By Simon Johnson

Brown-Vitter Recasts Financial-Reform Battlefield

April 29, 2013 12:38 pm Category: Bloomberg View, Economy, Memo Pad 12 Comments A+ / A-
Brown-Vitter Recasts Financial-Reform Battlefield

April 29 (Bloomberg) — A year ago, the big U.S. banks were focused on repealing, or at least eliminating large parts of, the Dodd-Frank financial-reform law.

They poured money into the campaign of the Republican presidential nominee, Mitt Romney, and gave generously to opponents of pro-reform Senate candidates Sherrod Brown and Elizabeth Warren. At the same time, lobbyists devised creative tactics to delay implementation of Dodd-Frank — filing lawsuits, mobilizing international pressure, hiring former regulators, writing opinion articles and comment letters, and commissioning faux research pieces. It was a tour de force by one of the great lobbies at the top of its game.

And it failed.

On April 23, I attended a forum organized by American Banker, a trade publication, to discuss the legislative proposal crafted by Brown, an Ohio Democrat, and Senator David Vitter, a Louisiana Republican. In attendance was a Who’s Who of the industry lobby, with all the major groups represented at a senior level, including the Financial Services Forum, the Clearing House and the American Bankers Association.

They let it be known that the line from big banks and their allies had shifted and that their new refrain is “let’s implement Dodd-Frank.”

This sounds like a significant change in rhetoric, but don’t fall for it. The reality remains the same — a very powerful lobby is working flat-out to ensure that the industry keeps its dangerous, nontransparent and unfair subsidies. Yet the winds are shifting against the megabanks for three main reasons.

First, the Brown-Vitter legislation, which was introduced April 24, changes everything. The news isn’t that Brown wants to make the financial system safer. That has been a top priority of his since the spring of 2010, when he co-wrote the Brown-Kaufman amendment, which would have imposed a binding size cap on the largest banks. (It failed on the Senate floor.)

Now, however, he has a Republican co-sponsor, and they have converged on a strong message. Vitter, who is on the right of the political spectrum, articulates well the case for ending the implicit subsidies that exist because creditors understand that the government and the Federal Reserve won’t allow a megabank to fail. This broad and sensible message resonates across the political spectrum.

Second, small banks are increasingly focused on the ways megabanks have achieved an unfair competitive advantage — primarily through implicit government subsidies.

The most compelling voice at the forum last week was Terry Jorde, a senior executive vice president of the Independent Community Bankers of America. She made clear that small banks are being undermined by the reckless behavior of megabanks that are seen as “too big to fail.” There is no market at work here, just a hugely unfair and inefficient government-subsidy scheme. The U.S. economy wasn’t built on megabanks and there is no good reason to continue to accept the risks they pose.

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Comments

  • Sand_Cat

    Good luck.

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    The sudden shift from focused attacks on the so-called “Frank-Dodd” legislation has more to do with the knowledge – or hope – that it will be rendered unenforceable by special interests than a sudden change of heart. Wall Street is as corrupt and greedy as ever and there is absolutely nothing the Federal government or anyone else can do to change that.

    • labrown69

      “Nothing they can do to change that”? I beg your pardon but they can enforce existing law. The attempt to sweep illegal foreclosures under the table failed with the foreclosure reviews and now they are trying to do it with a settlement
      that says if you lost your house and possessions and it was taken
      illegally you can have an average of $1,000 in damages. The Obama administration supported and in fact was cheer leader for the last deal which only amounted to 26 billion even though Kamala Harris and Beau Biden and Eric Schneiderman held out to the end. 26 billion in return for stealing trillions using fraud, forgery, false notaries and perjury in court … that is a pretty sweet deal and it’s already priced into the cost of doing business thus the huge profits. Eric Holder represented these same banks at Covington and Burling and he now runs interference for them at the pleasure of the president.

      • CPAinNewYork

        Eric Holder is a fraud and Obama is a paper tiger.

  • charleo1

    I recall the statement of Chris Dodd, as he tried to put into place, even
    the weakest of regulation, to help prevent an encore of 2008. Where
    these Lords of government largess, were using the U.S. treasury as an
    implicit slush fund, if and when their outrageous risk taking finally caught
    up them. Dodd said, “They own this place!” Meaning the bankers of Wall
    Street. Which is no doubt the reason some of the mildest measures possible,
    received zero Republican votes. So, we must conclude, Republicans seen
    no need whatsoever, for any financial reform. After the largest market collapse
    since the Great Depression. This is not leadership. It is total capitulation.

  • Allan Richardson

    Here’s an idea: in the game of Monopoly, there is an institution called THE BANK. According to the rules, the Bank is NOT A PLAYER; a spectator can be the Banker and not compete, or a competitor can be the Banker also, but if so, the rules prohibit that player, when acting AS THE BANK, from co-mingling the Bank funds with his/her own funds, or from dealing with other players in such a way as to help his/her own game (e.g. refusing to sell the other player a property that the banker wants to buy).

    That sounds like a good idea to me, making the banking industry a public service rather than a private source of profit, as North Dakota did during the Progressive Era, or at least regulating the banks so that they cannot cheat retail customers. Glass-Steagall was the best regulation for the public good in our history. It did have some limits that customers might not like today, such as nationwide access to deposit and withdraw money instantly (which COULD have been implemented under it, but banks refused to institute the system co-ordination, since they wanted to use convenience as a way to become gigantic), but if Brown-Vitter goes back to the basics as Glass-Steagall did, we may be onto something.

  • elw

    Nice talk, but I want action. The time for talk is past. By fixing and manipulating every price they can get their greedy, little hands on, the “too big to fail” banks, energy companies, mortgage lenders have stolen enough money out the pockets of the people and communities around them. Laws only work if they are enforced; the only way to stop a thief is to put them in jail and use their ill gotten gains to pay back their victims. When I start seeing millionaire CEOS in jail house orange, I will begin to believe that the winds are changing.

    • july860

      Same here. Nothing will change until they realize exactly how much they have to lose.

      • RobertCHastings

        If you feel that way, start pulling your money out of BofA or Citi and put it into a smaller,local bank, or a credit union. Two years ago when ONE college girl circulated a petition against BofA and their system of fees, BofA saw the light, especially when over a period of less than six months local credit unions saw a growth in membership of over 2.5 million drained away from the big banks. Unfortunately, BofA has returned to its old ways. My point is, concerted consumer action against the mega banks WILL bring results. Remember the J. G. Wentworth commercial, “It’s my money, and I want it NOW!” The money banks are using is, indeed, our money, and we have the right to put that money where we feel it will be safe.
        By the way, why not take the big banks out of the mortgage industry for two years?

  • adriancrutch

    I read somewhere the derivative market is over 350 trillion dollars. The influx of cash by investors just can’t be stopped. It should have tanked! But Beinake is slowly unwinding the spring. These (bankers) aren’t bankers in a conventional sense=their conmen! and the Congress and Obama passing the STOCK ACT proves that!

  • howa4x

    Once again we have socialism for the rich and capitalism for everyone else. Why doesn’t the Federal reserve guarantee that no American family will financially fail? Because they say we live in a capitalist system where success and failure are your own responsibility. Then they turn around and pour millions into the biggest banks to shore up their capital requirements. Only socialist countries prevent business failure, so the Fed is actually practicing a different monetary system, with the mega banks than anyone else gets to use. So for all you republicans that scream about socialism, why aren’t you screaming about this?

    • RobertCHastings

      One small correction. They turn around and pour BILLIONS into the biggest banks.

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