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Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, wanted Congress to pass an overhaul of banking regulations by May. He talks with Elizabeth Warren, who chairs the Congressional Oversight Panel, at a July 22 hearing.
Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, wanted Congress to pass an overhaul of banking regulations by May. He talks with Elizabeth Warren, who chairs the Congressional Oversight Panel, at a July 22 hearing. Brendan Hoffman/Getty Images
As the global economy continues its slow climb out of last fall's economic crisis, many in Congress and the U.S. agree it's time to rework the laws that govern financial institutions. The debate is reminiscent of the current fight over health care, with many calling for change but few agreeing on what the new laws should look like.
The original plan for overhauling market regulations called for finishing the job by May. Adam Davidson, an economics correspondent with NPR's Planet Money, notes that the Obama administration didn't present a plan until June. "Now people are saying the July deadline that some had imposed is clearly not going to be met," Davidson says, "and we're lucky to get anything on the president's desk by the end of the calendar year."
Despite the delay, Davidson tells Linda Wertheimer that he has been shocked by how much agreement exists across party lines and among outside economists on the general outlines of reform. "They want financial institutions that innovate, that can create new financial products, where people can take real risk and get real rewards without damaging the rest of us," he says. Lawmakers and policy types alike want to avoid a repeat of 2008, when regular citizens had to bail out foundering banks. Davidson says there's a "huge base" of agreement even on particular pieces of an overhaul, including changes to bankruptcy laws.
But remember, this is Congress, Davidson says, so there's plenty left to fight over — starting with territory. Regardless of party affiliation, individual lawmakers might feel loyal to the Office of the Comptroller of the Currency or the Federal Reserve, for example, and want their favorite agency to retain all of its regulatory power. "The idea which was once discussed of just a clean brush, we're going to just start from scratch, that's looking really difficult," he says.
America's age-old split between large urban banks and small rural ones continues to this day, Davidson reports, and that's also slowing the process of regulatory reform. He says lawmakers tend to divide along party lines when it comes to the nuances, like how big a role the government should play in the economy. Republicans tend toward more market-oriented solutions, while Democrats lean toward more regulation.
"How is this going to affect the powers of the big agencies, like the Fed?" Wertheimer asks.
"I'd say the role of the Fed is probably the single most important, significant and hotly debated issue," Davidson says. "There's people who say, 'Hey, look, the Fed saved our system. They're the ones who had the best regulation. They're the ones who came in and rescued these banks. We need to give the Fed a lot more power. They need to be our systemic regulator, overseeing the whole system.'
"Others say, 'Wait a second — the Fed's job is monetary policy, basically figuring out how many dollars there should be in the world, and they messed that up really badly.' " Davidson explains that critics, especially in the Senate, argue that the Federal Reserve caused the crisis by keeping interest rates too low in 2003 and fueling a bubble in the housing market.
Deciding which agency will get to oversee the entire financial system promises to be a huge battle in the months to come, Davidson says. He advises watching for the response from the banking lobbies. If bankers like a particular measure, that might give consumer groups pause, and vice versa. As the process continues over the next few months, he says, he will follow whether congressional leaders manage to keep the "broad base of consensus" intact.
If they can't, the debate will "become, frankly, more like what we're seeing in health care already — a lot of different interest groups screaming for their little piece of the pie," Davidson says. "That implies that we'll get more of a patchwork system than a real visionary overhaul of our system."