Next Stop: Financial Reform

It appears that next on the legislative agenda is financial reform.

Consumer advocates and financial industry lobbyists are locked in battle for the hearts and minds of senators as the time nears for them to put up or shut up on the most sweeping revamp of financial regulation in generations.

A reworked Restoring American Financial Stability Act of 2010 passed the Senate Banking Committee on a party-line vote without amendment March 22, leaving the fight over details to come on the Senate floor soon after lawmakers return tomorrow from their spring recess.

The two political parties disagree on plenty, despite the obvious need to fix what led to a near-collapse of the global financial system in September 2008. However, banks are spending a lot of last year’s record profits to influence the debate.

This is a shrewd political move. Of all the things on the Obama agenda, financial reform is by far the most popular. There are, however, plenty of contentious issues. The CFPA has drawn plenty of controversy.

The Consumer Financial Protection Agency (CFPA) is on the way and its gestation stage will not be as long as many expect.¹ Although its nascence will endure the inevitable crucible of politics churned out by the Congress, federal and state regulatory bodies, bank and non-bank industry lobbyists, and eminent legal scholars,² the actors in this drama seem to argue, at one extreme, for a CFPA with robust oversight and regulatory enforcement authorities, and, at the other extreme, some kind of oversight agency that reviews financial products and consumer protection statutes, but without the authority to create new guidelines or enforce such protections. What is coming could be a witches’ brew of regulatory authorities migrated from various existing regulatory venues, along with a red hot dash of new authorities especially aimed at regulating the non-bank industry. The Consumer Financial Protection Agency Act of 2009 (Act), HR 3126, is viewed by politicians and many in the mainstream media as the antidote to preventing another toxic “mortgage meltdown.”

Then, there is the provision that allows the Treasury Secretary to take over any financial services company deemed too big to fail. Health care reform also started out as an issue that favored the president and now it favors the Republicans. We'll see if this debate goes as well.