As financial overhaul takes shape, it’s crunch time for lobbyists

Banking and business lobbyists prepared a last-ditch effort Friday to scale back ambitious new regulations governing the financial industry, hoping to sway congressional leaders who are putting the finishing touches on the legislation.

Only a handful of key differences exist between the bill passed by the Senate on Thursday and an earlier version approved by the House, leaving opponents little time to push for changes.

“The House and the Senate will have one more opportunity to fix this legislation, and we will be engaged,” said David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.

The center has waged a $3-million campaign against the legislation’s proposed consumer financial protection agency. Now it also will lobby for retaining the House’s broader exemption for non-financial businesses — such as airlines, farmers and big manufacturers — from rules governing complex financial instruments known as derivatives.

The bills would require most derivatives to be traded openly on public exchanges or through clearinghouses.

Auto dealers will renew their campaign to win an exemption from the consumer agency’s oversight, as the House bill would allow. And large Wall Street banks will continue to fight a provision in the Senate version that would require them to spin off their lucrative derivatives businesses.

“The banks are still an enormously powerful presence in Washington,” said Travis Plunkett, legislative director for the Consumer Federation of America. “They’re going to do everything in their power to sneak through last-minute changes behind closed doors.”

But time is running out. A House and Senate conference committee is expected to iron out differences in the two versions of the legislation and have a bill ready for President Obama to sign before Congress breaks for the July 4 holiday.

Bank stocks have been falling for the last month, largely over fears about the European economy, but also because of predictions that more government oversight would eat into profits.

A report this week by researchers at Goldman Sachs Group Inc. predicted that the Senate version of the legislation could cut earnings at big banks by as much as 23%.

“It’s going to be a material impact to revenue across the board if the bill is passed as is,” said industry analyst Paul Miller at FBR Capital.

Obama warned on Thursday, however, that his administration would be vigilant in shielding the proposed regulations from being watered down.

“Now, we’ve still got some work to do … and there’s no doubt that during that time, the financial industry and their lobbyists will keep on fighting,” Obama said. “But I will ensure that we arrive at a final product that is both effective and responsible.”

The major stock indexes broke their recent losing streak and gained Friday, but shares of big banks outpaced the market overall, partly because of the certainty that comes with the passage of such legislation.

“What’s been worst for the industry overall is … not knowing where things are heading,” said Sang Lee, a bank expert with the Aide Group.

The significant differences between the bills are remarkably few.

“I can’t remember ever seeing two major pieces of legislation, really historic pieces of legislation, come out of the two houses so close,” House Financial Services Committee Chairman Barney Frank (D-Mass.) said after he and Senate Banking Committee Chairman Christopher Dodd (D-Conn.) met with Obama at the White House. “It’s hard for me to think that this is going to take us more than a month.”

Still, industry lobbyists and consumer groups are preparing their final push to shape the wording of the legislation. Lobbyists have an added advantage because the legislation is so complicated that small revisions can have enormous impact.

One fight involves auto dealers, which the House bill largely exempts from oversight by the new consumer agency. Facing strong opposition from the Obama administration, they were unable to get a vote on such an exemption in the Senate.

But on Monday, the Senate is expected to approve a motion instructing its members of the conference committee to add the exemption. The motion is non-binding, but it would add pressure to include the exemption in the final bill.

Auto dealers nationwide will be calling their local senators this weekend pushing for the exemption, said Bailey Wood, a spokesman for the National Automobile Dealers Assn.

“We’re still going to kick it into overdrive because there is very strong White House opposition to this,” he said. “We have to convince senators it is better to side with Main Street small businesses that had nothing to do with the financial crisis instead of the White House.”

On another major issue, large banks such as Goldman Sachs, JP Morgan Chase & Co. and Bank of America Corp. stand a decent chance of removing the Senate’s requirement that they spin off their derivatives businesses, even though their use of derivatives fueled the recession and required huge bailouts.

Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairwoman Sheila Bair oppose the requirement. And Treasury Secretary Timothy Geithner has suggested that the administration does not like it either.

Many bankers were relieved that the legislation was not tougher on the industry. For example, the Senate did not include proposals for some potentially onerous provisions, such as prohibiting large banks from speculating with their own money, a practice known as proprietary trading.

“This bill was getting more dangerous for banks each day it was hanging out there,” said Douglas Elliott, a fellow at the Brookings Institution. “The banks are relieved that it didn’t get still worse for them.”