The Wonk Room

Banks Preparing ‘Renewed Push’ Against Derivatives Regulation This Week

According to the New York Times, lobbyists for the nation’s largest banks “plan to make a renewed push on Capitol Hill this week” against proposals to regulate derivatives. Derivatives, of course, played a key role in dragging down some of the financial sector’s giants — particularly AIG — and the Obama administration is working to create a system that would remove some of the opacity from derivatives markets.

Despite their contributing in a big way to the economic crisis, the Times noted just how quickly the banks mobilized to protect derivatives:

As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions…Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives…The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.

The Wall Street Journal wrote that the banks are currently “being careful not to publicly oppose any rules.” However, this week a group of banks and money managers “plan to release a letter to the Federal Reserve Bank of New York and other U.S. and overseas regulators to help fend off some rules proposed by the Obama administration that seek to control trading in the derivatives market.”

Financial groups are also voicing opposition to a proposal aimed at creating new authorities for unwinding complex financial institutions. They are pushing back against calls for a single banking regulator, and criticizing the administration’s plan for merging and reforming some of the oversight agencies. In short, the bank’s won’t publicly oppose any of the regulatory reforms, but are privately opposing just about every one.

Rep. Collin Peterson (D-MN), for one, is peeved at the amount of deference Congress has shown to the big banks. “The banks run the place,” he said. “I will tell you what the problem is — they give three times more money than the next biggest group.” And indeed, the banking lobby has managed to derail legislation at an alarming pace. Some sort of regulatory reform is almost certain to occur in the not too distant future, but if the banks can water it down and create loopholes then the opportunity to make meaningful changes will have been wasted.