With Attention Elsewhere, Wall Street Lobbyists Push to Weaken Post-Crash Regulations

With most Americans under the impression that nothing meaningful will emerge from the current lame duck Congress, Wall Street lobbyists and lawmakers with ties to the financial services and banking industry are quietly pushing to insert rules into pending budget measures that would scale back some of the restrictions placed on high-risk trading that played a large role in crashing the global economy in 2008.

As the Huffington Post's economy correspondent Zach Carter reported late on Thursday:

According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.

The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. -- potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.

 

Taxpayer insurance helps banks secure higher credit ratings for their derivatives, since taxpayers assume some of the risk, which in turn makes the banks more profitable.

As noted by Carter, the regulatory measure now being pushed by Wall Street was also floated last year. What reporting by the New York Times pointed out at the time was how it was bank lobbyists themselves who had written the scaled-back regulations. The paper reported:

Bank lobbyists are not leaving it to lawmakers to draft legislation that softens financial regulations. Instead, the lobbyists are helping to write it themselves.

One bill that sailed through the House Financial Services Committee this month -- over the objections of the Treasury Department -- was essentially Citigroup's, according to e-mails reviewed by The New York Times. The bill would exempt broad swathes of trades from new regulation.

In a sign of Wall Street's resurgent influence in Washington, Citigroup's recommendations were reflected in more than 70 lines of the House committee's 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)

With Republicans in control of the House and many Democrats with ties to the financial services industry already backing the bill, the possibility of inclusion and passage of the measure looks strong. Less clear is what will happen if the budget extension bill arrives in the Senate with these deregulation mechanisms attached.