Steep climb ahead for U.S. financial reforms

By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration and congressional Democrats got a clear view on Tuesday of the uphill political path they face in pushing for tighter regulation of U.S. banks and financial markets.
With the economy showing some signs of recovery, Treasury Secretary Timothy Geithner told a Senate committee that President Barack Obama next week will unveil his long-awaited plan for sweeping financial regulation reform.
Targeting not only banks and markets for change, but also executive pay, hedge funds and so-called "systemic risk" to the economy, the Obama plan has been evolving for six months.
Some of its most ambitious proposals have softened amid aggressive lobbying by the financial services industry and intractable political realities in Congress.
A key pullback involves monitoring systemic risk, which Geithner said on Tuesday will not be concentrated at the Federal Reserve, but may fall to a council of regulators.
Minutes after Geithner spoke, Senate Banking Committee Chairman Christopher Dodd said healthcare issues will take priority for now over financial reforms, which he said he may not take up until after Congress' August recess.
He said he remains committed to sending a financial regulation package to the White House by the end of 2009, a goal set by Obama.
In the meantime, Republicans plan soon to unveil a counter-proposal to the Obama plan, with some proposals that are more modest, possibly undercutting support on Capitol Hill for the administration's program.
"Regulatory reform will center mostly on turf fights and political infighting," said Jaret Seiberg, financial services policy analyst at research firm Concept Capital.
"The odds are less than one-in-five that a massive financial reform bill will be enacted."
If past problems such as the savings-and-loan crisis of 1989-1990 could not trigger comprehensive reform, he said, "No crisis is likely to overcome the entrenched interests that favor the status quo. Yet we do believe the odds are north of 75 percent for more limited reform.
"Either way, this fight is going to dominate the headlines through the mid-term election."
OTC DERIVATIVES DEBATED
For instance, the administration on May 13 proposed a crackdown on the unregulated over-the-counter (OTC) derivatives market. Exotic financial instruments traded in that market, such as credit default swaps, have been widely implicated in the global credit crisis that brought down firms such as Lehman Brothers and American International Group.
The administration wants to push more trading in OTC derivatives onto exchanges and central clearinghouses, while some Democrats in Congress have proposed moving the entire market onto more transparent and accountable platforms. Continued...
Source: Reuters