Obama administration vows to defend financial reform provisions in bill

In his bill, Sen. Christopher J. Dodd (D-Conn.) proposed housing a new regulator in the Federal Reserve. Republican Richard C. Shelby (Ala.), right, offered an alternative setup that the White House is open to.
In his bill, Sen. Christopher J. Dodd (D-Conn.) proposed housing a new regulator in the Federal Reserve. Republican Richard C. Shelby (Ala.), right, offered an alternative setup that the White House is open to. (Susan Walsh/associated Press)
By Brady Dennis and David Cho
Washington Post Staff Writer
Thursday, April 8, 2010

Obama administration officials said Wednesday that they would fight efforts to weaken far-reaching Senate legislation that would overhaul the nation's financial regulatory system.

The pronouncement came as lawmakers on Capitol Hill continue to negotiate a host of potential compromises -- with input from the administration. The goal is to fashion a bipartisan deal that could send the legislation sailing through the Senate ahead of November's midterm elections.

Deputy Treasury Secretary Neal Wolin acknowledged Wednesday that the administration was still jockeying over the bill's details while trying to combat an "enormous army of lobbyists" eager to reshape elements of the legislation, particularly a provision that would establish a new consumer protection agency.

"The president made clear that it's strong enough, that we would oppose efforts to weaken it," Wolin said.

The Obama administration has long advocated the creation of a powerful, independent agency to protect Americans from lending abuses. Republicans and many financial firms have argued that such a move would add an unnecessary layer of bureaucracy, ultimately harming consumers by increasing costs and stifling financial innovation.

The bill before the Senate, authored by Sen. Christopher J. Dodd (D-Conn.), chairman of the banking committee, would place the new regulator within the Federal Reserve. Last week, however, staff members for Sen. Richard C. Shelby (Ala.), the committee's ranking Republican, floated a compromise that would create a stand-alone agency, instead. In exchange, the proposal calls for a commission of existing regulators and presidential appointees to act as a check on the new agency's power. The administration has expressed openness to such an arrangement.

Wolin added that the administration would oppose efforts to provide exemptions for certain kinds of lenders. Regulatory reform legislation that passed the House in December, for instance, allows auto dealers to escape oversight of the consumer protection agency. He said the administration would seek to strip out that exemption.

Separately, Senate Agricultural Committee Chairman Blanche Lincoln (D-Ark.) and ranking Republican Saxby Chambliss (Ga.) have been trying to find middle ground on regulating derivatives -- contracts that allow investors to make side bets on which way stocks, bonds and commodities will move.

Many officials agree that derivatives exacerbated the financial crisis because they are traded in secret, and investors feared those contracts wouldn't be honored as investment firms began to falter. Wolin said big financial firms have dedicated enormous resources to keep these instruments "trading in the dark."

Dodd's bill largely reflects the administration's call for derivatives to be traded publicly on exchanges. The transactions would have to be approved by central clearinghouses, and firms would have to raise money to cover any unexpected losses. A limited number of exceptions would be granted for specialized derivatives contracts. Administration officials, who are being kept abreast of the talks between Lincoln and Chambliss, said they are trying to ensure that the two lawmakers do not increase the scope of those exceptions and create loopholes that financial firms could exploit. One senior administration official, who spoke on the condition of anonymity, acknowledged that the bill may be more friendly to business interests that are close to the agricultural committee.

The official said the administration would be open to compromise on the issue if it hastened bipartisan consensus and helped move the regulatory reform legislation forward in the Senate. In addition, the Obama administration is trying to head off possible turf battles between regulators who would share oversight of derivatives.

Plenty of other issues could hinder the massive bill, including how the government would wind down large, troubled financial institutions in an orderly way without leaving taxpayers on the hook.

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