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Lobbyists fret over legislation to reshape financial system

By Brady Dennis
Washington Post Staff Writer
Tuesday, May 4, 2010; A18

As the Senate dives into the details of far-reaching legislation to overhaul financial regulations this week, lobbyists who represent some of the nation's biggest banks are feeling on edge.

They were counting on Senate committee hearings and backroom negotiations among key lawmakers to remove or soften what the financial industry considers most objectionable in the bill. That hasn't happened. And now, as early as Tuesday, the Senate will begin to consider populist amendments that spell even more heartburn for the banks.

"You've got an environment, six months before an election, where politicians are acting like politicians," said Sam Geduldig, a financial lobbyist and former Republican staffer. "They are viewing any vote as a potential campaign ad. And that might not be good for any of us."

The legislation before the Senate, which seeks to address the causes of the financial crisis, could force big banks to spin off their highly lucrative derivatives operations, jettison their hedge funds and come under the watch of a new consumer regulator.

Meanwhile, lawmakers from both parties are preparing to propose even more dramatic amendments that could, among other things, cap the size of banks and resurrect a Depression-era law that separated commercial and investment banking.

Some industry lobbyists, bracing for significant setbacks in the Senate, already are pinning their hopes on the House-Senate conference process, where differences between the bill and the House version would be worked out. In a twist of fate, some say they'll be looking to Rep. Barney Frank (D-Mass.), chief architect of the House bill and a sharp critic of banking excesses, to restore what they call rational discussion.

"I think some of this stuff is going to get totally irrational," said one of many lobbyists who spoke on the condition of anonymity to discuss the situation more freely. "Every amendment you hear about is emotionally driven. . . . The Senate has turned from a deliberative body into an emotional reactor."

Economic hazards

Lawmakers from both parties have been eager to excoriate Wall Street. But industry lobbyists warn that populist proposals to shrink, break up or otherwise shackle some of the giants of the financial world could do more harm than good to the economy. These advocates say that stiff regulation could stifle the flow of credit, undermine American competitiveness in global markets and cost jobs.

Among the terms that lobbyists used to describe elements of the legislation: "Draconian." "Crazy." "Insanely unproductive."

They had expected the most vexing provisions in the bill sponsored by Sen. Christopher J. Dodd (D-Conn.), chairman of the banking committee, to be scratched by now, or at least scaled back.

These lobbyists had hoped that Dodd and Sen. Richard C. Shelby of Alabama, the committee's ranking Republican, would have privately hammered out a bipartisan deal months ago. It didn't happen. Then Dodd and Sen. Bob Corker (R-Tenn.) gave it a whirl. No dice.

In March, the committee held a public hearing at which members had a chance to hash out details of the bill. Republicans decided to withhold hundreds of proposed amendments, and the bill sailed through committee in 20 minutes, endorsed in a party-line vote without a single change.

Now, Dodd's legislation has reached the Senate floor largely intact. And there's a real possibility the bill could attract populist amendments that few lawmakers would want to oppose publicly, lest they be accused of protecting Wall Street.

"There's an acknowledgment that there's a lot of crazy stuff" in play, said one banking lobbyist.

"I think the worry is the stuff coming out of left field, the whack-job amendments," said another. "It's limited only to the imagination of the senators."

So what's a lobbyist to do?

'No magic formula'

"We're working to make changes to the issues we have problems with, but we're also on guard for more extreme amendments," said Scott Talbott, chief lobbyist for the Financial Services Roundtable. "There's no magic formula. It's simply talking to senators -- that's the basic approach." Talbott said his group supports about 80 percent of the bill.

Said Rob Nichols, president of the Financial Services Forum: "We are pro-reform; we just want to get the balance right and avoid long-lasting negative unintended consequences that could eliminate jobs and curb economic growth."

Many lobbyists say they are counting on Senate Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) to block what the industry considers extreme or extraneous amendments.

Looking past the Senate debate, industry lobbyists say they hope Frank and the Obama administration can help remove some of the most objectionable provisions that survive the Senate.

"They've got to get this thing off the [Senate] floor and into a reasonable, behind the scenes" discussion, said one lobbyist. "Let's have a few wise fathers sit around the table in some quiet room" and work out the details.

"People are actually saying, 'Well, maybe Barney Frank will fix this in conference,' " added another. "To think Barney Frank would be the voice of reason on this."

The lobbyist chuckled at the thought.

Then he acknowledged that the anti-bank fervor on Capitol Hill may be too much to resist. "I think it's going to be job employment for me for the next decade, undoing some of this stuff," he said.

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