On Wednesday, the House Financial Services Committee is expected to approve the final piece of a package to overhaul the U.S. financial system. Approval would put the full House on track to debate the bill and vote on it next week. But slower progress in the Senate may push the overhaul effort well into next year.
The final piece expected from the House committee would, among other things, create an oversight council to monitor threats to the financial system. It would give greater power to the Federal Reserve to limit the risks financial firms take, and it would provide a way to safely wind down large firms that fail. It would also subject the Fed to greater congressional scrutiny.
Despite the progress the House has made, there's still a lot more to do, said Assistant Treasury Secretary Michael Barr.
"There's a danger that the public and the Congress forget the urgency of reform," he said.
The impressive rally in the stock market is one thing that could cause complacency and delay action. But Barr warns that there won't be a sustainable financial recovery until Washington puts in place new rules of the road.
"And we don't have those now," he said. "We still have today the system that caused the collapse of our financial system."
Changing The Rules
But Travis Plunkett of the Consumer Federation of America says the House is well on the way to changing that.
"Certainly the House is poised to pass a piece of legislation that overall is very strong for consumers and for financial protection," he said.
Plunkett especially likes the new Consumer Financial Protection Agency proposed by the administration and approved by the Financial Services Committee in October. It will be part of the big financial overhaul bill that will likely go to the House floor next week. Plunkett says his group would like to see the bill strengthened in several areas, including oversight of auto loans and regulations of derivatives.
In a phone conversation with NPR, House Financial Services Committee Chairman Barney Frank said he'd like to see that, too, and expressed confidence that that could happen on the House floor. The Massachusetts Democrat said he expects the House to pass its financial regulatory package by the end of the year.
But the Senate is a different story. "There be dragons," Frank said, in a reference to the notations on unexplored territories of ancient maps. Plunkett agrees.
"The last potential roadblock for sweeping financial regulatory reform is action in the Senate," Plunkett said.
Hurdles In The Senate
The roadblock became apparent during a meeting of the Senate Banking Committee two weeks ago. It was the first discussion of a Senate draft put together by the committee's chairman, Christopher Dodd of Connecticut. During the meeting, the ranking Republican on the committee, Richard Shelby of Alabama, made clear in an 18-minute speech that he was conceptually opposed to Dodd's bill, particularly the creation of a new Consumer Financial Protection Agency. That's something that the financial industry opposes, too, but Barr makes clear that it's a priority for the Obama administration.
"I think this is something that we've got to fight for," he said. "I think that it's outrageous that you've got Wall Street firms and lobbyists arguing against basic fundamental protections for consumers. It's just outrageous."
Industry representatives say they're for consumer protections — just not for another regulatory agency. Dodd has asked bipartisan groups of senators on his committee to come up with an approach on this and a number of other issues that could get Republican support.
Despite the hurdles, former investment banker Douglas Elliott is optimistic.
"I personally think financial reform is on a realistic track," he said.
Elliott, now a fellow at the Brookings Institution, thinks Congress will manage to achieve about two-thirds of what ought to be done.
"I think we're going to have quite significant financial reform, and I think it will mostly be right, and it will move us most of the way to where we want to be, which for something this complicated and politicized in our system is very difficult to achieve," he said.
But Elliott doesn't think this will happen quickly. He predicts the task will drag on well into next year.