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The Boston Globe

Bailed-Out Banks Lobby Hard to Stave off Limits

Target trading rules, consumer protections

Michael Kranish and Alan Wirzbicki

U.S. insurer American International Group (AIG) office building is pictured in Tokyo in this December 24, 2008 file photo. (REUTERS/Yuriko Nakao)

WASHINGTON - The meeting with Bank of America executives came less than a year after American taxpayers rescued the institution with a $45 billion emergency bailout. The subject was derivatives, the complex securities that helped trigger Wall Street's crisis and drag the country to the edge of an economic abyss.

The guest of honor: Barney Frank.

The bankers wanted to be sure that Representative Frank, the chairman of the House Financial Services Committee, would not attempt to clamp down excessively on derivatives trading. Frank said he left the session pledging to keep in mind their "legitimate'' concerns.

"It was not lobbying politically,'' Frank said of the meeting last summer in New York, which was held at his request. "This is lobbying intellectually.''

Whatever it is called, it is part of a huge corporate effort in Washington to stave off or shape sweeping regulatory reforms, led by many of the very same financial institutions that received unprecedented sums of taxpayer money last year to keep them from failing.

Even as the banks say they are reforming themselves to avoid excessive financial risks, they have mounted a pitched battle against new regulations they fear could stifle competition and growth. They are spending millions of dollars, hiring former congressional and White House staffers to make their case, and warning, in the words of the US Chamber of Commerce, that the sweeping financial regulation Frank's committee is producing "will do more harm than good.''

Already this year, bank lobbyists have helped kill legislation that would have enabled judges to reduce mortgage payments of families that have declared bankruptcy. Most recently, the banks have tried to scuttle President Obama's proposal for a Consumer Financial Protection Agency, which is designed to prevent them from using deceptive practices to sell mortgages to people who can't afford them. They also are seeking to shape or weaken rules on commodities trading, executive compensation, and consumer credit cards.

The Wall Street meltdown put the new president and Washington in a mood to put new checks on a capitalist system that many worried had teetered out of control. The banks' lobbying effort has angered the president, who said in a radio address this month that "lobbyists for big Wall Street banks are hard at work trying to stop reforms that would hold them accountable, and they want to keep things just the way they are.''

Consumer advocates said the bank lobbyists are nearly as powerful as they were before the financial meltdown and the authorization of the Troubled Asset Relief Program, which set aside $700 billion in taxpayers' money to bail out the financial industry. The government committed hundreds of billions more to other rescues, including $112 billion for insurance giant AIG.

"They still retain an enormous amount of influence,'' said Travis Plunkett, who lobbies for the Consumer Federation of America and said he has seen firsthand the influence of large banks. "What is surprising to me is that some members of Congress are letting them get away with flimsy arguments. They are using many of the same arguments that they were using before the financial crisis'' - such as saying that new legislation would inhibit competition and consumer choice.

The business community argues that Washington is in danger of going too far. One of the major opponents of the Consumer Financial Protection Agency has been the American Bankers Association, which represents both large and small banks.

"It needlessly rips apart all the existing regulatory agencies . . . and creates a new agency with powers to mandate loans and services that go well beyond consumer protection,'' the association warned its members, urging them to contact the members of Congress. An ABA spokesman said the group's lobbyist would not agree to an interview and declined to respond to Obama's charge that bank lobbyists are trying to stop reforms.

Amid the uproar over the taxpayer bailout, the Treasury Department earlier this year imposed a ban on recipients lobbying the executive branch. But the ban doesn't apply to congressional lobbying.

Disclosure requirements are so inadequate it is impossible to know whether recipients have spent actual federal bailout dollars to lobby, said Representative Carolyn Maloney, Democrat of New York, who has sponsored legislation that would require firms to account for their spending of bailout dollars.

Executives at the institutions said they are not using bailout dollars directly for lobbying.

What is certain is that most of the 19 largest financial institutions that have received bailout money are spending heavily to fight or influence the regulations.

Bank of America, which has yet to repay any of the bailout money it received from the federal government, spent $1.5 million lobbying in the first half of the year. Citigroup, which has yet to repay any of its $25 billion in bailout money, spent $3.1 million on lobbying in the first half. Wells Fargo, which also received $25 billion it has yet to repay, spent $1.4 million on lobbying in the first half, up from $1.2 million in the same period last year. Morgan Stanley, which received $10 billion and has since repaid it, spent $1.7 million, up from $1.6 million.

By comparison, the Consumer Federation of America, one of the main pro-regulatory groups, reported spending $50,000 lobbying in the first half of the year.

AIG agreed to close its once-robust Washington lobbying operation last year. Still, the company reported $2.2 million in first half expenditures, which the company's disclosure form said was used to field questions from lawmakers "and to correct misinformation'' about its business. A spokesman for AIG, Mike Herr, emphasized that none of the money was spent lobbying on federal legislation and that the dollar figure included state-level lobbying and dues in industry associations.

A few big financial institutions, such as American Express, have cut their lobbying budgets or, such as SunTrust, did not report lobbying Congress at all. Mike McCoy, a spokesman for SunTrust, which has received $3.5 billion from the government, said the bank shared the industry's concerns on the proposed reforms but did not traditionally employ lobbyists.

In many cases, the banks have hired former members of Congress, former top congressional aides, and former White House officials to do their bidding. Records compiled by the Center for Responsive Politics, a nonpartisan research group, show that former aides to Senate Banking Committee chairman Christopher Dodd, Democrat of Connecticut, former Senate majority leader Tom Daschle, Democrat of South Dakota, and former Vice President Al Gore all lobby on financial issues.

Citigroup hired Nicholas Calio, who was former President Bush's liaison to Congress, as its chief lobbyist. Citigroup said in its most recent lobbying report, filed in July, that Calio met with House and Senate staffers to discuss legislation on derivatives. But lobbying reports don't require a company to indicate whom a lobbyist meets with, or what position is taken on legislation.

But one lobbying effort may have backfired. Goldman Sachs, the investment banking firm, recently hired a former top aide on Frank's committee to be its chief Washington lobbyist. The former aide, Michael Paese, recently passed the one-year moratorium on lobbying by former congressional employees, leaving him free to speak with Frank or staffers. A company spokesman, Samuel Robinson, said Paese was hired because "he is somebody who has been in various roles in Washington, D.C., over a period of time and we hire people who have judgment and insight into processes.''

But Frank sent a note to his staff barring them from talking with Paese about financial legislation.

"The reason for barring him is not that I think he will be unduly influencing people, but it is very hard to be saying no to your friends,'' Frank explained in an interview.

As the debate continues this fall, derivatives regulation will be among the focal points. The economic crisis began with the burst of a real estate bubble and ultimately struck deeply at mortgage-related derivatives, security instruments representing the value of thousands of mortgages bundled together.

Frank's visit to the Bank of America offices in New York came after he challenged lobbyists to come up with arguments in favor of trading in derivatives. The bank responded by bringing in some of its customers, including a representative from Ameresco, the Framingham-based energy efficiency company that has offices around the world. The official, whom Frank and Bank of America would not identify, explained how Ameresco relies on a type of derivative to protect against interest-rate fluctuations.

The meeting "was designed to facilitate a dialogue and discussion between public officials and the end users of derivatives, some of whom were our clients,'' Bank of America spokeswoman Shirley Norton said.

Last week, after holding one of what will be many hearings this fall on the financial regulation legislation, Frank told reporters that he wasn't concerned about whether regulation of derivatives would make it more difficult for the big banks to make a profit. But, echoing the argument he heard in his New York meeting, he said he was worried about the impact on banks' corporate customers.

"We are concerned about interfering with the ability of end users of goods and services to hedge against volatility,'' Frank told reporters.

Frank's aides said later that the legislation being written by his staff calls for new rules on derivatives. But it is not as aggressive as some consumer advocates have sought.

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