Wall Street banking on Republicans to push legislative goals

2010 won't be the first time moderate Republicans have suffered at the polls and been at odds with more conservative elements in their party.
By Robert Schmidt
(c) 2010 Bloomberg News
Tuesday, September 14, 2010; 12:47 AM

Wall Street is preparing for a Republican surge in Congress that could help it block proposed taxes on banks and investments, blunt new financial regulations and regain some of the lobbying firepower it lost during the financial crisis.

What bankers won't be looking for, lobbyists said, is a repeal -- or any major changes -- to the Dodd-Frank bill, the most sweeping rewrite of financial regulation since the 1930s. While the law is widely criticized by the industry, Republican gains in the November election won't be large enough to override a veto by President Barack Obama.

Financial firms, which for most of this year have been shifting political contributions to Republicans, say they'll push Congress to restrain federal agencies that are filling in the details of the law, writing rules in areas including capital standards and a ban on proprietary trading. Banks would prefer to have Republicans overseeing the regulators, lobbyists said.

A Republican takeover would mean the banking industry "will have an active voice on the Hill, trying to influence the direction of regulatory agencies," said Travis Plunkett, legislative director at the Consumer Federation of America, noting that only three House Republicans voted for Dodd-Frank. "The oversight process, grilling agency officials, that's a big deal that shouldn't be underestimated."

More than a dozen lobbyists, lawyers and officials at large banks, hedge funds and Wall Street trade associations discussed in interviews the shape of the banking industry's legislative agenda. They spoke on condition of anonymity because their firms haven't authorized them to speak publicly before the election.

Other issues high on financial firms' legislative agenda include heading off attempts to regulate high-frequency stock trading and pushing for trade agreements, deficit reduction and revamping Fannie Mae and Freddie Mac -- all areas where financial companies say their interests are more aligned with Republicans.

Most executives said the industry would welcome a divided government, because that would make it difficult to pass any new financial laws. Polls show that Republicans are within striking distance of taking over the House, where they need a gain of 39 seats, and are drawing closer in the Senate, where they need 10 more seats.

While House Minority Leader John Boehner of Ohio said in July that he favored a repeal of Dodd-Frank, bank executives don't see that as a realistic option.

If Republicans take over the House, banks will try to stop the push for a tax or fee on the biggest financial companies -- which has been threatened by Democrats to help pay for the $700 billion bailout, implementing the regulatory law and other initiatives.

Hedge and private equity funds also hope to derail the Democrats' plan to raise taxes on investment profits known as carried interest. General partners at the funds can now qualify for capital gains tax treatment on their pay derived from investment profits, which is lower than the income tax rate.

The Obama administration includes the carried-interest tax in its 2011 budget proposal, and economists at the congressional Joint Committee on Taxation estimate it will bring in $13.5 billion over the next decade.

Should Congress be unable to decide the future of former president George W. Bush's tax cuts this year, a Republican- controlled Ways and Means Committee may be more receptive to arguments from the financial industry to preserve lower tax rates, including those on dividends and capital gains, for the highest earners.

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