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As GOP takes House reins, Republicans to reexamine financial regulatory overhaul

By Brady Dennis
Washington Post Staff Writer
Friday, December 24, 2010; 4:25 PM

As the GOP prepares to seize control of the House in January, its members on the Financial Services Committee are vowing to reexamine the wide-ranging financial regulatory legislation passed earlier this year.

Among other things, the overhaul hammered out in the wake of the financial crisis establishes the new Consumer Financial Protection Bureau, creates oversight of the vast derivatives market and gives the government broad new authority to seize and wind down large, troubled financial firms.

"We're looking at it provision by provision," Rep. Spencer Bachus (R-Ala.), the incoming committee chairman, said in an interview.

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law in July, and Republicans have consistently described it as a massive government overreach that will stymie businesses and economic growth. It was named for its primary sponsors, Rep. Barney Frank (D-Mass.) and Sen. Christopher J. Dodd (D-Conn.).

In particular, Bachus said Republicans want to revisit provisions that would require companies that use derivatives merely to hedge risks - such as an airline guarding against swings in fuel prices - to set aside more capital for those deals. Bachus said such "end users" did not contribute to the financial crisis and should not face the same restrictions as Wall Street firms that deal in more-risky forms of derivatives.

"Any attempt to require end users to come up with large amounts of capital . . . could certainly restrict their ability to hire and create jobs," he said. "And one of our pledges to America was that we didn't want anything in Dodd-Frank to be a job killer."

Bachus also has remained adamant that lawmakers take a second look at the new "resolution authority" granted by the bill, intended to allow the Federal Deposit Insurance Corp. to take over and liquidate a large, failing firm in a way that doesn't leave taxpayers on the hook or cause widespread damage to the financial system. GOP members have insisted that the law, as written, could perpetuate government bailouts because it allows federal officials to pay off a company's creditors and assume a portion of its assets.

If a sizable firm were to fail, "you're talking about billions of dollars," Bachus said. "The first thing we need to do with the liquidation authority, and with many of these things, is just find out: What in the world do the regulators envision it empowers them to do?"

'They can't do anything'

Despite the eagerness within the GOP to roll back or repeal portions of the financial regulatory overhaul, Frank and his Democratic colleagues seem largely unconcerned that significant changes will become reality.

"They can't do anything legislatively. For one thing, the things they most dislike legislatively are some of the most popular things we've done," said Frank, referring specifically to the new consumer bureau, the derivatives legislation and the Volcker Rule, which limits banks from trading on their own accounts. "I can't imagine many of their people want to vote on those."

Even if any changes were to pass the House, Democrats still control a Senate that is as divided as ever.

"Republicans have a substantial-enough majority in the House to do whatever they want to do," said Rep. Melvin Watt (D-N.C.), a senior member on the Financial Services Committee and a supporter of the overhaul bill. But, he added, "whatever they send to the Senate is not going anywhere."

While almost everyone agrees that the chances of repealing parts of the Dodd-Frank law are slim, that's not the only method GOP members can use to slow new regulations they don't like. They can call hearings on various topics and haul regulators to the Hill to explain how they plan to implement certain rules.

In addition, said Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Mo., and a senior fellow at the Brookings Institution, Republicans can use the appropriations process to crimp funding to agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission, which are responsible for putting many new regulations in place.

"They can slow down through the money channel what they couldn't do through the legislative channel," Litan said. "The Financial Services Committee can't do that; only the appropriators can. But there's no reason why they wouldn't work together."

Fannie and Freddie loom

Of course, the committee won't focus entirely on old battles over financial regulation. Another vexing problem looms large in the next Congress: How to overhaul government-backed mortgage giants Fannie Mae and Freddie Mac, which have cost taxpayers more than $130 billion over the course of the financial crisis.

Lawmakers across the political spectrum agree on the necessity for substantive reforms that will shield taxpayers from future losses. The trick will be to do that without undermining the confidence in the mortgage market that the government backstop is there to provide. Some believe the government should federalize the two entities or run them much like utilities, while others believe they should be made private over time.

The Obama administration is scheduled to submit its proposal on revamping Fannie and Freddie in January, and Frank has said he remains open to a range of possible solutions. But given their sizable majority, House Republicans will have a loud voice in that debate.

"I think the critical issue is whether there is an implied or explicit [government] guarantee going forward, which will inevitably have the potential to translate into a taxpayer subsidy," Bachus said.

Still, lawmakers of both parties have expressed hope that the debate over Fannie and Freddie can somehow transcend the partisan divide that permeated the financial regulatory overhaul.

"I think there's at least a chance," Watt said.

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