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Washington Rule Makers Out of the Shadows

Federal rule makers, long the neglected stepchildren of Washington bureaucrats, suddenly find themselves at the center of power as they scramble to work out details of hundreds of sweeping financial and health care regulations that will ultimately affect most Americans.

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In Bethesda, Md., more than 200 health regulators working on complicated insurance rules have taken over three floors of a suburban office building, paying almost double the market rate for the space in their rush to get started.

Executives from the U.S. Chamber of Commerce have been meeting almost daily with financial rule makers to air concerns about regulations they say threaten to curtail commerce.

And at the White House, senior officials receive several status reports a week on a process that all sides agree has vast implications for the country as a whole and for the Obama administration’s political fortunes.

The boom in rule-making — the bureaucratic term for the nitty-gritty of drafting regulations — is a result of the mega-bills approved by Congress this year at the urging of President Obama: the health care bill signed into law in March, and the financial overhaul law signed in July.

“There has never been a period like what we are going through now, in terms of the sheer volume and complexity of rule-making,” said Paul Dennett, senior vice president of the American Benefits Council, a trade group for large employers.

And what was already shaping up as a rancorous lobbying battle over the rules is likely to become more contentious when Republicans take control of the House, having been swept to power on a pledge to influence health care and financial regulation.

At the very least, Republicans will be able to hold public hearings to spotlight financial regulations they see as too restrictive and health care rules they see as too disruptive, and they could pressure regulators to soften them.

The debate over federal spending has already slowed the development of financial rules, as hundreds of new rule-making positions have gone unfilled because of a lack of new financing.

Congress provided a road map for measures aimed broadly at getting more Americans covered by health insurance and providing more federal safeguards against risky financial practices. But the laws were so broad and complex that executive-branch regulators have wide leeway in determining what the rules should say and how they should be carried out.

In all, the bills call for drafting more than 300 separate rules on a rolling schedule by about 2014, plus dozens of other studies and periodic reports. That may be only the beginning. A recent report from the Congressional Research Service said the publication of rules under the health care law could stretch out for decades to come.

Regulators at various agencies are trying to answer questions like these:

  • How much should a credit-card company be able to charge a shopkeeper for administrative fees when you swipe your card for a purchase?
  • Which types of financial companies are so “systemically important” to the overall economy that they should be subject to greater federal oversight?
  • What services must be covered by all insurers as part of the “essential health benefits” package? And at what point would an increase in an insurer’s premiums be considered so “unreasonable” that state and federal regulators could step in?

These and many other questions are now in the hands of government lawyers, doctors, bankers, accountants, actuaries and other regulatory specialists. With the rules spread across agencies, no one is certain how many employees are working on them, but the number is certainly in the hundreds or higher.

At the Federal Reserve, for instance, most of more than 50 lawyers in the legal division are now spending significant parts of their days on rule-making issues, like the question of how to carry out and enforce the so-called Volcker Rule, named for Paul A. Volcker, the former Fed chairman, restricting banks from making certain types of speculative investments.

No longer are these considered arcane questions that draw scrutiny only from the few Washingtonians who read the “notices of proposed rule-making” in the Federal Register.

These days, the rule makers are attracting attention from Congressional officials, industry advocates and lobbyists, with dozens of executives from firms like Goldman Sachs, Mastercard, JPMorgan Chase and Credit Suisse meeting with federal regulators recently to give input on specific rules and try to influence the outcome, according to public online postings by federal regulators on many of the meetings.

“I wake up in the morning thinking about this stuff, and I go to sleep at night thinking about it,” said Tom Quaadman, a senior Chamber of Commerce executive who is leading a group of 10 staff members seeking to shape the financial rules.

The discussions are in the early stages.

But though all sides talk of finding consensus, conflicts have emerged.

The Chamber of Commerce and the Business Roundtable, made up of leading chief executives, are suing the Securities and Exchange Commission, arguing that a rule giving proxy access on corporate boards to small shareholders did not get a proper review and would undermine companies.

When these issues still rested with Congress this year, the chamber spent millions on glitzy advertisements opposing the health care and financial regulation. The chamber does not plan anything so showy as the debate shifts to the regulatory agencies, but is bracing for a long fight filled with low-key meetings and court filings.

A former S.E.C. official complains

“It’s a substantial amount of resources we’ve brought to bear on this,” Mr. Quaadman said. “We’ve always seen this as being a marathon. This is a process that’s going to take years, and this is the start of the race.”

The Consumer Financial Protection Bureau, created by Congress as part of the financial overhaul, has been the target of particularly intense lobbying, with industry representatives and consumer advocates trying to shape the agency’s structure and mission.

"It’s very bad for the markets to do it this way, and it’s bound to have an impact on how things come out." -Former SEC official, Annette Nazareth

Questions about the agency’s allegiances have already arisen, however, after it was disclosed that Elizabeth Warren, the White House aide chosen to start up the agency, had worked as a consultant on a lawsuit involving major banks and credit-card companies and that one of her senior aides had worked previously at a mortgage company with a spotty record.

So far, health care regulators have a head start on their financial counterparts. They not only started the process four months earlier when the health care bill passed Congress, but they also have the advantage of already securing start-up funds for rule-making personnel and office space.

In Bethesda, health care officials are leasing more than 70,000 square feet of space on three floors of an office building for about 230 employees to work on rule-making and other duties. The government agreed to pay $51.41 per usable square foot of space, compared with an average of $27 in Bethesda, because it wanted to get the operation running in July, officials said.

In contrast, financial regulators have been unable to get new financing for hundreds of additional rule makers because Congress has not yet passed a budget, and they are largely making do by reassigning existing staff members. Officials at agencies like the Commodity Futures Trading Commission, which is responsible for drafting more than 60 rules, are warning that there is an urgent need for the money.

Annette L. Nazareth, a former S.E.C. official who now represents financial clients before rule makers as a lawyer for the firm of Davis Polk, said short staffing and “wildly unrealistic” deadlines set by Congress threatened the entire process.

“These regulators are overwhelmed, and this stuff is being churned out on issues that are enormously complex,” Ms. Nazareth said. “It’s very bad for the markets to do it this way, and it’s bound to have an impact on how things come out.”