Financial reform law offers look at lobbyists’ efforts to shape it
Having failed to block financial reform, Wall Street is now focused on the next best thing: ensuring that the law is loosely interpreted and weakly enforced.
Lobbyists for banks, hedge funds and other firms have logged hundreds of meetings with federal regulators since the reform bill was signed into law July 21. The lobbyists are often pushing for exemptions to the bill’s key provisions, including measures that would limit risky Wall Street trading and shield consumers from excessive bank fees, records and interviews show.
In an Aug. 18 meeting with Federal Reserve officials, for instance, Citigroup lobbyists warned that new rules restricting trading by hedge funds “may have a significant impact on the competitiveness of U.S. firms,” according to a summary released by the Fed.
The incessant appeals — there were 18 separate meetings between lobbyists and government officials Sept. 28 alone — have become a sore spot with some regulators.
“I want to be professional and polite and courteous, and I’ll let them say their peace,” said Bart Chilton, a member of the Commodity Futures Trading Commission. “But I don’t think it’s a very valuable use of their time or mine, because that is not the direction we were instructed to go by Congress.”
The meetings would normally be cloaked in secrecy. But in keeping with the spirit of financial reform, the Fed, the CFTC and two other agencies have begun disclosing their contacts with lobbyists on the new reform law, providing a rare glimpse behind the curtain.
That glimpse frequently shows companies arguing that their operations shouldn’t be covered by the new regulations, or that the regulations should be narrowly written, according to summaries posted by the federal agencies on their websites.
For example, lawyers for investment firm BlackRock met with CFTC officials Sept. 23 to seek an exemption from new restrictions on the trading of derivatives — or investments whose value is tied to an underlying asset. Otherwise, BlackRock warned, it would “be forced to curtail our client-service activities” according to a document posted in connection with the meeting.
Not all of the meetings involve Wall Street firms. Four executives of Ford’s consumer finance division met with Fed officials Aug. 14, asking that its vehicle loans “be exempt” from rules that are designed to rein in risky lending, according to documents released by the agency.
And the American Petroleum Institute met with Securities and Exchange Commission officials Sept. 27 to argue that new rules forcing oil and mining firms to report payments made to foreign governments “raises significant practicality and cost-benefit concerns by vastly increasing the amount of data that must be reported.”
The names listed most frequently in the logs are Goldman Sachs, with 21 meetings with regulators, and JPMorgan Chase, with 23. Jamie Dimon, chairman and chief executive of JPMorgan, was among those in attendance when a bank contingent met Oct. 8 with Federal Deposit Insurance Corp. Chairwoman Sheila Bair, records show.
In all, regulators have had at least 510 meetings with lobbyists representing 325 organizations since July, according to a Times analysis of meeting logs. That’s when the Fed, the SEC, the FDIC and the CFTC first began keeping the logs on their websites, in the spirit of transparency that was a driving factor for the financial reform law.
Despite taking up 2,319 pages, the Wall Street Reform and Consumer Protection Act left key details to regulatory agencies. Consumer groups applauded the decision to release details of the meetings, saying it provides a rare window into the rule-making process.
“It helps to alleviate the sense that all the important decisions are being made behind closed doors,” said Barbara Roper, the director of investor protection for the Consumer Federation of America.
Regulators, lobbyists and consumer groups could not recall another instance of government agencies listing such meetings. But the lists appear to have attracted scant public notice — and do not appear to have influenced the rule-making process.
“The meetings recently have been like the meetings we have always had,” said Elisse Walter, a member of the SEC.
At the same time, the logs show that consumer interests are heavily outnumbered by Wall Street.
More than 90% of the groups that appear in the meeting logs are banks, hedge funds and other big companies that rely on the financial industry, according to The Times’ analysis. Some worry that the imbalance could affect the rules regulators are drafting to implement the law.
“Clearly the big banks have a ton of money to put toward this battle, and the people who are fighting for reform just don’t have the resources or the people,” said Heather Slavkin, a policy advisor for the AFL-CIO who has attended several meetings with regulators.
Many of the meetings involve arcane facets of the reform law, such as the structure of new trading exchanges that are designed to bring greater transparency to the market for complex securities such as credit default swaps.
Sheila Krumholz, the executive director of the Center for Responsive Politics, is concerned that Wall Street’s voice will be especially powerful in discussions on implementing these measures.
“As you get into the nitty-gritty details there aren’t a lot of people who can give a countervailing argument,” she said.
But what’s hammered out in the meetings probably will affect Main Street as well as Wall Street. The recent financial crisis underscored how even obscure activities can have a momentous effect on the pensions and pocketbooks of all Americans. The unregulated investments that banks made in complex, mortgage-based securities, for instance, eventually vaporized billions of dollars in retirement savings.
In addition, the regulators and lobbyists are discussing a wide variety of consumer-related topics such as debit card fees and retail investment brokers.
Industry officials declined to comment on specific meetings. But in general, finance executives say they are trying to educate regulators about the market segments that will be affected by the law, and they note that several of the meetings were convened at the request of regulators.
“The sheer volume of the number of rules that they need to write here is so much greater than in the past that you’ll see a lot more outreach — and lot more of these meetings and efforts to lobby,” said Robert Pickel, executive vice chairman of the International Swaps and Derivatives Assn.
Wall Street representatives say the risk is that financial reform will put the brakes on the financial recovery.
“The worst-case scenario for the banks is that … we end up with rules that constrain markets, which then impact the economy,” said Tim Ryan, CEO of the Securities Industry and Financial Markets Assn. “There is a big risk here of overshooting the mark.”
The SEC’s Walter said she was bothered by the fact that regulators were not usually good hosts, so she bought a coffee machine for her office for visitors.
“I grew up in a nice Jewish home in New York and if you don’t offer someone a cup of coffee you are kind of a jerk,” Walter said.
Chilton said he is not always so gracious. In one instance he grew frustrated after seeing the same law firm three times in two weeks — representing three different financial companies but making the same case each time.
“I have to say, the third time I had the meeting my attention span was dwindling,” Chilton said. “I want to know how to make this work, and get useful information about how to go forward — not fight battles that they’ve already lost on Capitol Hill.”
Times staff writer Thomas Suh Lauder contributed to this report.