Lobbyists prepare for battle with President Obama over bank 'fat cat' curbs

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6999197.ece

James Bone
The Times
Sat, 23 Jan 2010 22:16 EST

Banking industry lobbyists are preparing to do battle, buoyed by a landmark US Supreme Court ruling striking down limits on corporations' political spending, against the ambitious and agressive plans laid on Thursday by President Obama.

Despite the pointed attacks made by the President on the "army of industry lobbyists from Wall Street", the Financial Services Roundtable, a body which represents 100 of the largest financial firms, said that Mr Obama's proposal would do little to protect consumers.

"The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs," said Steve Bartlett, chief executive of the roundtable.

In Washington the attack on bankers was seen as a "policy pivot" designed to accommodate voters' populist rage after the Democrats' loss of Edward Kennedy's Senate seat in Massachusetts. "I'll never stop fighting for you. I'll take my lumps, too," Mr Obama told an audience in Elyria, at the start of a day of campaign-style events aimed at reinvigorating the Democrats before the November mid-term elections.

The President has become increasingly strident about what he calls the "fat cats" in the big banks as the American public has reacted with revulsion to big bonuses being handed out in Wall Street. Mr Obama's political capital is dwindling, however, after the Democrats' loss on Tuesday of the 60-seat "super-majority" that enables them to overcome a Republican filibuster in the Senate.

Yesterday, the Senate was forced to postpone the confirmation of Ben Bernanke for a new term as Federal Reserve chairman after two more Democratic senators said that they would join a revolt against him.

The proposed banking restrictions are just the latest round of populist measures aimed at the financial sector in recent months, such as levying a tax on banks to recoup the cost of government bail-outs and setting up a consumer protection agency. The earlier ideas are already facing resistance in Congress, however.

Democrats in the House of Representatives are pushing for a fee on banks to pay back government bail-out money and establish a fund for future crises. Chris Van Hollen, a member of the Democratic leadership, predicted yesterday that the fee would pass the House of Representatives but he would only say it had a "decent chance" in the Senate. Republicans are also sceptical of creating a consumer watchdog, preferring to strengthen existing oversight agencies.

Now the Democrats no longer have a "super-majority", banking reform, like healthcare, will depend on attracting Republican votes in the Senate.

John McCain, the former Republican presidential candidate, is pushing to restore Depression-era restrictions on banks, known as Glass-Steagall, that were repealed in the late 1990s. Other Republican senators, however, voiced scepticism at Mr Obama's plans. "Let's solve problems," said Senator Jon Kyl of Arizona.

"Let's not be finding a bogeyman so that we can turn public attention away from what they're doing wrong in the Administration," he added.

Q&A:

What is Obama's point exactly? He wants to ban banks from taking the huge risks that led them to be bailed out by taxpayers and brought on the credit crunch.

Will Britain follow? George Osborne, the Shadow Chancellor, rushed to support President Obama, but said that Britain would not follow unless it was a worldwide initiative. Labour also indicated that it was in broad support. Legal and practical complexities mean that Mr Obama's words may fall on deaf ears. The best chance of success may be if banks do it of their own accord.

Will the crackdown change the way UK bank accounts operate? Since all the government initiatives are designed to force banks to behave more cautiously, their chances to make profits could be reduced and if profits from commercial banking fall, customers may find that they get less or have to pay more for personal banking.

Does it also mean that small businesses may find it even harder to get loans? Yes.
Individual bankers by and large kept quiet, preferring to weigh up the best response in private. As they did so, Mr Obama flew to the struggling rust-belt state of Ohio in hope that the attack would re-energise his popularity in middle America.

Will bankers' jobs be lost? If banks are subjected to new curbs fewer bankers will be required.

Won't some of these big institutions we now call banks just reinvent themsleves and carry on? Yes, but they may well find life much more difficult.

But London might benefit from all this, if American clamps down and we don't, right? There is a huge opporutnity for the City, but only if our politicians fail to introduce the similar reforms that they say they want. Financial centres in other parts of Europe, or farther afield in Asia or in offshiore tax havens, may be rubbing their hands.

Does this spell the end of banker's bonuses? That is one of the clear aims, but bankers are a crafty breed: don't bet against them winning in the end.

Will it stop future crises? Probably not. If financial institutions of the future are really determined to take the risks that landed them in so much trouble, they may well find a way. And when the credit crunch is a distant memory, they may find justifications too. But if future banking crises are to be avoided, some extra controls may be inevitable.