Regulators, lawmakers and the Federal Reserve Chairman are engaged in a Tug of War over the pace and reach of regulatory reform designed to prevent another financial crisis. In Congress, Barney Frank tried to shepherd through his House financial services committee a bill that would create an agency to regulate the sale of financial products to consumers, such a bill risks being neutered by moderate Democrats in the US House. Fed Chairman Ben Bernanke wrote to the senior Republican member of the same House committee warning of the potential for “unintended consequences” if a law that restricted the ability of credit card companies to increase charges was rushed into action. In Chicago, Gary Gensler, head of the Commodity Futures Trading Commission, warned that exemptions in another bill that imposes tighter rules on derivatives trading should offer at most “very narrowly defined” exemptions for end-users. There is concern among advocates for tighter financial regulation, both within and without the Obama administration and Congress, that the original proposals for reform are being watered down after a fierce lobbying effort from the financial services industry.
Rep Frank, the Democratic chairman of the financial services committee, has managed to persuade some representatives that side with banks not to try to gut the Consumer Financial Protection Agency Bill.
An attempt to bar states from imposing tougher rules on consumer protection than mandated by the new federal authority was dropped on Wednesday, returning to the administration’s original plan that the law acts as a “floor” rather than a “ceiling” on standards.
The liberal proponents of a tough new agency that will regulate the selling of products such as mortgages and credit cards have had to drop the demand that banks offer a “plain vanilla” option alongside more complicated products and that small as well as large banks face equal scrutiny.
Chairman Bernanke responded in writing to questions from Spencer Bachus, the leading Republican on the House committee, saying “card users must be afforded sufficient time for implementation” of new rules, due to be introduced in two stages next February and August but which Mr Frank wants to change to December 1, 2009
Senate aides are saying there is little chance of accelerating the timetable.
On the Berivatives Bill, Mr Gensler told traders and users at a conference of the Futures Industry Association that they should not be awarded the right to continue trading derivatives over-the-counter without them passing through a central clearing house. “If Congress decides to exempt end-users from a clearing requirement, that exception should be very narrowly defined to include only non-financial entities that use swaps as an incidental part of their business to hedge actual commercial risks,” he said.
-Paul A. Ebeling, Jnr. www.livetradingnews.com
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