Financial reformers have won a small battle in their fight with Wall Street over financial regulation, but they're still at risk of losing the war.
It appears that heavy pressure from an unusual coalition of financial regulators and reform advocates has convinced the Senate Committee On Homeland Security And Governmental Affairs to delay a vote on a controversial bill, the Independent Agency Regulatory Analysis Act (S. 3468), that would give the White House unprecedented power to frustrate independent regulatory agencies trying to make new rules, including rules meant to prevent another financial crisis.
Homeland Security Committee Chairman Joseph Lieberman (I-Conn.) reportedly had planned to push the bill out of committee on Thursday for a quick vote on the Senate floor. But it is not on the agenda now, according to a Lieberman spokeswoman. The bill is not dead, however; it has merely been delayed. And other, potentially more dangerous, bills designed to gut financial reform are still lurking in Congress.
"I would expect them to keep pushing it," said Marcus Stanley, policy director of Americans for Financial Reform, a nonprofit advocacy group. "But there was a tactical victory won in pushing this timing back."
The bipartisan IARAA, supported by the bank lobby and sponsored by Rob Portman (R-Ohio), Susan Collins (R-Maine) and Mark Warner (D-Va.), gives the president authority to force regulators to jump through 13 different analytical hoops when writing new rules. Regulations that might affect the economy by $100 million or more per year have to go through even more stringent analysis.
The bill also gives the president power to have the White House Office of Management and Budget's Office of Information and Regulatory Affairs do its own rule review and potentially declare the regulations not worth the cost. The review process could take months to complete, and banks could use any black marks from OIRA to tie up new rules in litigation for eons.
The effect could be to bring the process of making regulations to a screeching halt, effectively giving the president the right to decide whether the rules live or die. And that's just the practical implication. The bill's other effect would be to inject presidential politics and influence into agencies designed to be independent. Liberals might be OK with this under a President Obama, but not so much under President Bush III. Conservatives might be OK with this under President Bush III, but not so much under President Malia Obama.
"The industry thinks it has found a magic lever to stop Dodd-Frank and other financial-regulation reforms," Bartlett Naylor, financial policy advocate for the nonprofit group Public Citizen, said of the bill. "This would give the White House enormous power to dilute, if not veto, rules."
Leaders of the independent regulatory agencies, including Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Consumer Financial Protection Bureau Director Richard Cordray, made an unusual plea last week not to pass the bill.
"This would give any president unprecedented authority to influence the policy and rule-making functions of independent regulatory agencies and would constitute a fundamental change in the role of independent regulatory agencies," the regulators wrote.
"Beyond injecting an administration's influence directly into our rule-making, the bill also would interfere with our ability to promulgate rules critical to our missions in a timely manner and would likely result in unnecessary and unwarranted litigation," they added.
It's one thing to have advocacy groups like Public Citizen, the Consumer Federation of America and Americans for Financial Reform opposing the bill, as they are regulation advocates. But if Ben Bernanke says a bill is a bad idea, then that might get lawmakers' attention.
Former heads of OIRA have said the bill makes perfect sense and is merely subjecting independent regulators to the same kind of analysis that other government agencies have to go through when making new rules.
A spokeswoman for Sen. Collins suggested she was standing by the bill, pointing to an earlier statement of support for it:
"Requiring such an analysis would in no way threaten these agencies' independence because the White House wouldn’t have a veto over a regulation that turns out not to be cost effective," Collins said in September. "Rather, it would simply allow the public, especially the affected stakeholders in the economy, to see the results of the cost-benefit review.”
Collins at the time noted she was one of just three Republicans to support Dodd-Frank and wouldn't do anything to water it down.
But the bill would almost certainly slow down the rule-making process. And though the White House's cost-benefit review might not be binding, it would give banks and other opponents of new regulations a powerful tool to use against the rules in court.
Many of these agencies already have to run cost-benefit analyses on new rules anyway. Most are required to consider the economic implications of their actions. They likely don't have the staff or funding available to conduct still more analysis, while the banking industry has all the staff and funding in the world to conduct its own analyses that will be more favorable to the industry.
The bill would also strip oversight authority away from other congressional committees -- anathema to other lawmakers, who may have helped put the brakes on the bill, according to Stanley.
But Wall Street will have plenty more chances to get its way. For example, there's another bill out there called the Regulatory Accountability Act that may do even more damage to financial reform than the IARAA. It would essentially give any industry the right to challenge any rule that it does not like on the basis that there must be a less-costly alternative available. The bill has already passed the House and could be considered as soon as the next Congress. The Obama administration has threatened to veto the RAA, but it could always get included in horse trading on the fiscal cliff or other high-priority legislation.
Even if Wall Street loses on both bills, there are more to come. It's clear that banks will never stop fighting.