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Financial Leaders Expect Shift of Power After Elections

Nelson D. Schwartz|The New York Times
Tuesday, 2 Nov 2010 | 8:28 AM ET

The most powerful executives in the banking industry didn’t go to the government. The government came to them.

Ben S. Bernanke, the chairman of the Federal Reserve; Timothy F. Geithner, the Treasury secretary; and regulators like Mary L. Schapiro of the Securities and Exchange Commission and Gary Gensler of the Commodity Futures Trading Commission made their way last month to a room called the Nest at the Willard InterContinental Hotel in Washington. There, the members of a group called the Financial Services Forum awaited them.

The event with the forum, which is composed of chief executives, underscored how influential banks, brokerage firms and insurance companies remain in Washington, despite all the critical campaign rhetoric from the White House, Capitol Hill and other quarters.

And Tuesday’s midterm electionsare likely to leave them in an even stronger position, blunting the most serious overhaul of financial regulations since the Great Depression.

The widely expected prospect of a Republican takeoverof the House of Representatives and possibly the Senate would be warmly welcomed by the banks, who want a break from the regulatory push of the last two years. Divided government makes it harder to pass new legislation and brings with it other benefits for the banks, like reducing the chances of an increase in corporate taxes.

“At this juncture, gridlock is good,” said Richard Hunt, president of the Consumer Bankers Association. “It’s time we take a breather from all the excess of regulation and Congressional legislation. Our members and customers are ready for common sense to reappear.”

A Republican victory would also shift control of the oversight and appropriations process in Congress, and lobbyists are hoping that means less money for agencies like the SEC and the CFTC to hire staff and aggressively enforce the Dodd-Frank financial regulatory reform bill passed this summer.

While that bill is already law and a rollback would be tough, other attempts at an end-run around it are likely, especially if the Senate also switches hands. In that case, Republicans could block appointees the industry considered hostile at the Treasury, as well as at the SEC and CFTC Nominees for two of the five commissioner’s seats at the SEC will require approval by the Senate during the next session, while the term of one commissioner at the five-member CFTC expires.

In addition, analysts and lobbyists say a Republican-controlled Congress may be less likely to investigate industry practices or hold oversight hearings that may embarrass the industry.

While that won’t affect hearings like ones set for later this month in the Senate that will examine the foreclosure mess, it makes them much less likely in the next Congress. “It changes the tone in Washington,” one industry lobbyist said. “If a regulator knows they’re going to get yelled at on Capitol Hill, that influences their decisions.”

Federal policy is likely to loom larger as the foreclosure crisis goes on — the majority of those foreclosed homes are owned by Fannie Mae and Freddie Mac, the government-sponsored enterprises that dominate the mortgage market and are now controlled by the Treasury. What is more, some Democrats who have called for a moratorium on foreclosures, like Senator Harry Reid, a Nevada Democrat who is the Senate majority leader, are facing tough re-election fights and their exit could be a boon for the banking industry.

Indeed, campaign donations from the financial industry in recent months have heavily favored the Republicans. In September, 71 percent of campaign donations went to Republicans, compared with 44 percent a year ago, according to the Center for Responsive Politics, a nonpartisan research group.

“It’s a dramatic shift and there’s little irony that it coincided with Democratic-led financial reform,” said Dave Levinthal, communications director for the Center for Responsive Politics. “The industry wasn’t at all thrilled with this legislation and since Democrats were driving it, they had an incentive to put their money with the party that might give them a more favorable shake in coming years.”

A shift in party control could also alter the rhetoric coming out of the capital. On Wall Street, there is a feeling among many executives that the White House has demonized the big banks — and that complaint surfaced repeatedly at the Financial Services Forum event, as well as at one-on-one meetings in the last two months, according to several participants.

Jamie Dimon, the chairman and chief executive of JPMorgan Chase and Lloyd C. Blankfein, head of Goldman Sachs, spoke the most, said one participant, although other top chief executives were present, including Brian T. Moynihan of Bank of America, Oswald J. Grübel of the Swiss bank UBS and Abigail Johnson of the mutual fund giant Fidelity Investments.

There are lighter moments during the meetings, as well. At a Washington get-together earlier this year, Mr. Dimon teased Mr. Blankfein, repeating the latter’s famous remark that he “was doing God’s work.” A jovial Mr. Blankfein responded, “I’ll be the judge of that.”

"The intersection of Washington and the financial services sector has never been as important as it is now."" -Financial Services Forum, Rob Nichols

Mr. Dimon and Mr. Blankfein aren’t the only executives to occasionally lighten the mood. Before Mr. Geithner addressed the Financial Services Forum last month, the chief executive of the American International Group, Robert H. Benmosche, joked that he had nothing to say. “I’m just going to sit back and listen to my largest shareholder,” he said, a reference to the 79.9 percent stake the government holds in AIG after its bailout by Washington.

While top government officials may occasionally come to them for group sessions like the Financial Services Forum, executives have also spent plenty of time recently calling on them individually at their offices.

Unlike some other bank chiefs who left after the Financial Services Forum meeting wrapped up, Mr. Dimon stayed in Washington, meeting privately Oct. 8 with Elizabeth Warren, who was appointed in September to lead the new Consumer Financial Protection Bureau. They discussed eliminating the fine print from credit card offers and streamlining mortgage disclosures so consumers would have a better idea of the exact terms of their loans.

A month earlier on Sept. 15, Mr. Dimon met privately with Mr. Bernanke at the Federal Reserve, as did Mr. Moynihan, who sat down on Sept. 3 for a 30-minute meeting to discuss the economy.

More recently, on Oct. 13 and Oct. 14, the president of Goldman Sachs, Gary Cohn, met with officials at the CFTC to go over the rulemaking process, touching on subjects like reporting requirements for trades as well as limits on trading.

“The intersection of Washington and the financial services sector has never been as important as it is now,” said Rob Nichols, president of the Financial Services Forum. “It’s critical to have a seat at the table and participate in a dialogue.”

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