise that was missing in the years before the financial crisis.
In particular, the Securities and Exchange Commission and the Commodity Futures Trading Commission — which share the all-important regulation of the multitrillion-dollar derivatives market — have proposed rules that are tough and sophisticated. The new Consumer Financial Protection Bureau is ramping up. The Financial Stability Oversight Council, led by the Treasury secretary, will report in January on how to implement the “Volcker rule” to restrict proprietary trading by banks.
The process is painstaking, and the outcome is uncertain. But progress is being made — and the House Republican leaders want none of that. Representative Spencer Bachus of Alabama, the next chairman of the House Financial Services Committee told The Birmingham News that “Washington and the regulators are there to serve the banks.” He later said he meant regulators should set parameters, not micromanage banks, yet he seems to prefer the parameters that were in effect before the crisis when regulators did serve the banks.
In a letter to the S.E.C. written with Representative Kevin McCarthy of California, the next majority whip, he said Dodd-Frank would do little for economic recovery and warned against rules that could curtail growth. He and Representative Frank Lucas of Oklahoma, who will lead the agriculture committee, which shares jurisdiction over derivatives, have urged regulators to avoid “overly prescriptive” rules on derivatives speculation. He has also warned the Financial Stability Oversight Council that a strong Volcker rule would impose “substantial” economic costs, without making the system safer.
Mr. Bachus’s salvoes are only the start. Some Republicans want new laws to weaken the Consumer Financial Protection Bureau, and others have pledged numerous hearings, which seem intended not to oversee the process but to inhibit it by creating delays and communicating hostility.
Another damaging attack would be to starve the budgets of the S.E.C. and the commodities commission. Both agencies rely on Congress for their appropriations, and neither can carry out its new duties without more money. In a recent interview on CNBC, the next House majority leader, Eric Cantor of Virginia, said the American people want and expect Republicans to cut off financing for Dodd-Frank, adding that the law is a job killer. Could he be more wrong? Americans’ concern about financial reform is that it is too weak, not too strong. They are furious at the banks, whose recklessness has led to crisis and recession — and high unemployment.
The Republicans’ intentions could not be clearer. What is unclear is the Democratic strategy — in Congress and the White House — for thwarting them. The lesson of the legislative accomplishments of the lame-duck session is that early, visible and adamant engagement by President Obama makes a difference.
Mr. Obama cannot let financial reform become a bargaining chip and must make the case that it will not help the federal budget — or the nation in general — to shortchange reforms that could prevent another crisis.