Washington President Barack Obama’s attempt to tighten the government’s reins on Wall Street is losing momentum as banks gain traction against his proposal for increased consumer protections and key lawmakers question his call for standardized financial products.
That the financial industry could successfully push back against such a plan would have been unthinkable a year ago, when the markets teetered on the brink of collapse. But as anger over Wall Street greed and arrogance has begun to ebb, the industry is finding breathing room it needs to make its case.
“The sense is that people are taking a more deliberative approach, and I think that is very beneficial,” said Wayne Abernathy, executive vice president of the American Bankers Association.
Consumer advocates say they remain optimistic that congressional Democrats ultimately will champion increased protections for average Americans. But they acknowledge that they are frustrated with the dialogue on Capitol Hill.
“I hear some members of Congress mouthing the words of financial lobbyists,” said Travis Plunkett, legislative director for the Consumer Federation of America. “They seem to forget these are the same institutions that brought the economy to its knees a year ago.”
Two key pieces of Obama’s plan have emerged in recent weeks as particularly vulnerable: the creation of a Consumer Financial Protection Agency to police the fine print on credit cards and mortgages, and a requirement that banks offer customers “plain vanilla” — low-risk, standardized — products such as 30-year fixed-rate mortgages.
Lawmakers heard loud complaints during their August recess from community bankers about these two consumer-oriented proposals. At the same time, the U.S. Chamber of Commerce waged a $2 million advertising campaign against the consumer agency idea.
Obama moved to reclaim the issue last week with a speech to Wall Street and a radio address defending his regulatory plan.
And Treasury Secretary Timothy Geithner was dispatched to the Capitol on Tuesday to meet with Rep. Barney Frank and Sen. Christopher Dodd, who head the congressional committees overseeing the effort to tighten regulations on banks and other financial institutions.
Frank, a liberal Massachusetts Democrat, said the three agreed that upcoming legislation must create a consumer protection agency, as well as set higher capital requirements for large firms and empower the government to dismantle nonbank companies like insurance giant AIG if their financial problems threatened the economy.
But Frank’s bill was unlikely to require that financial firms offer the standardized, “plain vanilla” products. Likewise, Dodd was cool to the idea. Kirstin Brost, a spokeswoman for the Connecticut Democrat, said the Banking Committee chairman “has a hard time seeing how plain vanilla would work” but he is still working with colleagues on drafting the bill.
Frank, chairman of the House Financial Services Committee, said his panel was making changes to the administration’s proposal to address “legitimate concerns of the community banks who feel correctly that they’ve been unfairly blamed for excesses elsewhere.”
Obama sent his proposal to Congress in June before he and lawmakers switched their focus to health care. Congressional officials now predict the financial reform bill could slip into next year.
The passage of time underscores a point Geithner made four months ago. “You want to move at a point where people still have the memory of the trauma,” he said. “If you wait for the memory to fade, then the impetus for reform will fade and you probably get less change than you need.”