A chart buried in the Congressional Oversight Panel report released Tuesday explains one of the reasons why a compromise on a financial regulatory reform bill struck by the White House, the House Democratic leadership and a group of conservative Democrats is so wrong-headed and potentially dangerous.
The compromise, as reported by Politico and The Hill, would weaken the ability of states to rein in financial institutions, standing in the gap when federal regulators are failing to adequately protect the interests of consumers. Why would a group of Democrats fight to keep states out of the banking regulation business? Here’s a clue:
The top four banks—Citibank, Bank of America, Chase and Wells Fargo—have grown dramatically larger in the past two years and now control roughly one-third of all bank deposits. They, along with their competitors, also happen to have spent at least $37 million this year lobbying members of Congress to vote against the financial reform bill that is on the House floor today. That legislation would not only create a federal Consumer Financial Protection Agency, but it would also have in its original form given states the ability to go above and beyond federal law when necessary to protect consumers from the predatory practices of financial institutions.
Rep. Melissa Bean, D-Ill., who has assumed the role of Wall Street’s favorite Democrat in recent weeks, led a group of so-called “New Democrats” in blocking debate on the financial reform bill, hoping to get state preemption totally stripped from the bill. The behemoth banking institutions hate answering to state regulators, preferring the cozy relationships they’ve had with the Wall Street-rooted financial agencies in Washington. Two of of the top four banks in the above chart, Chase and Bank of America, are among Bean’s biggest political contributors.
According to news reports, Bean got much of what she wanted. Financial Services Committee Chairman Rep. Barney Frank told The Hill newspaper that the amendment they won the right to place on the floor is “neither no preemption or total preemption. It’s somewhere in the middle.”
“Somewhere in the middle,” however, may not be good enough for rogue financial institutions who can use their size and market power in ways that harm millions of consumers and endanger the economy—especially when a state attorney general may be better equipped than a regulator in Washington to spot a problem and respond.
Americans for Financial Reform sent a letter to members of Congress on Tuesday that stressed that federal regulation should be a floor, not a ceiling, for financial industry regulation. That letter also urged a no vote to an amendment by another conservative Democrat, Walt Minnick of Idaho, that would take the Consumer Financial Protection Agency language out of the bill.
The vote on that amendment, though likely to be defeated, is one to watch. Few votes will better define which lawmakers stand with ordinary Americans and which ones stand with the Wall Street traffickers of moral hazards than the vote on the Minnick amendment.